Can financial supports for disaster recovery be entitled to deduction upon determination of taxable incomes of the business in Vietnam?

Can financial supports for disaster recovery be entitled to deduction upon determination of taxable incomes of the business in Vietnam?

In Article 9 of the 2008 Law on Corporate Income Tax, which was amended and supplemented by Clause 5, Article 1 of the 2013 Law on Corporate Income Tax, and Clause 4, Article 1 of the Law on Amendments to the Tax Laws of 2014 stipulating deductible and non-deductible expenses upon determination of taxable incomes as follows:

2. Non-deductible expenditures when calculating taxable income:

a) The expenditures that fail to meet all conditions in Clause 1 of this Article, except for the loss cause by natural disasters, epidemics, and other force majeure that are not compensated.

b) Fines for administrative violations;

c) The expenditures that are covered by other budgets;

d) The administrative expense allocated by the foreign enterprise to the permanent establishment in Vietnam that exceeds the limit imposed by Vietnam’s law.

dd) The extra expenditure according to the laws on making provision;

e) The expenditure on interest on loans that are not given by credit institutions or economic organizations and exceed 150% of basic interest rates announced by the State bank of Vietnam when the loan is taken.

g) Improper depreciation of fixed assets;

h) Improper accrued expenses;

i) Wages and remunerations of owners of private enterprises; wages of founders that do not participate in business management; wages, remunerations, and amounts payables to the employees that are not actually paid or do not have invoices according to law;

k) The expenditures on loan interests corresponding to the charter capital deficit;

l) Deducted input VAT, VAT paid using the deduction method, enterprise income tax;

n) Sponsorships, except for sponsorships for education, health, scientific research, disaster recovery, houses of unity, houses of gratitude, houses for beneficiaries of social policies according to law, sponsorships for localities facing extreme socio-economic difficulties according to state programs;

o) Voluntary payments to retirement funds or social security funds, payments for voluntary retirement insurance for employees that exceed the limits imposed by law;

p) Expenditures on businesses: banking, insurance, lottery, securities, and some other special businesses specified by the Minister of Finance.

Thus, if your business spends money on disaster recovery, that expense will be deducted upon determination of taxable incomes of the business in Vietnam.

Which incomes are exempt from corporate income tax in Vietnam?

In Article 4 of the 2008 Law on Corporate Income Tax, which is amended and supplemented by Clause 3, Article 1 of the 2013 Law on Corporate Income Tax, and Clause 2, Article 1 of the Law on Amendments to the Tax Laws of 2014, stipulates on tax-exempt incomes are as follows:

1. Income from farming, breeding, cultivation and processing of agriculture and aquaculture products, salt production of cooperatives; income of cooperatives engaged in agriculture, forestry, aquaculture, or salt production in disadvantaged areas or extremely disadvantaged areas; income of companies from farming, breeding, cultivation and processing of agriculture and aquaculture products in disadvantaged areas; income from marine fisheries.

2. Income from the application of technical services directly for agriculture.

3. Income from the performance of contracts on scientific research and technological development, trial products and products turned out with technologies applied for the first time in Vietnam.

4. Incomes from production and sale of goods and services of enterprises that have at least 30% of the employees are disabled people, detoxified people, suffers of HIV/AIDS, and have at least 20 employees, except for enterprises engaged in finance and real estate business.

5. Income from job-training activities exclusively reserved for ethnic minority people, the disabled, children in extremely disadvantaged circumstances and persons involved in social evils.

6. Incomes divided for capital contribution, joint venture or association with domestic enterprises, after enterprise income tax has been paid under the provisions of this Law.

7. Received financial supports used for educational, scientific research, cultural, artistic, charitable, humanitarian and other social activities in Vietnam.

8. Incomes from the transfer of Certified Emissions Reductions (CERs) of enterprises issued with CERs.

9. Incomes from the performance of tasks of the Vietnam Development Bank, which are assigned by the State, in credit for development and export; incomes from granting credit to the poor and beneficiaries of policies of Vietnam Bank for Social Policies; incomes of state financial funds and other state funds serving non-profit purpose incomes of organizations, of which 100% charter capital is possessed by the State, that are established by the Government to settle bad debts of Vietnamese credit institutions.

10. Undistributed incomes of private organizations, which make investment in education, health, and other fields, that are kept to serve their development in accordance with the laws on education, health, and other fields; the incomes that form the undistributed assets of cooperatives established and operating in accordance with the Law on Cooperatives.

11. Incomes from transfer of technologies that are prioritized to be to organizations and individuals in localities facing extreme socio-economic difficulties.

According to this Article, if your business has income from the above-mentioned income sources, you are exempt from corporate income tax as prescribed by law in Vietnam.

Which incomes are taxable incomes in Vietnam? 

In Article 3 of the 2008 Law on Corporate Income Tax, which is amended and supplemented by Clause 2, Article 1 of the 2013 Law on Corporate Income Tax, and Clause 1, Article 1 of the Law on Amendments to the Tax Laws of 2014, stipulates taxable income as follows:

1. Taxable incomes include income from goods and service production and business activities and other incomes specified in Clause 2 of this Article.

2. Other incomes include: income from transfer of capital, transfer of the right to capital contribution; income from real estate transfer, transfer of construction projects, transfer of the right to participate in construction projects, transfer of the right to mineral exploration, mineral extraction, and mineral processing; income from the right to enjoyment of property, right to ownership of property, including income from intellectual property rights defined by law; income from transfer, lease, liquidation of assets, including valuable papers; income from deposit interest, loan interest, sale of foreign exchange; collection of debts that were cancelled; receipts from debts without creditors; incomes from business operation in previous years that were committed, and other incomes.

With regard to Vietnamese companies making investments in the countries with which Vietnam have Double Taxation Agreement and transfer incomes exclusive of corporate income tax paid overseas to Vietnam, regulations of such Double Taxation Agreements shall apply. If investments are made in countries with which Vietnam has not had Double Taxation Agreements, and if corporate income tax incurred in such countries is lower than that imposed by the Law on Corporate income tax of Vietnam, the tax difference shall be paid.

Therefore, enterprises must pay corporate income tax if they have income from the above mentioned sources in accordance with the law in Vietnam.

Best Regards!