Vietnam: Determining deductible and non-deductible expenses upon determination of taxable incomes

Specifically, according to Article 9 of the Law on Enterprise Income Tax 2008 of Vietnam, non-deductible expenses upon determination of taxable incomes include:

- Expense not fully satisfying the conditions specified in Clause 1 of this Article, except the uncompensated value of losses caused by natural disasters, epidemics or other force majeure circumstances;

- Fine for administrative violations;

- Expense already covered by other funding sources;

- Business administration expense allocated by foreign enterprises to their Vietnam-based permanent establishments in excess of the level calculated according to the allocation method prescribed by Vietnamese law;

- Expense in excess of the law-prescribed norm for the deduction and setting up of provisions;

- Expense for raw materials, materials, fuel, energy or goods in excess of the wastage rate set by enterprises and notified to tax offices and the actual ex-warehousing price;

- Payment for interests on loans for production and business activities of entities other than credit institutions or economic organizations in excess of 150% of the basic interest rate announced by the State Bank of Vietnam at the time of loaning;

- Fixed asset depreciation made in contravention of law;

- Expenses advanced in contravention of law;

- Salaries and wages of owners of private enterprises; remuneration paid to enterprise founders who do not personally administer production and business activities; salaries, wages and other accounted amounts payable to laborers which have actually not been paid to them or paid without invoices or documents as prescribed by law;

- Loan interests paid corresponding to the insufficient amount of the charter capital;

- Credited input value-added tax, value-added tax to be paid according to the credit method, and enterprise income tax;

- Expense for advertisement, marketing, sales promotion and brokerage commissions; expense for reception, protocol and conferences; expense in support of marketing and payment discount; expense for press agencies newspapers given as presents or gifts directly related to production and business activities in excess of 10% of total deductible expenses; for newly set up enterprises, such expense in excess of 15% of total deductible expenses for the first 3 years from the date of setting up. Total deductible expenses exclude the expenses specified at this Point; for trade activities, total deductible expenses exclude purchasing prices of sold goods;

- Financial supports, excluding those for educational and healthcare activities and for mitigating natural disaster consequences and building houses of gratitude for the poor as prescribed by law.

Except the expenses specified above, enterprises are entitled to deduction of all expenses which fully meet the following conditions:

- They are actually paid expenses related to production and business activities;

- They are accompanied with adequate invoices and documents as prescribed by law.

Deductible foreign currency expenses upon the determination of taxable incomes must be converted into Vietnam dong at the average exchange rate on the inter-bank foreign currency market announced by the State Bank of Vietnam at the time foreign currency expenses arise.

View more details at the Law on Enterprise Income Tax 2008 of Vietnam, effective from January 01, 2009.

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