Vietnam: What is the concept of gross profit? What is the calculation of gross profit? What is the meaning of gross profit?
What is the concept of gross profit in Vietnam?
Gross profit is the profit after deducting the costs related to the production and sale of products/services from the revenue source of the enterprise. Gross profit is calculated by the net revenue subtracting the cost of goods sold. These figures can be found on the enterprise's income statement.
The gross profit is used for evaluating the performance index of business activities in the enterprise, such as data and parameters in the enterprise’s financial statements.
Gross profit often appears on the enterprise's income statements and reports. Depending on each mode of production, there are different types of labor costs such as:
- The actual purchase costs of raw materials including transport costs
- Labor costs
- Losses
- Costs for transporting products (warehousing costs, production costs at stages,...)
The price of the finished product is all costs at the end of the production process. It includes the costs for retention of finished products in warehouses at the beginning of the period and production during the period.
Gross profit margin is an indicator used to evaluate an enterprise's business model and financial health by revealing the amount remaining from revenue after subtracting the cost of goods sold.
What is the calculation of gross profit in Vietnam?
Gross profit will appear on the enterprise's income statement and can be calculated by subtracting the cost of goods sold from revenue. These figures can be found on the enterprise's income statement.
The formula for calculating gross profit is as follows:
Gross profit = Net revenue - Cost of goods sold
In particular, net revenue is calculated by the formula:
Net Revenue = Revenue - Revenue deductions
Cost of goods sold: This is an indicator showing all direct costs, used to produce goods/services sold by the enterprise. The cost of sales portion does not include business management costs and selling costs.
Net revenue: An indicator showing the total revenue of the enterprise collected from sales and service provision activities after deducting revenue deductions.
Revenue deductions: These are items that make net revenue or revenue from sales and service provision of the enterprise. Sales deductions include discounts, recalls, sales discounts,...
What is the meaning of gross profit?
Through gross profit, enterprises can evaluate the efficiency of the production and trading process of goods and services. However, since the production and business process consists of many components and many stages, enterprises must be very careful and thorough when calculating gross profit, avoiding confusion between profit and loss
If they are small traders engaged in business without clear organizational structure and orientations, they must record specifically each type of cost and their role to help traders accurately assess the performance, thereby, helping to control costs and make the right business strategies.
Gross profit is considered a measure of the success of an enterprise, so it greatly impacts the decision to scale. With the collected data, enterprises will conduct appropriate distribution of costs, well control gross profit, thereby attracting investors.
This is also the basis for evaluation and comparison with competitors. If the enterprise has a higher gross profit than its peers, this indicates that the financial health is very good.
Are incomes from capital investment subject to PIT in Vietnam?
Under the provisions in Clause 3, Article 2 of Circular 111/2013/TT-BTC amended by Clause 6, Article 11 of Circular 92/2015/TT-BTC:
Taxable incomes
According to Article 3 of the Law on Personal income tax and Article 3 of the Decree No. 65/2013/ND-CP , the incomes subject to personal income tax (hereinafter referred to as taxable incomes) include:
...
3. Incomes from capital investment
Incomes from capital investment are personal income in the form of:
a) Interest on the loans given to other organizations, enterprises, business households, business individuals and groups of business individuals according to loan contracts or agreements, except for the interests paid by credit institutions and branches of foreign banks according to Point g.1 Clause 1 Article 3 of this Circular.
b) The dividends earned from capital contribution to purchase of shares.
c) Profits from capital contributions to limited liability companies, partnerships, cooperatives, joint-ventures, business cooperation contracts, and other forms of business under the Law on Enterprises and the Law on Cooperatives; profits from capital contribution in establishment of credit institutions according to the Law on credit institutions, capital contributions to securities investment fund and other investment funds that are established and operated within the law.
Profits from capital investment of private companies and single-member limited liability companies under the ownership of individuals shall not be included in taxable income.
d) The added value of capital contribution received when the enterprise is dissolved, converted, divided, split, merged, amalgamation, or upon capital withdrawal.
dd) Incomes from interest on bonds, treasury bills, and other valuable papers issued by Vietnamese organizations, except for the incomes defined in Point g.1 and g.3 Clause 1 Article 3 of this Circular.
e) The incomes from capital investment in other forms, including capital contribution in kind, by reputation, rights to use land, patents.
g) Incomes from dividends paid in bonds, incomes from reinvested profit.
Thus, incomes from capital investment are subject to PIT in Vietnam.
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