What are Fixed Assets? Are Enterprises Allowed to Deduct Fixed Asset Expenses When Determining Taxable Business Income?
What is considered a fixed asset?
Currently, Vietnamese law does not provide a specific definition of fixed assets. However, according to the general provisions in Clauses 1, 2, 3, and Clause 4 Article 2 of Circular 45/2013/TT-BTC regarding each type of fixed asset as follows:
- Tangible fixed assets: are primary production materials with a physical form that meet the criteria for tangible fixed assets, participating in multiple business cycles while maintaining their original physical form, such as buildings, architectural structures, machinery, equipment, means of transport...
- Intangible fixed assets: are assets that do not have a physical form but represent an invested value that meets the criteria for intangible fixed assets, participating in multiple business cycles, such as certain expenses directly related to land use; costs of issuance rights, patents, copyrights...
- Financially leased fixed assets: are fixed assets that enterprises lease from financial leasing companies. At the end of the lease term, the lessee has the right to choose to purchase the leased asset or continue leasing it under the conditions agreed upon in the financial lease contract. The total rental of an asset specified in the financial lease contract must be at least equivalent to the value of that asset at the time of contract signing.
Any leased fixed asset that does not meet the above provisions is considered an operationally leased fixed asset.
- Similar fixed assets: are fixed assets with similar applications in the same business field and equivalent value.
What is a fixed asset? Can enterprises deduct fixed asset expenses when determining taxable corporate income?
Can enterprises deduct fixed asset expenses when determining taxable corporate income?
According to the provisions of Clause 1 Article 6 of Circular 78/2014/TT-BTC (amended and supplemented by Clause 2 Article 5 of Circular 119/2014/TT-BTC) on deductible expenses when determining taxable income as follows:
Deductible and non-deductible expenses when determining taxable income
1. Except for non-deductible expenses stated in Clause 2 of this Article, enterprises are allowed to deduct all expenses if they satisfy the following conditions:
a) The expense actually arises in relation to the enterprise's production and business activities.
b) The expense has sufficient lawful invoices and documents as prescribed by law.
c) If the expense involves an invoice for goods and services valued at VND 20 million or more (inclusive of VAT) per occurrence, it must be paid by non-cash payment method.
Non-cash payment documents are implemented in accordance with the provisions of the legal documents on value-added tax.
According to these regulations, the expenses of enterprises that meet the above conditions will be deductible when determining taxable corporate income.
At the same time, Official Dispatch 51875/CTHN-TTHT in 2022 guides on this content as follows:
Companies are allowed to deduct all expenses when determining taxable corporate income if they meet the conditions guided in Clause 1 Article 4 of Circular 96/2015/TT-BTC.
Sub-clause 2.2 Clause 2 Article 6 of Circular 78/2014/TT-BTC (amended supplemented by Article 4 of Circular 96/2015/TT-BTC) stipulates non-deductible depreciation expenses for fixed assets when determining taxable income, including:
- Fixed assets not used for the production, business of goods, and services.
- Fixed assets without documentation proving ownership by the enterprise (except financially leased fixed assets).
- Fixed assets not managed, recorded, and accounted for in the enterprise's accounting books according to current fixed asset management and accounting policies.
- Depreciation exceeding the current regulations of the Ministry of Finance regarding policies on management, use, and depreciation of fixed assets.
- Fully depreciated fixed assets.
- Certain specific fixed assets not deductible when determining taxable income as specified in Point e Sub-clause 2.2 Clause 2 Article 6 of Circular 78/2014/TT-BTC (amended supplemented by Article 4 of Circular 96/2015/TT-BTC).
How is taxable income of enterprises determined?
According to the provisions of Clause 2 Article 4 of Circular 78/2014/TT-BTC (amended by Article 2 of Circular 96/2015/TT-BTC) regarding the determination of taxable corporate income as follows:
- Taxable income in the tax period includes income from the production, business of goods and services, and other income.
- Taxable income in the tax period is determined by the following formula:
In which, income from the production and business of goods and services equals the revenue of the production and business of goods and services minus deductible expenses of the production and business of goods and services. Enterprises with multiple production and business activities applying different tax rates must separately calculate the income of each activity multiplied by the corresponding tax rate.
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