Vietnam: Are expenditures on the employees’ welfare deductible when calculating taxable income?

LAWNET would like to answer this question as follows:

Expenditures on the employees’ welfare

According to Clause 4 Article 3 of the Circular No. 25/2018/TT-BTC amending the first passage of the fifth dash of Point 2.30 Clause 2 Article 6 of the Circular No. 78/2014/TT-BTC of the Ministry of Finance of Vietnam, direct expenditures on the employees’ welfare:

1. Expenditures on employees’ family occasions;

2. Expenditures on holiday allowance or treatment assistance;

3. Expenditures on professional training;

4. Assistance in employees’ families affected by natural disasters, hostilities, accidents, illness;

5. Expenditures on rewarding employees’ children for their educational achievements;

6. Allowances for traveling during holidays of the employees;

7. Payment for unemployment insurance, health insurance, and other voluntary insurance for employees (except for life insurance, voluntary pension insurance);

8. Other welfare expenditures.

Note: The aforementioned total expenditures must not exceed the practical average 01 month’s salary in the tax year. The practical average 01 month’s salary in the tax year is determined as follows:

Practical average 01 month’s salary in the tax year = Salary fund made during the year : 12 months

In case the business has not operated for less than 12 months, the practical average 01 month’s salary in the tax year is determined as follows:

Practical average 01 month’s salary in the tax year = Salary fund made during the year : the number of practical active months in the year

The implemented wage fund is the total of actually paid wages of that finalization year to the deadline for submission of finalization dossiers as prescribed (excluding the amount deducted for the wage provision fund of the previous year spent in the tax finalization year).

Conditions for expenditures on the employees’ welfare to be deductible

According to Article 4 of the Circular No. 96/2015/TT-BTC amending Article 6 of Circular No. 78/2014/TT-BTC of the Ministry of Finance of Vietnam, 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:

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

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

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

Besides, according to Article 6 of Circular No. 78/2014/TT-BTC of the Ministry of Finance of Vietnam, in order for expenses of a welfare nature that are directly spent on are not deductible when determining taxable income, the total cost of employee welfare benefits does not exceed 01 month's actual average salary in the tax year of the enterprise.

Thus, according to the above provisions, employee welfare expenses are deductible when calculating corporate income tax, the following conditions are required:

First: Total employee welfare expenses must not exceed 01 month's actual average salary in the tax year of the enterprise.

Second: There are sufficient and valid invoices and proof for the expense such as:

- If traveling, there are: bills for room, meals, travel of travel companies, hotels, restaurants, list of participating employees, etc.;

- If sending employees to study and training, there is: invoice for tuition fee;

- In cases of medical examination and treatment for employees, there are: hospital bills, medical records, etc.

Third: There is proof of non-cash payment for each invoice for purchase of goods/ services of VND 20 million or over (including VAT).

Ty Na

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