Organizations other than credit institutions facing difficulties in determining deductible expenses for CIT in relation to loan interest, correct?
Expenses deductible and non-deductible when determining current CIT taxable income?
The deductible and non-deductible expenses when determining current CIT taxable income under Article 9 of the Law on Corporate Income Tax 2008 (amended and supplemented by Clause 5, Article 1 of the 2013 Amended Law on Corporate Income Tax) include:
(1) Except for the expenses stipulated in (2) of this section, enterprises are allowed to deduct all expenses when determining taxable income if they meet the following conditions:
- The actual expenses incurred related to the enterprise's production and business activities; expenses for vocational education activities; expenses for performing the national defense and security tasks of the enterprise as prescribed by law;
- The expenses must have sufficient invoices and documents as prescribed by law. For invoices for goods and services purchased each time with a value of twenty million dong or more, there must be non-cash payment documents, except in cases where non-cash payment documents are not required as per the law.
(2) Non-deductible expenses when determining taxable income include:
- Expenses that do not meet the conditions stipulated in Clause 1 of this Article, except for the value of losses due to natural disasters, epidemics, and other force majeure cases that are not compensated;
- Fines for administrative violations;
- Expenses covered by other funding sources;
- The portion of business management expenses allocated by foreign enterprises to their permanent establishments in Vietnam exceeding the prescribed allocation method as per Vietnamese law;
- The portion of expenses exceeding the provisions of the law on setting aside reserves;
- Interest on loans for production and business from entities that are not credit institutions or economic organizations exceeding 150% of the basic interest rate announced by the State Bank of Vietnam at the time of borrowing;
- Depreciation of fixed assets not in accordance with the law;
- Provisions not in accordance with the law;
- Salaries, wages of private enterprise owners; remuneration for enterprise founders not directly involved in production and business management; salaries, wages, other recorded expenses for employees but not actually paid or without invoices, documents as prescribed by law;
- Interest on loans corresponding to the unpaid capital portion;
- Value-added tax input that has been deducted, value-added tax paid under the deduction method, corporate income tax;
- The portion of advertising, marketing, promotions, brokerage commissions, reception, anniversary, conferences, marketing support, related costs for production and business exceeding 15% of total deductible expenses.
The total deductible expenses do not include the expenses stipulated in this point; for commercial activities, the total deductible expenses do not include the purchase price of the sold goods;
- Sponsorships, except for sponsorship for education, healthcare, scientific research, disaster recovery, building solidarity houses, gratitude houses, houses for policy beneficiaries as prescribed by law, sponsorship according to the State's program for localities in areas with special socio-economic difficulties;
- Contributions to voluntary retirement funds or social security funds, purchase of voluntary retirement insurance for employees exceeding the prescribed level as per the law;
- Expenses of specific business activities: banking, insurance, lottery, securities, and some other specific business activities as stipulated by the Minister of Finance.
(3) Expenses in foreign currency deductible when determining taxable income must be converted into Vietnamese dong at the average trading exchange rate on the interbank foreign exchange market announced by the State Bank of Vietnam at the time of the foreign currency expense arising.
Are non-credit institutions facing difficulties in determining deductible expenses for CIT on loan interest?
Are non-credit institutions facing difficulties in determining deductible expenses for CIT on loan interest on borrowed funds?
In the Explanatory Report of the Draft Amended Law on Corporate Income Tax, the Ministry of Finance highlights the practical difficulties in applying the regulation on loan interest expenses for entities that are not credit institutions or economic organizations. To be specific:
According to point e, Clause 2, Article 9 of the Law on Corporate Income Tax 2008 (amended and supplemented by Clause 5, Article 1 of the 2013 Amended Law on Corporate Income Tax): “Interest on loans for production and business from entities that are not credit institutions or economic organizations exceeding 150% of the basic interest rate announced by the State Bank of Vietnam at the time of borrowing” is not included in deductible expenses when determining taxable CIT income.
This regulation was issued based on Article 476 of the Civil Code 2005 which states: “Loan interest rates agreed upon by the parties must not exceed 150% of the basic interest rate announced by the State Bank for corresponding loan types.”
However, in reality, according to the regulations of the Law on Credit Institutions, the State Bank of Vietnam no longer announces the basic interest rate as before.
In addition, upon reviewing current related legal regulations, Article 468 of the Civil Code 2015 (replacing the previous Civil Code 2005) stipulates: “The agreed loan interest rate between the borrowing and lending parties must not exceed 20% per year of the loan amount.”
This regulation has led to difficulties in determining the portion of interest on loans from entities that are not credit institutions or economic organizations that can be included in deductible expenses when calculating CIT.
Therefore, it is necessary to amend this regulation to align with the Civil Code and the Law on Credit Institutions.
Proposal to supplement deductible and non-deductible expenses when determining CIT taxable income?
In the Explanatory Report of the Draft Amended Law on Corporate Income Tax, the Ministry of Finance has suggested as follows:
Article 9 of the Law on Corporate Income Tax 2008 (amended and supplemented by Clause 5, Article 1 of the 2013 Amended Law on Corporate Income Tax) stipulates the deductible and non-deductible expenses when determining CIT taxable income. Clause 1 sets out the principles for deductible expenses, and Clause 2 lists non-deductible expenses when determining CIT taxable income, ensuring compatibility with Vietnamese practice and international norms.
However, through the opinions of ministries, sectors, and localities and the actual implementation in recent periods, it has been shown that regulations related to determining deductible and non-deductible expenses have also arisen certain difficulties and inadequacies that need to be studied for amendment and supplementation or require legal formalization of sub-law provisions to ensure legal consistency and stability of the tax policy system.
In light of these difficulties, the Ministry of Finance proposes to supplement the regulations on deductible or non-deductible expenses for certain expenses arising in recent practice such as:
- Value-added tax on goods and services input directly related to the production and business of enterprises that have not been fully deducted but do not meet the conditions for tax refund;
- Expenses for supporting, sponsoring activities in epidemic prevention, combating, and remediation;
- Salaries, wages of the owner of a one-member limited liability company (owned by an individual);
- Contributions to additional voluntary retirement funds;
- Expenses not in accordance with related laws;
- Loan interest expenses for specific projects in line with practical situations.
See the entire Explanatory Report of the Draft Amended Law on Corporate Income Tax here:Download
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