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Corporate Income Tax
Corporate Income Tax
OVERVIEW
Basic Tax concepts
Legislation
In Vietnam, Corporate Income Tax (“CIT”) is governed the by Law on Corporate Income Tax and its
relevant guidance. Other laws and regulations may also have impacts on CIT, such as MOF’s regulation on
(i) provisions, (ii) depreciation and (iii) market price determination.
The Definition of PE
Branch, operational office, plant, workshop, transportation means, mine, oil/gas field, and any
location where natural resources are exploited;
Construction site, construction works, or installation and assembly works;
Agent for a foreign company;
Establishment providing services including consultancy services provided through its employees or
another entity;
Representative in Vietnam in a case
Tax Period
Tax period is the Gregorian 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 3 months or less, business establishments are allowed to
combine two consecutive tax periods into one.
Example:
Company A established and registered its business on 10 July 2020. Its applicable fiscal year is 1 January to
31 December. The first tax period of Company A shall be the period from 10 July 2020 to 31 December
2020.
If Company A registered its business on 1 November 2020, it can choose to have the first tax period from 1
November 2020 to 31 December 2021.
Tax Rate
From 1 January 2016, standard CIT rate is 20%
CIT rate for business in prospecting, exploration and exploitation of petroleum and gas and other rare
and precious natural resources will be from 32% to 50% depending on each project/business.
Public-service units which have the activities of goods and services business subject to CIT but these
units can account the revenue but cannot account and determine the cost and income of the business
operation shall declare and pay CIT by the rate% on the revenue of sales of goods and services, as
follows:
o For services: 5%
o For goods business: 1%
o For other activities (including activities of education, health, art performance): 2%
Example:
Non-business unit A has the activity of house letting, the revenue from the house letting in one (01) year is
200 million dong, the unit does not account and determine the cost and income from the above house letting
because the unit has chosen to declare and pay CIT at the rate% on the revenue of sales of goods and
services as follows: Payable CIT amount = 200,000,000 dong x 5% = 10,000,000 dong
TURNOVER
Basic
Turnover used to calculate taxable income is the total sales revenue, processing fee, services fee, surcharge,
regardless of whether money has been received or not.
o Timing for recognizing turnover in order to calculate taxable income (Taxing time):
o In respect of goods, when the right to use or ownership of the goods is transferred to the buyer;
o In respect of services, when the services are completed or party completed per schedule.
o In case the time of invoicing service supply occurs before the time of services completion, the time
for determining the taxable revenue shall be calculated according to the time of invoicing.
o In respect of air transportation, upon the completion of the provision of the transportation service.
Taxable turnover does not include VAT if the taxpayer pays VAT under the deduction method. On the other
hand, direct-method VAT payer shall record turnover as the total invoice amount.
Example:
Company A is VAT deduction method tax payer. Its added value invoice is as follows:
Selling price: VND100,000
VAT @10%: VND10,000
Payment amount: VND110,000
Turnover for CIT purposes is VND100,000
If this Company is VAT direct method tax payer, its sales invoice states the payment amount of VND110,000
without any VAT portion. Turnover for CIT purposes is VND110,000.
For goods, services used for exchange, internal consumption (except those serving business
operations)
Turnover is determined at the selling price of products, goods or services of the same or similar kind in the
market at the time of use. For goods and services produced by the business that are internally used to
continue the business/production process, recognition of turnover is not required.
Example:
Company A produces automotive parts and assembles automobiles. If company A uses the tires it produces
for display, product introduction, or assembling automobiles, the value of such tires shall not be included in
the assessable income. Company B produces computers. The value of computers that Company B produces
and provides for its employees to work at that company shall not be included in assessable income.
For agency or consignment activities (selling at the price fixed by the principal)
Turnover is the receivable commission
Example:
Shop X acts as agent of Company A on the basis of selling A’s products at the price fixed by A. Commission
is 20% on selling price. The revenue of A’s products during the tax period is VND400,000,000. Turnover for
CIT purposes is: 400,000,000 x 20% = VND80,000,000
The principal (i.e. Company A in the above example) shall recognize the total sale price by the agent as its
turnover, the commission paid to the agent is its deductible expense.
DEDUCTIBLE EXPENSES
General rule
Company A buys a brand new machinery for producing electronic chips at a historical cost of VND2,000
mil. The duration of use is determined to be 5 years which is within the time frame in Circular 45. The
machinery and equipment is put into use from 1 January 2021. Depreciation expenses for CIT purpose is
calculated as follow:
Straight line method depreciation rate = 1/5 x 100 = 20%
Accelerated depreciation rate = 20% x 2 = 40%
Year Reducing Balance Calculation Annual depreciation Accumulated depreciation
2021 2,000,000 2,000,000 x 40% 800,000 800,000
2022 1,200,000 1,200,000 x 40% 480,000 1,280,000
2023 720,000 720,000 x 40% 288,000 1,568,000
2024 432,000 432,000/2 216,000 1,784,000
2025 216,000 432,000/2 216,000 2,000,000
The excess of costs of materials, fuel, power and goods over the reasonable consumption level
The reasonable consumption level is determined by the business at the beginning of the year or before
production, and kept at the enterprise. If the consumption level is subject to Government’s levels, then the
Government level applies.
Example
Cost of sale charged to P&L for the tax period is VND250,000,000, of which cost of raw materials, fuel,
power
and goods used for production, services or trading of goods that exceeds the reasonable consumption level
determined by the business is VND15,000,000.
Deductible cost of sale is: 250,000,000 – 15,000,000 = VND235,000,000
Payment of interest on loans corresponding to the uncontributed charter capital according to the contribution
schedule in the charter of the company. Payments of interest which has been capitalised to the
assets/investments.
The Company has a registered charter capital of VND100,000,000 which the shareholders committed to
contribute fully in 2020. By end of 2020 the shareholders only contribute VND50,000,000 and in 2021 the
Company borrowed VND200,000,000 at the rate of 12%/year from a bank.
The non-deductible interest shall be: (200,000,000 – 50,000,000) x12%
The excess portion over the allowed limit of business management expenses allocated by foreign
companies to their permanent establishments in Vietnam
Branch B in Vietnam of the Singaporean company F has a total turnover of VND2.5 billion in this tax year.
Company F has total turnover VND50 billion (including turnover of its other permanent establishments).
During
the tax year, Company F allocated a business management expenses to B totalling VND74 million.
According to the audited accounts of F, total business management expenses of the business as a whole is
VND500 million. Determine the level of deductible business management expenses for B in respect of this
tax period.
VND million
Actual business management expenses allocated by Company F 74
Deductible business management expense for Branch B 500 x 2.500/50.000 (25)
Disallowed business management expenses that is to be added back to the taxable income 49
If B is a company owned by F then the allocated management expenses are not deductible to B.
General
Transfer of capital is defined as the transfer of a part or all of the capital that the enterprises have invested to
another investor, including the case of transferring the entire enterprise they own.
Securities include stocks, bonds, fund certificates and other securities under the laws.
Taxable income
Taxable income = Transfer price – Purchase price – Transfer expense
Company A holds 20,000 shares of a listed company. During the tax period, Company A sold 50% of this
investment at VND50,000 per share. These shares were purchased at VND30,000 per share last year, with
total other cost of purchase amounting to VND50,000,000. A was also paid with dividend of
VND60,000,000. Calculate taxable income for the tax period.
VND
Total purchased price (20,000 x 30,000) 600,000,000
Other costs 50,000,000
Total costs 650,000,000
Purchased cost per share (650,000/20,000) 32,500
Consideration on sale of 10,000 shares 500,000,000
Purchased costs (10,000 x 32,500) (325,000,000)
Taxable gain 175,000,000
Dividend is exempt because it has been taxed at the investee company.
Tax declaration
Enterprises set up in Vietnam shall aggregate the taxable income from transfer of securities/capital with
other taxable income of the tax period to calculate the total tax payable.
Foreign companies and organizations shall pay CIT on transfer of capital under the withholding method by
the transferees within 10 days after the transfer. It should be noted that foreign companies and organizations
transferring securities shall be subject to CIT on the deemed basis under the FCT regulations.
Tax declaration
Enterprises which do not have regular transfers of real estates shall declare and pay provisional CIT on
transfer of real estate on every transfer, finalization of all transfer activities is required at year-end.
Enterprises having regular transfer of real estate shall declare and pay taxes in a similar manner to primary
income, however they can register to provisionally pay CIT on each transfer similar to the above
requirement.
Other items
o Income from transfer of project, income from assignment of project implementation, assignment of
the right of exploration, extraction and processing of mineral
o Income related to ownership or right to use assets
o Interest and charges on deposit
o Income from asset lease in any form
o Gain from trading foreign currencies,
o Net income from transfer or disposal of assets (excluding realestate)
o Gain from realized foreign exchange difference or from revaluation of account payables.
o Reversion of provisions which are not fully used by due date
o Bad debts written-off which are now collected
o Receipts of fines for economic breaches (after deducting payable fines)
o Account payables of which creditors are unidentified
o Difference in revaluation of assets for capital contribution, transfer upon split, merger, consolidation
o Income which was omitted in previous years
o Gifts, gifts in cash and in kind income received in cash or in kind from marketing assistance, cost
assistance,
o payment discount, promotional bonus and other allowances.
o The compensation for fixed assets on the land and relocation assistance money after deducting the
related
o expenses
o Reversion of unused provision or not fully used; reversed provisions for warranty of construction
works
o Import and export tax refund of goods actually exported and imported arising in the settlement year
of CIT
o The earnings related to the consumption of goods and services not included in revenue, after
subtracting the
o costs to generate such income.
o Incomes from capital contribution for joint stock, local economic joint venture and association
divided from income before payment of corporate income tax.
o Income from disposal of scraps and discarded products after deducting the expenses of recovery and
consumption
o Incomes received in cash or in kind from funding sources; Other income as prescribed by the law
Taxable income
• Taxable income from overseas business activities will be the income prior to payment of the associated
corporate income tax in such country. Similarly to income from transfer of real estate, overseas income is
subject to tax at 20%, without any reduction or exemption even if the company is currently subject to some
CIT incentives in Vietnam. Overseas income is declared in the year incurred or the following year,
depending on the availability of information and documentation
• The CIT paid in the foreign country (including CIT which is exempt or reduced by the foreign country
and/or
dividend tax) will be credited when calculating Vietnam CIT payable, provided that the credited amount
does
not exceed the Vietnam CIT payable for this income
Example
VND
Income earned from an investment project at country X 800,000,000
Tax rate at country X 20%
Tax paid at country X after a 50% reduction as investment incentive (80,000,000)
Net income remitted back to Vietnam 720,000,000
Taxable income declared for Vietnam CIT purposes 800,000,000
CIT payable @ 20% 160,000,000
Less: tax paid and tax reduced in country X (160,000,000)
Outstanding CIT liability 0
Tax incentives could also be applied the below which is directly related to incentives business:
o incomes from the liquidation of waste materials and scraps of products,
o exchange rate differences
o demand deposit interests
Application scope
o Preferential location
o Preferential business field (activities)
o Large-scale production project (except one to produce product subject to excise tax)
Incentives duration
Preferential tax rates shall be counted consecutively:
• From the first year when enterprises generating turnover from new investment projects eligible for tax
incentives.
• For hi-tech enterprises and agricultural enterprises applying high technologies, this duration shall be
counted from the year when they are recognized as hi-tech enterprises or agricultural enterprises applying
high technologies. For projects applying high technologies, this duration shall be counted from the year
when they are granted certificates of projects applying high technologies.
Tax holiday starts continuously from:
• the first year of making profit, without taking into account losses carried forward from previous years; or
• If the enterprises have no taxable income within the first 3 years upon having revenue, the tax holiday shall
apply from the 4th year.
• If an enterprise has taxable income in the first tax period but its new investment project has a production or
business operation duration eligible for tax incentives of under 12 (twelve) months, the enterprise may
choose to enjoy tax incentives for the new investment project right in that tax period or register with the tax
agency a tax incentive duration counted from the subsequent tax period. If the enterprise registers a tax
incentive duration in the subsequent tax period, the first tax period’s payable tax amount shall be determined
for remission into the state budget under regulations.
These provisions may effectively render the tax holiday useless in many cases.
Investment on expansion
Criteria
o The increase in cost of fixed assets when the project is finished and put into operation is at least
VND 20 billion (if the expansion project is of a favored field) or VND 10 billion (if the expansion
project is located in a avored area)
o Ratio of increase in cost of fixed assets is at least 20% of total cost of fixed assets before investment.
o Designed capacity after expansion increases by at least 20% compared to the designed capacity
mentioned in the technical and economic feasibility study done before initial investment.
Other deduction
There are certain cases whereby enterprises may enjoy a double deduction, i.e. Expenses are deducted from
(i) turnover for taxable income determination and then (ii) deducted again from the tax payable, including
Specific
expenses to minority ethnic employees
Enterprises that transfer technologies in the prioritized fields to organizations and individuals in
geographical areas with difficult socio- economic conditions are entitled to 50% reduction of payable CIT
calculated on incomes from technology transfer.
Change of ownership
The distribution of scientific and technological development funds are decided by enterprises and registered
at
the tax authorities.