Proposal on additional deductible and non-deductible expenses for CIT calculation in Vietnam

Proposal on additional deductible and non-deductible expenses for CIT calculation in Vietnam (Internet image)

Draft Law on Corporate Income Tax (amended)

1. Proposal on additional deductible and non-deductible expenses for CIT calculation in Vietnam

Thus, the Ministry of Finance of Vietnam proposes to supplement regulations on deductible or non-deductible expenses for a number of expenses that have been incurred in practice recently, such as:

- The value-added tax on input goods and services directly related to the enterprise's production and business has not been fully deducted but is not eligible for a tax refund;

- Expenses to support and finance activities to prevent, combat, and overcome the consequences of epidemics;

- The cost of wages and salaries for the owner of a one-member limited liability company (owned by an individual);

- Contribution to the voluntary additional pension fund;

- Expenses that are not in accordance with relevant laws;

- Interest expense of specific projects to suit reality.

2. Deductible and non-deductible expenditures when determining current taxable income in Vietnam

Deductible and non-deductible expenditures when determining current taxable income in Vietnam according to Article 9 of the Law on Corporate Income Tax 2008 (amended in 2013, 2014) include:

(1) Except for the expenditures mentioned in (2) all expenditures are deductible when calculating taxable income if they meet the conditions below:

- 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;

- 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.

(2) Non-deductible expenditures when calculating taxable income:

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

- Fines for administrative violations;

- The expenditures that are covered by other budgets;

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

- The extra expenditure according to the laws on making provision;

- 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.

- Improper depreciation of fixed assets;

- Improper accrued expenses;

- 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;

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

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

- 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;

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

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

(3) Expenditures in foreign currency, unless to serve the calculation of taxable incomes that must be converted into VND, according to the average exchange rates on the interbank foreign currency market that are announced by the State bank of Vietnam when the expenditures occur.

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