16/04/2023

CORPORATE INCOME TAX (CIT)

AGENDA

1. Scope of applications
2. CIT calculation methods
3. Taxable revenue
4. Deductible and non deductible expenses
5. Other taxable incomes & Exempted Income
6. R&D Fund, Tax incentives and tax losses carried
forward
7. CIT on securities, capital and real estate transfer
8. CIT compliance procedures

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LEGAL BASIS

• Circular 66/VBHN_BTC (incorporating Circular

78/2014/TT-BTC, Circular 96/2015/TT-BTC,
Circular 25/2018/TT-BTC dated 16 March 2018
& other relevant amendments)
• Decree 132/2020/ND-CP on transfer pricing
• Other circulars on depreciation and
provisional expenses

1. Scope of applications _ Who pay

CIT?

Enterprises or Non-enterprises established under

Vietnam laws

Foreign enterprises conducting business activities

through Permanent Establishment in Vietnam

Foreign enterprises having income sourced in

Vietnam

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2. CIT calculation methods

• Method 1: Deemed on revenue

Generally applicable entity:
(a) Organizations not being Vietnamese enterprises;
(b) Public Service Unit (“Don vi su nghiep”); and
(c) Direct-VAT Taxpayer

• Method 2: Taxed on net profit:

Generally applicable entity: Vietnamese enterprises

2. CIT calculation methods

Method 1: Deemed on revenue

Deemed
CIT = Revenue x tax rate

 Deemed tax rate for specific goods/services:

 Service (including loan and deposit interest): 5%
 Goods supply: 1%
 Other activities: 2%

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2. CIT calculation methods

Method 2: Taxed on net profit

Assessable
CIT = income - R&D (if any) x Tax rate

= Tax loss carried

Assessable Income Taxable Income - Exempt Income -
forward

= - Deductible +
Taxable Income Taxable Revenue Other incomes
Expenses

3. Taxable revenue

• Taxable revenue:
– Excludes VAT if the taxpayer pays VAT under deduction
method (credit method)
– Includes VAT (total invoice amount) in case of taxpayer
pays VAT under direct method

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3. Taxable revenue

• Timing for recognizing revenue for CIT

purpose:
– Sale of goods: when the right to ownership and/or right to
usage of goods is transferred to the buyer.
– Service provision: when services are either fully completed
or partially provided, irrespective of invoice issuance time.
– Other specific cases: See Circular 11, Article 5

• Generally, not very different from accounting

revenue recognition.

4. Deductible and non-deductible

expenses
Principles
• Actually incurred
• Relating to business activities
• Adequately substantiated by legitimate invoices, non-
cash payments (for payment > VND20 million) and
supporting documents
• Not fall in the regulated list of non-deductible expenses

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4. Deductible and non-deductible

expenses
Expense Description Deductible Non-deductible
Inventory lost/ damaged which is Deductible:
not compensated by insurers (1) Losses due to natural disasters, fire, diseases and force majeure
(2) Goods damaged due to expiry or change of the natural
biochemical process

Non-deductible: All other cases

Bill of Material (“Tieu Hao NVL X

trong SX”)

Administrative Penalty X
Golf Expense X
Expenses not corresponding to X (Temp Diff only)
revenue

Provision expenses Only 4 types made in line with Ministry of Finance’s guidance on
Circular 48/2019/TT-BTC are allowed: provision for inventory,
doubtful debts, devaluation on financial investment and warranty.

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4. Deductible and non-deductible expenses

(con’t)
Expense Description Deductible Non-deductible
Accrual expenses Deductible: Accruals are corresponding to the declared revenue,
substantiated by proper basis and paid in line with agreed schedule.
Non-deductible: Other cases

Unrealized foreign exchange losses due Deductible: Payable revaluation losses  No tax adjustment
to revaluation of AR/Cash/Payable Non-deductible: AR/Cash revaluation losses
accounts (Operation Phase)
Unrealized foreign exchange gain due to TAXABLE: Payable revaluation GAIN  No tax adjustment
revaluation of AR/Cash/Payable Non-TAXABLE: AR/Cash revaluation GAIN  Tax adjustment to decrease
accounts (Operation Phase) taxable revenue
Realized and unrealized FX gain/loss Reflected off-sheet. To allocate to revenue/expense within maximum 5
during construction phase years from operation year.

Purchase of services, goods from non- X (required to prepare a

business individuals, families WITHOUT prescribed list namely Form
invoices 01/TNDN)
Purchase of services, goods from X (required to prepare a X - if total revenue
business individuals, families WITHOUT prescribed list namely Form >=VND100M/year
invoices 01/TNDN) – if total revenue
<VND100M/year

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4. Deductible and non-deductible expenses

Expense Description Deductible (con’t) Non-deductible

Employment Cost – Deductible: Generally deductible, except for cases below

Salary, allowance, Non-deductible:
bonus  Salaries paid to non-working founders, Board members who are not directly
involved in daily business operation
 Salaries cost not substantiated with legitimate documents (labor contract,
collective labor agreement, financial policy, etc.)
 Salaries and bonus which are not actually paid before the deadline for submission
of the CIT return
 Payment for retrenchment/ severance allowance which is not in accordance with
labor regulations
Employment cost - In cash: Deductible, capped at VND5 In cash: The exceeding-5-million
Uniform expense million/person/year portion
In kind: Deductible in full
In both cash and kind: Deductible in full for in In both cash and kind: Deductible
kind portion, capped at VND5 in full for in kind portion, capped
million/person/year for in cash portion at VND5 million/person/year for in
cash
Employment cost - Deductible: Generally welfare expenses paid directly to employees not exceeding the
Welfare expenses to average 1-month employment cost actually incurred
employees Non-deductible: The exceeding portion.

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4. Deductible and non-deductible expenses

Expense Description Deductible
(con’t) Non-deductible
Employment Cost – Deductible: Payment for voluntary pension fund, life insurances not exceeding
Purchase of Voluntary VND3 million/ month
Pension Fund, Life Non-deductible:
Insurance for employees The portion exceeding VND3 million/ month.
Employment Cost – Per X
diem
Interest expense Deductible: Generally deductible, except for the cases below
Non-deductible:
 Interest exceeding 1.5 time of State Bank of Vietnam’s interest rate for
loans from individual;
 Interest on the loan corresponding to the un-contributed portion of
charter capital;
 Capped at 30% EBITDA (earnings before income tax + Depreciation +
Interest) in case having related party transactions in the fiscal year.
[Losses – having relater party transactions: Fully non-deductible]
[Losses – not having any related party transactions: Not subject to above
restriction]
Over-allocated asset Deductible: The correctly-allocated amount
lease expense Non-deductible: The over-allocated portion

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4. Deductible and non-deductible expenses

(con’t)
Expense Description Deductible Non-deductible
Depreciation - Deductible: Generally deductible, except for the cases below
Non-deductible:
 Depreciation of assets without proper ownership documents;
 Depreciation of assets not serving for business activities in tax period (except for
cases of asset temporary stop-use due to seasonal production not exceeding 9
months, asset temporary stop-use due to periodical repairing or maintenance work
not exceeding 12 months);
 Depreciation of assets exceeding the regulated levels under Circular 45/2013/TT-BTC
on fixed asset management regime;
 Amortization of indefinite-term land use right;
 Depreciation of below-10-seat cars for portions exceeding VND1.6 billion/year
Other cases  PIT/FCT expenses (Gross basis) – not deductible
 Non-creditable input VAT charged to expense: deductible
 CIT expense (Act. 821) – not deductible
 Expenses for lease of individuals’ assets (say, house lease) - Deductible (required:
contract, payment evidence, personal income tax withheld and paid)
 Expenses paid by individual credit card – deductible (Article 6, Point 2.9)
 Expenses for purchase of e-air tickets without invoice – deductible (Article 6, Point
2.9)
 Donations: Only 6 donations for education, health care, building houses for the poor,
natural disasters, science research/ special locations-subjects backed by
Government’s programs are deductible. Other cases are non-deductible.

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5. Other taxable incomes and

Exempted Income
Other taxable incomes – not entitled to incentives (Article 7 – Circular 11)

• Transfer of capital, real estate, investment projects

• Royalties
• Asset liquidation
• Deposit interest/ contract penalty
• Reversion of provisions unused by due date: except allowable
• provisions
• Forex gain (both realized and unrealized, after offsetting against losses) unrelated to
main business activities
• Income omitted of previous years, note the corresponding expenses
• Gifts, subsidies
• Non-incentive product scraps;
• Other Incomes earned from activities other than the registered business lines of the
enterprises
• Generally taxable on a net income basis (i.e.. less relevant expenses, difference
between selling price and purchased price etc.) calculated for each activity, occasion

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5. Other taxable incomes and

Exempted Income (con’t)
Typical exempted incomes (Article 8, Cir 11)

• From providing technical services directly to agricultural activities

• From carrying out R&D contracts, sale of products resulting from
• new technology in Vietnam, sale of CERs: only first year
• From enterprises having at least 30% employees being disabled,
• HIV-infected persons (the average labor at least 20 persons per
• year)
• Dividend from contribution of capital to domestic economic

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6. R&D Fund, Tax incentives &

Tax loss carried forward
R&D Fund
• Enterprises can allocate max 10% annual assessable income to
science & technology development fund
• Allocated amount is deducted from assessable income for tax
purpose
• No double deduction, i.e. expenses from this fund are non-
deductible
• Treatment if at least 70% of the annual fund is not properly
used up within 5 years:
– Tax recollection on unused/misused amount;
– Interest on additional tax of unused amount;
– Late payment penalty on additional tax of misused amount

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6. R&D Fund, Tax incentives &

Tax loss carried forward (con’t)
Tax incentives (Article 18-20)
• Tax holiday (i.e. tax exemption and 50% tax reduction) – from
first year of having taxable income (or 4th year in case having no
taxable income after 3 years of operation);
• Tax preferential rates (i.e. 10% and 15%) – from first year of
operation;
• Can be applied simultaneously
• Incentives considered based on:
– Sector
– Location
– Size
• Incentive on business expansion: Entitled to original project
incentive or new project incentive (subject to conditions)

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6. R&D Fund, Tax incentives &

Tax loss carried forward
Tax loss carried forward
• TAX LOSS: the excess of deductible expenses over taxable
income in a tax period
• Carried forward, NOT carried backward
• Restricted timeline for loss utilization: within five (05) years
(on a consecutive and in-full basis)
• Loss from transfer of real estate after setting off with income
from transfer of real estate is now allowed to set off against
other activities (an one-way method)
• Profit and loss of incentivized activities and normal activities
can be offset against each other

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7. CIT on securities, capital and

real estate transfer
CIT on capital transfer
• Taxed on net gain (Sale price – Deductible directly-related transfer expenses – Purchase
price)
• Rate: 20%
• Who declares: Seller. In case seller is a foreign party: Buyer. In case both seller and
buyer are foreign parties: the enterprise whose capital is transferred
CIT on securities
• Taxed on net gain (Sale price – Deductible directly-related transfer expenses – Purchase
price)
• Rate: 20%
• Who declares: Seller. In case seller is a foreign party: Buyer. In case both seller and
buyer are foreign parties: the enterprise whose securities is transferred (or securities
companies);
CIT on real estate
• Taxed on net gain (Sale price – Deductible directly-related transfer expenses – Purchase
price)
• Rate: 20%

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7. CIT on securities, capital and

real estate transfer (con’t)
CIT on real estate (con’t)
• Taxed on net gain (Sale price – Deductible directly-related
transfer expenses – Purchase price)
• Rate: 20%
• Declaration:
 For non-real-estate enterprises: one-off basis, separate
finalization at year-end
 For real-estate enterprise: Quarterly declaration &
Payment, Year-end finalization

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8. CIT compliance procedures

• Tax Year: Calendar Year or Other financial year (for new company
or just-dissolved company, first tax year can be up to 15 months)
• Pay (NOT FILE) on a quarterly basis: by the 30th day of the
following quarter
• File and pay on an annual basis (i.e. finalization): by the 90th day
of following fiscal year
• Tax payment
– Pay to tax authority where the head office locates.
– If an enterprise has a dependent branch operating in different location
with the head office: tax payment is allocated to tax authority where
the dependent branch locates according to the expenses ratio.
– CIT paid overseas can be credited against CIT paid in Vietnam (on
same revenue)

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CIT Profit vs Accounting Profit – At a

glance

Act Profit >< Taxable Profit in most of the cases given there
exists certain differences in bases for revenue and expense
recognition between tax & accounting perspectives

Two types of differences:

Permanent Difference (expenses without invoices, penalty

expenses, etc.); and

Temporary Difference (disallowed depreciation, accruals,

unrealized FX gain loss, etc.)

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