What conditions must be met for deductible expenses when determining income subject to corporate income tax in Vietnam?

What conditions must be met for deductible expenses when determining income subject to corporate income tax in Vietnam? 

In Article 6 of Circular 78/2014/TT-BTC amended by Article 4 of Circular 96/2015/TT-BTC, there are regulations on deductible and non-deductible expenses when calculating taxable income as follows:

Deductible and non-deductible expenses when calculating taxable income

1. Except for the non-deductible expenses prescribed in Clause 2 of this Article, every expense is deductible if all of these following conditions are satisfied:

a) The actual expense incurred is related to the enterprise’s business operation.

b) There are sufficient and valid invoices and proof for the expense under the regulations of the law.

c) There is proof of cashless payment for each invoice for purchase of goods/ services of VND 20 million or over (including VAT).

The proof of cashless payment must comply with regulations of law on VAT.

In case of a purchase of goods and services that are worth VND 20 million or over according to the invoice which is yet to be paid for by the enterprise when the expense is accounted for, such expense will be deductible when calculating taxable income. If the enterprise does not have proof of cashless payment, the enterprise must remove the value of goods/services without proof of cashless payment from expenses in the tax period in which cash payment is made (even when the tax authority and other authorities have issued a decision on tax inspection of the tax period in which such expense is incurred).

The invoices for goods and services paid in cash before the effective date of Circular No. 78/2014/TT-BTC shall not be adjusted under the regulations of this Point.

EXAMPLE 7: In August 2014, enterprise A bought goods for VND 30 million according to the invoice but enterprise A has not paid for it. In the tax period in 2014, enterprise A has included the value of such purchase in the deductible expenses when determining taxable income. In 2015, enterprise A pays for such purchase in cash. Thus, enterprise A must remove the value of such goods purchase from expenses in the tax period during which cash payment is made (the tax period of 2015).

In case an enterprise purchases goods/services related to its business operation and the invoice is printed by the cash register under the regulations of the law on invoices, such enterprise shall include the purchase in deductible expenses according to the invoice and proof of cashless payment when determining taxable income, provided that the value on such invoice is at least VND 20 million.

In case an enterprise purchases goods/services related to its business operation and the invoice is printed by the cash register under the regulations of the law on invoices, the enterprise shall include such purchase in deductible expenses according to the invoice and proof cash payment when determining taxable income, provided that the value of such invoice is lower than VND 20 million and paid in cash.

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

2.1. Expenses that do not meet all of the conditions in Clause 1 of this Article.

If the enterprise incurs expenses related to loss caused by natural disasters, epidemics, blazes, and other force majeure events (hereinafter referred to as "calamities") without compensation, such expenses will be deductible when calculating taxable income. To be specific:

The enterprise must determine the total loss caused by calamities in accordance with law.

Uncompensated loss equals (=) total loss minus (-) loss that must be compensated by insurers other entities as prescribed by law.

a) Documents about losses of assets/goods caused by calamities that are included in deductible expenses include:

- A statement of losses of assets/goods prepared by the enterprise.

A statement of losses of assets/goods must specify the losses, causes, responsibilities for such damage, categories, quantity, value of recoverable assets/goods (if any); the legal representative of the enterprise shall sign and take legal responsibility for the statement.

- An insurance claim accepted the insurer (if any).

- Documents about responsibility for provision of compensation (if any).

Thus, deductible expenses when determining income subject to corporate income tax must meet the following conditions in Vietnam:

- Actual expense incurred is related to the enterprise’s business operation;

- Expenses with adequate lawful invoices and documents as required by law;

- Expenditures if there are invoices for each purchase of goods and services with a value of 20 million VND or more (price includes VAT) must have non-cash payment documents when paying.

Non-cash payment documents comply with the provisions of legal documents on value added tax.

In case of a purchase of goods and services that are worth VND 20 million or over according to the invoice which is yet to be paid for by the enterprise when the expense is accounted for, such expense will be deductible when calculating taxable income.

If the enterprise does not have proof of cashless payment, the enterprise must remove the value of goods/services without proof of cashless payment from expenses in the tax period in which cash payment is made (even when the tax authority and other authorities have issued a decision on tax inspection of the tax period in which such expense is incurred).

In case an enterprise purchases goods/services related to its business operation and the invoice is printed by the cash register under the regulations of the law on invoices, such enterprise shall include the purchase in deductible expenses according to the invoice and proof of cashless payment when determining taxable income, provided that the value on such invoice is at least VND 20 million.

In case an enterprise purchases goods/services related to its business operation and the invoice is printed by the cash register under the regulations of the law on invoices, the enterprise shall include such purchase in deductible expenses according to the invoice and proof cash payment when determining taxable income, provided that the value of such invoice is lower than VND 20 million and paid in cash.

What conditions must be met for deductible expenses when determining income subject to corporate income tax in Vietnam? (Image from Internet)

Which taxpayers must pay corporate income tax?

In Article 2 of Decree 218/2013/ND-CP, corporate income tax payers include:

The taxpayers shall comply with the provisions in Article 2 of the Law on corporate income tax and Clause 1, Article 1 of the Law amending and supplementing a number of articles of the Law on corporate income tax;

1. The taxpayers as prescribed in Clause 1, Article 2 of the Law on corporate income tax include:

a) Enterprises established and operating under regulations of Enterprise Law, Investment Law, the Law on Credit Institutions, Insurance Business Law, Securities Law, Petroleum Law, Commercial Law and the provisions of other legal documents in the forms: Joint stock companies, limited liability companies, partnerships, private enterprises, the parties in a business cooperation contract, the parties in petroleum product sharing contract, petroleum joint venture enterprises and joint operating companies;

b) Enterprise established under the regulations of foreign law (hereinafter referred to as foreign enterprises) with or without a permanent establishment in Vietnam;

c) Public and business enterprises or non-public and non-business enterprises producing and trading goods have their taxable income as prescribed in Article 3 of this Decree;

d) Organizations established and operating under the Law on Cooperatives;

dd) Other organizations other than the ones specified at Points a, b, c, d of this Clause with the business and production activities have their taxable income as prescribed in Article 3 of this Decree;

2. Organizations established and operating (or registering operation) under regulations of Vietnamese law, the business individuals as taxpayers by the method of deduction at source in case of purchase of services (including purchase of services associated with goods or purchase of goods provided or distributed in the form of in-country import export or under international commercial terms) based on contract signed with foreign enterprises specified at Point c and d, Clause 2, Article 2 of the Law on corporate income tax

The Ministry of Finance specifically guides the tax deduction in this Clause;

What is determination of enterprise income tax period in Vietnam?

In Article 5 of the Law on Corporate Income Tax 2008, there are regulations on enterprise income tax period as follows:

1. An enterprise income tax period is the calendar year or fiscal year, except the cases defined in Clause 2 of this Article.

2. The enterprise income tax period upon each time of income generation applies to foreign enterprises specified at Points c and d, Clause 2, Article 2 of this Law.

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