CHAPTER 3

CORPORATE INCOME TAX

Lecturer: M.S. Nguyen Thuy Trang
 CHAPTER LEARNING
OBJECTIVES
- Define corporate income tax and its characteristics.

- Identify who is liable to pay corporate income tax in Vietnam.

- Define kinds of incomes subject to corporate income tax in

Vietnam.

- Define what kinds of incomes are exempt from corporate

income tax in Vietnam.

- Regconise and compute assessable income, base income, base

turnover and deductible expenses.

- Explain and compute the ‘other income’ that should be

included in taxable income.
 CHAPTER LEARNING
OBJECTIVES
- Know the standard rate and other rates of corporate income
tax in Vietnam.

- Calculate the amount of corporate income tax payable of a

taxpayer in Vietnam.

- Prepare a CIT computation, including the standard CIT

declaration forms, taking into account the tax regulations.

- Know the due date when to file a return and pay tax.

- Define who and in what case is exempt from corporate income

tax in Vietnam, and determine the exempt amount.

- Identify, compute and apply the right reduction/relief and tax

 MAIN CONTENTS
3.1. Overview of corporate income tax

3.2. The scope of corporate income tax (CIT)

3.3. The computation of CIT

3.4. Taxable income and assessable income

3.5. Exempt incomes

3.6. Losses carried forward

3.7. Deduction of science and technology fund

3.8. Tax rates

3.9. Tax incentives

3.10. Tax declaration and payment

 3.1. OVERVIEW OF
CORPORATE INCOME TAX

 Definitions of Corporate Income Tax

 The characteristics of Corporate Income Tax

Corporate income tax is imposed on incomes received by
legal entities such as limited companies, join-stock
corporations, and other economic entities.
The characteristics of CIT

Direct tax

Less sensitive than PIT

Dependent on the profitability of the

taxpayers

Regarded as a withholding of PIT

 3.2. THE SCOPE OF CIT

3.2.1. Taxpayer
3.2.2. Tax period
3.2.3. Incomes subject to CIT
 3.2.1. Taxpayers

- Corporate income tax payers are those enterprises and

economic organizations that have assessable income as
prescribed by the Law on Corporate Income Tax of
Vietnam.
- Scope:
+ Enterprises organized under Vietnam law are subject to
CIT on their worldwide incomes.
+ Foreign companies having resident establishments in
Vietnam are also subject to CIT on their worldwide incomes.
+ Foreign companies not having resident establishments in
Vietnam are only subject to CIT on incomes generated in
Vietnam.
 3.2.2. Tax period

 Tax period is the calendar year or the fiscal year of

the enterprises if it is different from calendar year.
 If the first tax period or last tax period is less than 3
months, business establishments are allowed to
combine two consecutive tax periods into one.
 Where enterprises carry out the change of tax period
of corporate income (including the change of tax
period from calendar year to fiscal year or vice
versa), the tax period of corporate income must not
exceed 12 months.
 3.2.3. Incomes subject to
CIT
 Incomes subject to CIT include incomes derived in Vietnam and
overseas incomes.
 Vietnamese enterprises that are engaged in offshore investment
activities and remit their incomes to Vietnam after paying CIT in
foreign countries:
- Shall comply with the double taxation avoidance agreements concluded
between Vietnam and such countries, for foreign countries with which
Vietnam has concluded double taxation avoidance agreements.
- For foreign countries with which Vietnam has not yet concluded any
double taxation avoidance agreement if the CIT rate applicable in a
country from which incomes are remitted to Vietnam is lower than that
prescribed by the Vietnamese law on CIT, only difference must be
collected.
 Example
Enterprise A in tax year receives an overseas income after paying
CIT of VND 820 million in foreign country (income received from a
country that has not signed a double taxation agreement with
Vietnam). The CIT rate in Vietnam is 20%.

Determining the CIT payable in Vietnam for the overseas income if:

a) The overseas income tax rate is 18%.

b) The overseas income tax rate is 30%

c) The overseas income tax rate is 18% and the enterprise is entitled
to a 50% reduction of the income tax payable.

d) The overseas income tax rate is 18% and the enterprise is exempt
from income tax.

e) The overseas income tax rate is 30% and the enterprise is entitled
to a 50% reduction of the income tax payable.
3.3. THE COMPUTATION OF
CIT

3.3.1. The comprehensive computation of CIT

3.3.2. The template for computation of CIT

3.3.1. The comprehensive
computation of CIT
 3.3.2. The template for
computation of CIT
Template:
 3.3.3. The computation of CIT
for overseas incomes
Incomes from goods production and trading or service
provision activities overseas is treated as follows:
 If incomes are generated in countries which have signed
double taxation avoidance agreement with Vietnam, the
way we record these incomes must be compliant with the
terms and conditions stated in the agreement.
The computation of CIT for
overseas incomes
 If incomes are generated in countries which have not
signed double taxation avoidance agreement with
Vietnam:
- The amount of before-CIT income overseas are taxed in
Vietnam.
- The income tax amount already paid overseas by the
business establishment will be deducted, provided such
deducted amount does not exceed the income tax on the
received income calculated under the Act of CIT of
Vietnam. If the overseas incomes are reduced or exempt
by the foreign countries where the establishment
invests, the amount of CIT overseas is still deducted.
 3.4. TAXABLE INCOME AND
ASSESSABLE INCOME

3.4.1. Base turnover

3.4.2. Deductible expenses

3.4.3. Other taxable incomes

 3.4.1. Base turnover

- The base turnover is the total revenue from the sales of

commodities and services, surcharges, and price subsidies earned
by business establishments. The base turnover is in Vietnam
dongs.
 Quantity discount, goods returns and price reduction due to poor
quality are excluded from the base turnover.
 Cash discount and discount for early payment are not subtracted
from the base turnover.
 The time of determining turnover for tax purpose is the time of
sale, regardless the time of the payment made by the buyer. For
tax purpose, the time of determining turnover for goods is the
time of transfer of ownership or use right of goods. The time of
determining turnover for services is the time of service
completion or partial service provision done.
 Base turnover

 For business establishments that pay value added

tax (VAT) under credit method, their base turnover
is the turnover exclusive of VAT. For business
establishments that pay VAT under direct method,
their base turnover is the turnover inclusive of VAT.
 3.4.2. Deductible expenses

 Conditions for deductible expenses

 Non-deductible expenses
 Conditions for deductible
expenses
Expenses are deductible if they are not in the list of non-
deductible expenses stipulated by legislation and meet the
following three conditions at the same time:

(i) they are actual expenses used for generating income or for
the purpose of business;

(ii) they are proved by legitimate invoices, vouchers and

documents stipulated by legislation;

(iii) non-cash payment are made to those expenses with total

payment of VND20 million or more.
 Non-deductible expenses

(1) Expenses that do not match with base turnover

under matching principle

(i) Asset rental expenses that exceed the allocation by

the number of years prepaid by the lessee;

(ii) Accrued expenses but not having been paid by the

end of the tax year;

(iii) Expenses for construction to form fixed assets.

 Non-deductible expenses

(1) Expenses that do not match with base turnover

under matching principle, except:

- Expenses for HIV/AIDS prevention and control in

enterprises

- Expenses for the performance of national defense and

security education tasks of enterprises

- Expenses to support socio-political organizations in

enterprises (Party organization, Youth Union,
Women's Union, ...)
 Non-deductible expenses

(2) Capped expenses

- Amortization and depreciation: Applicable to certain type of
fixed asset (under- ten-seat cars, passenger boats) in certain fields;
certain depreciation methods; accelerated depreciation;
- Money paid for employees to buy uniforms (VND5
million/person/year) (Clothes allowance in cash)
- Interest expenses paid to lenders who are not credit institutions
or economic organizations (150% of basis interest stated by
Vietnamese State Bank)
- Welfare benefit which is directly spent on employees (average
actual salary paid of 1 month in the tax year of the enterprise);
- Life insurance and voluntary retirement insurance (VND3
million/person/month) (regulations, compulsory insurances)
 Example

In the tax year N, a production enterprise that pays VAT by the credit
method in the tax year has:

- Distribution expenses corresponding to consumed products: VND1,000

million, of which:

+ Loan interest of commercial banks: 90 million VND

+ Loan interest for production and business (borrowed from officials and
employees): 180 million VND with the actual interest rate: 15% / year, the
basic interest rate announced by the State Bank is 9% / year

+ The remaining costs are considered reasonable

Required: Determining the reasonable expenses of the enterprise in the tax

year to know that the enterprise has fully contributed its charter capital.
 Non-deductible expenses

(3) Expenses which are not in compliance with specific

regulations stipulated by competent state agencies:
- Depreciation and amortization
- Provisions
- Materials
- Salaries or salary in nature
- Donation
- Taxes
 Non-deductible expenses

 Depreciation and amortization

In order to be deductible as depreciation expense, a

fixed asset of a business establishment has to meet the
following criteria:

(i) it must have legitimate vouchers;

(ii) it is used for generating incomes; and

(iii) the depreciation has to comply with the

stipulations by law.
 Non-deductible expenses

 Depreciation and amortization

- Accelerates method of depreciation

+ Applying where the business establishment’s

efficiency is high and the assets are quickly out of date.

+ The maximum accelerated rate is twice as much as

the straight-line rate.

+ Applying only to some types of assets provided they

are not second-hand ones.
 Non-deductible expenses

 Depreciation and amortization:

- The depreciation expense corresponding to the original cost

in excess of VND 1.6 billion/vehicle for passenger cars with 9
seats or less newly registered to use from January 1, 2009
(except for cars specialized in transportation business, tourism
and hotel) => Non-deductible.

- The depreciation expense of fixed assets being civil aircraft

and yachts are not used for transportation business, tourism
and hotel. => Non-deductible

- Depreciation expense of fixed assets has been fully

depreciated => Non-đeuctible
 Non-deductible expenses

 Provisions

- Provisions include provisions for the decrease in

value of inventories, provisions for doubtful or bad
debts, provision for unemployment allowances,
provision for financial investment, and provision for
construction guarantee.

- If the total provision demand is equal or smaller than

the balance of the provision account, no provisions are
allowed or the expenses have to be written down as
the difference, respectively.
 Non-deductible expenses

 Materials
The following material expenses are not deductible for tax purpose:
- Materials and commodities expenses that exceed the consumed
norms that have been determined and noticed to the tax office by the
business establishment, and the actual ex-warehousing cost of the
materials;
+ If business establishments pay VAT by the credit method, the
actual ex-warehousing cost of the materials does not include the VAT
on purchased supplies.
+ If business establishments that pay VAT by the direct method, or
for business activities not subject to VAT, the actual ex-warehousing
cost of the materials includes VAT on purchased supplies.
 Example
ACC manufacturing enterprises that pay VAT by the credit
method in the tax year have the following data:
- Import of raw materials with base price of import tax:
VND800 million
- All of the raw materials are used to manufacture products
for consumption during the year, of which 3/4 of the raw
materials are used to manufacture product A and 1/4 of the
raw materials are used to manufacture product B.
Know that product A is subject to VAT, product B is not
subject to VAT. The import tax rate of raw materials is 20%,
the VAT rate of raw materials and product A is 10%.
Requirements: Determine the cost of raw materials to be
included in the ACC's deductible cost in the tax year.
 Non-deductible expenses

 Materials:
- The cost of damaged or ruined materials caused by natural disasters and
fires which have been compensated by insurance companies or/and by
individuals or entities;
- The cost of damaged or ruined materials caused by natural disasters and
fires which have not been supported by proper documents as prescribed by
legislation;
- The cost of materials which are ruined by natural bio-chemical process or
being out of date (exceeding the norms)
- The cost of materials being handicrafts, agricultural products, second-hand
furniture and the likes directly purchased from non-business households or
individuals without a list of those goods/voucher of payment as prescribed
by legislation.
 Non-deductible expenses

 Salaries and salary in nature

The following salaries expenses are not deductible:
- Salaries and/or wages of the owner of the private
enterprises;
- Salaries and/or wages of the owner of one-member
limited company owned by an individual;
- Remuneration paid to the founding members of
companies who do not directly take part in the
administration of goods production and trading or service
provision;
 Non-deductible expenses

 Salries and salary in nature:

- Remuneration paid to members of administrative board of
a corporation who do not directly take part in the
administration of goods production and trading or service
provision;
- Bonuses or life insurance fees for which the conditions
and the levels are not specified in one of the following
documents: labour contracts or labour collective
agreements or financial regulations, bonus regulations;
- Salaries and remuneration payable written in book but
not actually paid or actually paid to employees but having
illegitimate vouchers;
 Non-deductible expenses

 Salaries and salary in nature

The excess amount of salaries and/or wages actually payable
but have not been paid by the due time of finalization
declaration of CIT as compared to the maximum rate of
provision for salaries/wages of 17% of paid salaries/wages (if
any). In any case the total salaries/wages expenses including
paid salaries/wages and the amount of provision for
salaries/wages cannot exceed the amount of salaries/wages
payable written in accounting books and other documents
such as labor contracts and/or collective labor agreements etc.
 Non-deductible expenses

 Donation
In general, donations are not deductible except for the
following donations: (i) Donation for education; (ii)
Donation for health care; (iii) Donation for natural
disaster recovery; (iv) Donation for building houses for
the poor; (v) Donation for science research; (vi) Grants
to localities with exceptionally difficult socio- economic
conditions under the Government’s Program.
 Non-deductible expenses

 Taxes:
The following taxes are not deductible for tax purpose:
- Credited or refunded inputs of value added tax;
- Value added tax paid under credit method;
- Corporate income tax;
- Personal income tax on gross salary;
- Foreign contractor taxes on gross price.
 Non-deductible expenses

(4) Tax penalties and legal fines including fines for

violations of traffic Law, violations of the Law on
business registration, violations of the Law on
accounting, violations of tax laws, and other fines for
administrative violations => Non-deductible

(5) Expenses covered by other sources including

payment made by social insurance fund for health
expenses of employees, expenses covered by the
government for public services etc => Non-deductible
 Non-deductible expenses

(6) Some other non-deductible expenses

- Expenses of golf fees or golf member card.
- Payments of interest on loans that is equivalent to the lack of
the charter capital as contribution timetable stipulated in the
enterprise’s charter.
 Non-deductible expenses

(6) Some other non-deductible expenses

- Any expenses without invoices or vouchers or with
invalid vouchers.
- Losses for the revaluation of items in foreign
currencies in cash, bank deposits, money in transfer
and receivables at the end of financial year.
- Innovation prizes without a regulation for
Innovation prizes and/or a board of innovative
examination.
 3.4.3. Other taxable income

Other taxable incomes are those incomes received or

receivable by a CIT payer that are not generated by the
business fields stipulated in the business license or
business registration certificate of that CIT payer.

- Sales margin of securities dealing.

- Income from activities related to industrial property

rights and copyright.

- Other incomes from property ownership.

 Other taxable incomes
- Income from land use right or land rent or transfer rights: Income
of these kinds is calculated separately and losses from this activity
can only be carried forward to the following tax year of income from
land use right or land rent right transfer. It cannot be carried
forward to the following tax year of incomes from other sources.

- Gains from property transfer or liquidation: In case of property

liquidation, the taxable income is determined by the following
formula:
 Other taxable incomes

- Interest on deposits, loans and goods sold on deferred

payment. These incomes are recorded as follows:

+ We first offset interest receivables on bank deposits and

lending loans against interest expenses for borrowings.

+ If the interest receivables are greater than the interest expenses

for borrowings, the difference is recorded as other income.

+ If the interest payable for borrowings are greater than the

interest receivables, the main income is written down by the
amount of the difference.

Main income = Assessable turnover – Deductible expenses

 Other taxable incomes

- Income from fines for contractual breaches is treated as

follows:

+ We first offset fine receivables against fine payables.

+ If the fine receivables are greater than the fine payables,

the difference is recorded as other income.

+ If the fine payables are greater than the fine receivables,

the amount of the rest of other incomes are written down
by the amount of the difference. In the case when the
amount of the rest of other incomes are not enough for the
subtraction, the main income is written down.
 Other taxable incomes

- Sales margin from foreign currencies or foreign

exchange rate difference.

- Recovered bad debts that were written off from

accounting books.

- Debts payable to unidentifiable creditors.

- Incomes from goods production and trading or

service provision activities in previous years, which
had been missed for booking but later discovered.
 3.5. EXEMPT INCOMES

- Income from farming, animal husbandry and

aquaculture products of cooperatives and entities,
which are established under the Act of Cooperatives;

- Income from farming, animal husbandry and

aquaculture products of enterprises earned in
geographical localities with exceptionally difficult
socio-economic conditions;

- Income from the provision of technical service

directly related to agriculture production;
 EXEMPT INCOMES

- Income from contracts on scientific research and/or

technological development for maximum period of time of 3
years counting from the commencement of production under
the scientific research and/or technological development
contract;
- Income from the sale of products during the period of trial
production in accordance with the production process, but for
no more than 6 months since the commencement of the trial
production;
- Income from the sale of products made by new technologies
applied for the first time in Vietnam, but for no more than 1
year since the application of these new technologies to the
production;
 EXEMPT INCOMES

- Income from goods production and trading or service

provision activities carried out by disabled people, HIV
acquired people and recovered drug addicted people (the
percentage of disabled people and/or HIV acquired people
and/or recovered drug addicted people must be at least 30% of
the total number of employees);
- Income from job training exclusively for ethnic minority
people, disabled people, children in exceptionally difficult
circumstances, and social evil victims;
- Income received from a joint venture (which is established in
Vietnam) which has paid the corporate income tax;
- Donations received for education, scientific research, cultural
and art activities, charities and other social activities in Vietnam.
 3.6. LOSSES CARRIED
FORWARD
 Losses can be carried forward for 5 subsequent
years since the year of loss. Losses are subtracted
from the assessable income of the following tax
years.
 The principle for carrying losses forward: Losses
must be carried forward all and continuously to the
subsequent years if the enterprise earns a profit in
those subsequent years.
 3.7. DEDUCTION OF SCIENCE
AND TECHNOLOGY FUND

 A maximum amount of 10 percent of assessable

income.
 3.8. TAX RATES
 The standard rate is 20 percent (effective since 1
January 2016).
 The rate between 32 percent and 50 percent is
applicable to each project by business
establishments conducting exploration and
exploitation of oil and gas or other precious and rare
natural resources.
 Example
An enterprise in a tax year has:
- Sales of product consumption: VND10,000 million
- Distribution expensest for the number of consumed products: VND7,000 million (with legitimate
invoices and documents), of which:
+ Fine for late tax payment: VND 50 million; Penalty for breach of economic contracts: VND 80
million; The bank's business and production loan interest: VND 420 million with the interest rate
of 12%/year, the lack of charter capital: VND 300 million; Support youth union of the enterprise:
VND20 million; Support local women's union: VND10 million; Sponsoring furniture for a primary
school: VND70 million; Build houses for poor families: VND100 million
- Other taxable incomes: Bank deposit interest: VND200 million; Penalty for breaches of economic
contracts: VND100 million; Incomes from domestic joint ventures (remaining income after CIT at
the place of capital contribution): VND 200 million
- Income received from overseas business: VND1,275 million. This is the remaining income after
paying the income tax abroad, the overseas income tax rate is 30%, the enterprise is entitled to a
50% reduction of the tax payable abroad (This country has not signed a double taxation
agreement with Vietnam)
Determining the corporate income tax the enterprise must pay during the year, the CIT rate: 20%
 3.9. TAX INCENTIVES

 Preferential rates

 Tax holiday

 Other exempt
 3.10. TAX DECLARATION AND
PAYMENT

 Tax declaration

 Tax payment