Are salaries and wages of sole proprietorship owners deductible when calculating CIT in Vietnam?

Are salaries and wages of sole proprietorship owners deductible when calculating CIT in Vietnam?

According to Article 6 of Circular 78/2014/TT-BTC amended by Article 4 of Circular 96/2015/TT-BTC and Clause 2 of Article 3 of Circular 25/2018/TT-BTC, deductible and non-deductible expenses when calculating taxable income are as follows:

Deductible and non-deductible expenses when calculating taxable income

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2. The expenses below are not deductible when calculating taxable income:

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2.6. Expenditures on wages and bonus for employees in one of the following cases:

a) Expenditure on wages and other payables to employees that have been included in operating costs in the period but are not actually paid or do not have proof of payment as prescribed by law.

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c) Expenditures on wages, salaries, and allowances of employees that have not been paid after the annual tax declaration is submitted, unless the enterprise has made a provision for inclusion in the wage fund of the succeeding year. The annual provision is decided by the enterprise, provided it does not exceed 17% of the released wage fund.

The released wage fund is the total wage paid in the year until the deadline for submitting the annual tax declaration (not including the provision for wage fund of the previous year)

The enterprise must ensure that it does not suffer from a loss after making the provision. Otherwise, the provision must be smaller than 17%.

If the company does not used up the ward fund provision made in the previous year within 06 months from the end of the fiscal year, the expense in the next year must be reduced.

Example 9: When submitting the annual tax declaration of 2014, enterprise A makes a provision for wage fund of VND 10 billion. On June 30, 2015, (tax period of enterprise A is solar calendar year), enterprise A has used only VND 7 billion from the wage fund. In this case, the expenditure on wages of in the next year (2015) must be reduced by VND 3 billion (VND 10 billion – VND 7 billion). Making the annual tax declaration of 2015, enterprise A may keep making provision for wage fund if it wishes to do so.

d) Wages and salaries of the owner of a private company, a single-member limited liability company (owned by an individual); wages of the founders, members of the Board of members or the Executive Board who do not directly participate in business administration.

Therefore, the salary and wages of sole proprietorship owners will not be deductible when calculating corporate income tax.

Are salaries and wages of sole proprietorship owners deductible when calculating CIT in Vietnam? (Image from the Internet)

What conditions must be met for expenses to be deductible when calculating CIT in Vietnam?

According to Clause 1 of Article 9 of the Law on Corporate Income Tax 2008 amended and supplemented by Clause 5 of Article 1 of the Law on Corporate Income Tax 2013 and Clause 3 of Article 1 of the Law Amending and Supplementing Some Articles of Tax Laws 2014, the conditions for expenses to be deductible when calculating corporate income tax are as follows:

1. Except for the expenditures mentioned in Clause 2 of this Article, all expenditures are deductible when calculating taxable income if they meet the conditions below:

a) Actual expenditures on business operation of the company; expenditures on vocational education; expenditures on the company’s national defense and security duties as prescribed by law;

b) Expenditures that have sufficient invoices and documents according to law. The invoice for any purchase of goods or services of at least 20 million VND must be enclosed with proof of cashless payment, except for the cases in which proof of cashless payment is not required by law.

What are the grounds for calculating corporate income tax in Vietnam?

According to Article 5 of Decree 218/2013/NĐ-CP, the calculation of corporate income tax is based on the taxable income in the period and the tax rate.

Grounds for tax calculation

The grounds for tax calculation are the taxable income in the period and tax rate;

The tax period shall comply with the provisions in Article 5 of the Law on corporate income tax and regulations of law on tax management;

Enterprises may choose the tax period by solar calendar year or fiscal year but must inform the tax authority before implementation;

Therefore, the calculation of corporate income tax is based on the following basis:

- Taxable income in the period;

- Tax rate.

Best Regards!