Vietnam: Conditions for deductible expenses when calculating taxable income

LAWNET would like to answer Mr. Cuong’s question as follows:

According to Clause 1 Article 6 of Circular No. 78/2014/TT-BTC amended by Article 4 of Circular No. 96/2015/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:

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

In case there are actual expenses incurred but these expenses are not related to the production and business activities of the enterprise, they are not considered reasonable expenses that are deductible when finalizing corporate income tax.

In addition, in case such expenses are directly related to the production and business activities of the enterprise, but this is an invoice issued by the unit purchasing the invoice. (ie, there is no business but the business wants to increase costs so as not to pay taxes by buying invoices, this is an illegal invoice). In this case, not only this expense is not deducted, but it is also charged with the act of buying and selling invoices and tax fraud.

Therefore, it is necessary to clearly define the deductible expenses as expenses actually incurred at the enterprise and directly related to the production and business activities of the enterprise.

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

Depending on the specific case, mentioned invoices and vouchers can be value added invoices, sales invoices, payment slips, payment orders when purchasing goods or payroll, timesheets when paying salaries and wages to employees, etc. 

These invoices and vouchers must be made legally in accordance with the law. In particular, invoices must be provided by tax authorities or invoices printed by enterprises themselves according to the regulations of the Government and the Ministry of Finance. The remaining fake invoices, self-created invoices of enterprises but not yet announced to be issued, etc. are invoices that have no legitimacy.

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

Note: 

- The proof of non-cash 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 non-cash payment, the enterprise must remove the value of goods/services without proof of non-cash 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 non-cash 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.

Nguyen Trinh

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