Chapter 3

CORPORATE INCOME TAX

LEARNING OBJECTIVES
After reading this chapter, you should be able to:
-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.
-Recognize and compute assessable income, base income, base turnover and deductible expenses.
-Explain and compute the' other income' that should be included in taxable
income.
-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 saving/deferral arrangement in given
circumstances.

[Link] OF CORPORATE INCOME TAX

Income tax includes corporate income tax(CIT)and personal income tax. While personal income tax is
levied on income of individuals, including employment income, business income and other incomes
received by each individual, corporate income tax is imposed on incomes received by legal entities
such as limited companies, join-stock corporations, and other economic entities.
Corporate income tax is a tax the base for which is incomes of corporations and other economic
entities. The core part of the base is the profit from business activities by a [Link] others are
the incomes that an enterprise or an economic entity receives related to their business such as
incomes from asset Liquidation, gifts,or donations, etc.
We can distinguish corporate income tax from other taxes by the following characteristics:
[Link] tax is a direct tax Legally income taxpayers are those who really pay tax. The base is the
income of the taxpayers, not the price of goods or [Link] is [Link] not impossible,to shift the
tax burden onto the consumers of goods or services Being a direct tax, corporate income tax is in
general proportional or progressive and this is a strength of corporate income tax. However, the
payers of corporate income tax as a direct tax are inclined towards fraud and evasion. Of course,this is
a weakness of corporate income tax
Secondly, despite being a direct tax, corporate income tax is less sensitive than personal income tax.
Corporate income tax is rather vague to many people. This is because in many cases, those who really
pay tax are stockholders and most of them do not manage the business. They seem to neither know
nor care about any tax issues. Their mere concern is [Link],their dividend is influenced by
income tax, which they are unaware of. They attribute the rise or fall in their dividend to the
management of the corporation. In some cases,a shareholder can be a manager of the company. He
or she knows that the income tax reduces his or her dividend as well as affects the income of all other
owners of the company. Thus, the desire to evade payment of tax is but not as strong as that of
personal income tax payers.
[Link] income tax is dependent on the profitability of the taxpayers' business. In fact, the
core of the base of corporate income tax is the profit of the corporation. Therefore,the more profit
the corporation earns the bigger tax revenue will flow into the state budget. Thus,corporate income
tax is not neutral. It depends on the efficiency of the business.
Fourthly, in certain cases, income tax is regarded as a withholding of personal income tax. In some
countries dividend and capital gains are subject to personal income tax. In this case,both corporate
income tax and personal income tax are imposed on the income of a taxpayer. The proponents of this
kind of taxation hold that income is taxed at two different stages -one as a corporate income and one
as personal income -so there is no double taxation here. However, according to some economists
there is a double taxation in this case as they argue that although the income paid by the company, it
really belongs to the shareholders of the company. If no corporate income tax were paid, the income
received by the shareholders would be greater. This explains why in many countries,personal income
tax is not imposed on [Link] this case, corporate income tax is regarded as a withholding of
personal income tax.
[Link] SCOPE OF CORPORATE INCOME TAX
[Link]
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 For corporate income tax
purposes,the term"enterprises and economic organizations"means:
(i) An enterprise organized under Vietnam law including limited liability company,a joint venture,a
join stock corporation or a partnership(a limited partnership or a registered ordinary partnership);
(ii)A company established overseas under other countries law having or not having permanent
resident establishments in Vietnam;
(iii)A business or profit-seeking organization owned by any social professional organization or non-
government organization;
(iv)An organization founded under the Act of Co-operative;
(v)Other organizations that do business and get income from the business.
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 while foreign companies not having resident establishments in Vietnam are only subject to
CIT on incomes generated in Vietnam. (phải làm rõ xem là dn vietnam hay nước ngoài, có cơ sở
thường chú ở đâu)
Resident establishment of a foreign enterprise means a production and/or business establishment via
which a foreign enterprise conducts part or all of its production and/or business activities in Vietnam
which earn income, comprising:
-Branches,executive
offices, factories, workshops,goods-forwarding warehouses,means of transport,mines,oil or gas fields
or natural resource exploring and exploiting sites or equipment and facilities at the service of natural
resource exploration;
-Construction sites,construction supervision as well as construction, installation or assembly projects;
-Establishments providing services,including consultancy services provided via people working for
such establishment or via other organizations or individuals;
-Agents of foreign companies;
-Vietnam-based representatives who are authorized or not authorized to sign contracts on behalf of
the foreign companies but regularly perform the delivery of goods or the provision of services 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.
Example 3.1:Company A established and registered its business on 10 July year [Link] applicable fiscal
year is 1 January to 31 December. The first tax period of Company A shall be the period from 10 July
2012 to 31 December
year N.
Example 3.2:1f Company A registered its business on 1 November year [Link] applicable fiscal year is 1
January to 31 [Link] the year N it is only 2 months. So it can choose to have the first tax
period from 1 November year N to 31 December year N11.
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.
Example 3.3:For enterprise A,the tax period of corporate income in 2017 under the applicable
calendar year, at the beginning of 2018 choosing to change to the fiscal year from April 01 this year to
March 31 of the following year. The tax period of CIT of the changed year(2018) from the January
01,2018 by the end of March 31,2018(3 months), the tax period of corporate income of the following
year shall be calculate from April 01,2018 by the end of March 31, 2019.
Enterprises during the time enjoying the preferential CIT with the change of tax period shall have the
right to choose:preference in the year of change of tax period or payment of tax at the ordinary rate
of tax of the year of change of tax period and enjoying the tax preference to the following year
Example 3.4: The same enterprise A enjoys enterprise income tax incentives (2 years’ tax exemption
and 50% tax reduction in the subsequent 4 years), with tax exemption starting in [Link] it may
enjoy the tax incentives as follows:tax exemption in 2016 and 2017; and 50% tax reduction in
2018,2019,2020 and [Link] the enterprise chooses to enjoy 50% tax reduction in the tax period of
the year of conversion 2018,it may enjoy such 50%tax reduction for three subsequent tax years from
the fiscal year 2018(from April 1,2018 to March 31,2019) to the end of the fiscal year [Link] it does
not choose to enjoy 50% reduction of enterprise income tax in the tax period of the year of
conversion 2018(it declares and pays the tax at the common rate in the year of conversion 2018),it
may enjoy 50%reduction of enterprise income tax from the fiscal year 2018(from April 1,2018,to
March 31,2020)to the end of the fiscal year 2021.
[Link] SUBJECT TO CIT
Under the Law on CIT of Vietnam,incomes subject to CIT include incomes derived in Vietnam and
overseas incomes.
Incomes derived in Vietnam are those generated in Vietnam by enterprises established under
Vietnamese laws and income earned in Vietnam by foreign enterprises.
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.
[Link] COMPUTATION OF CORPORATE INCOME TAX
[Link] COMPREHENSIVE COMPUTATION OF CORPORATE INCOME TAX
Under the Law on CIT of Vietnam,the amount of CIT payable is determined by the following formula:
CIT amount payable = (Base income - Deduction of Science and Technology Fund) *CIT rate
Tax base is the key factor to determine CIT amount payable. As can be seen in the above formula,
under the Law on CIT of Vietnam,the base of corporate income tax is called base income or assessable
income. The base income/assessable income is defined as follows:
Base income/Assessable income = Taxable income - Exempt incomes - Losses carried forward
The taxable income is determined by the following formula:
Taxable income = Base turnover - Deductible expenses + Other taxable incomes
1. Base turnover
2. Deductible expenses
3. Other incomes
4. Taxable income
5. Exempt incomes
6. Losses carried forward
7. Base income
8. Deduction of science and Technology Fund
9. CIT amount payable
[Link] TEMPLATE FOR COMPUTATION OF CORPORATE INCOME TAX
Because CIT liabilities is determined based on the financial statement prepared by tax payers and
their accounting books and documents,there are 2 templates to compute CTT liabilities as follows:
[Link].Template 1
Turnover x
Less:Deductible expenses (x)
Add:Other taxable income x
Taxable income x
Less:Exempt income (x)
Less:Losses carried forward (x)
Assessable income x
Less:Science & Technology Fund (x)
Net assessable income x
CIT payable @CIT rate % x
[Link] 2
Accounting Profit before tax x
Add:
Adjustments that increase turnover x
Expenses of the reduced turnover x
Income tax paid on the overseas income x
Non-deductible expenses x
Other adjustments that increase profit before tax x
Less:
Turnover that was taxed previous years (x)
Expenses of the increased turnover (x)
Other adjustments that reduce accounting profit (x)
before tax
Taxable income (adjusted profit) x
Less:
Exempt income (x)
Losses carried forward (x)
Deduction of Science and Technology Fund (x)
Income from transfer of real estate x
Assessable income from trading and production x
Tax payable @20%
Less:
Tax reduction due to tax rate lower than 20% (x)
Tax liability that is exempted/reduced (x)
Tax paid on overseas incomes(to be restricted to (x)
the amount of tax payable in accordance with
Vietnam laws)
Tax liability for production and trading in goods x
and services
Add:tax on income from transfer of real estate(if x
any)
Total tax liability x
Paid amount for the first 3 quarters x
Tax payable x
75% of tax liability x
Difference between 75% of tax liability and paid x
amount
[Link] COMPUTATION OF CORPORATE INCOME TAX FOR OVERSEAS INCOMES
Incomes from goods production and trading or service provision activities overseas is treated as
follows:
(i) 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.
(ii) 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. When determining
income tax payable 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 Corporate
Income Tax 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.
Example 3.5:
We have data from AGV [Link] 20XX as follows:
+Base turnover:VND30 billion;
+Total deductible expenses:VND26 billion;
+Income received from an investment project in country A after payment of CIT for country A at the
rate of 15%:VND1,700 [Link] A has not signed the double taxation avoidance agreement
with Vietnam.
Required:Determine CIT amount payable for the tax year 20XX by AGV.
Solution:
-For domestic business:
+ Assessable income-Base income:VND30 billion-VND26 billion =VND4 billion.
+CIT payable for domestic business: VND4 billionx20%=VND800 million
-For overseas income:
+Before-CIT income from overseas:VND1.700 million/(1-0,15)-VND2 billion.
+CIT payable for overseas income:VND2 billion x 20% VND2 billion x 15%-VND100 million.
-Total CIT payable:VND800 million+VND100 million-VND900 million
Example 3.6:
We have data from AAC [Link] 20XX as follows: Income received from an investment project in country
A after payment of CIT for country A at the rate of 18%and being reduced by 50% of the CIT amount
payable:VND5,460 million Country A has not signed double taxation avoidance agreement with
Vietnam.
Required:Determine CIT amount payable for overseas income for the tax year 20XX by AAC.
Solution:
+ Before-CIT income from overseas:VND5,460 million (1- 0.18 x 0.5) = VND6 billion.
+ CIT amount payable:VND6 billionx 20%-VND6 billion x 18% = VND120 million.
[Link] INCOME AND ASSESSABLE INCOME
[Link] 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. Where the
turnover is in foreign currencies, it will be converted into Vietnam dong based on the actual exchange
rate of the commercial bank where the company opens its account at the time of earning. (base
turnover là tiền thu về từ bán hàng hóa dịch vụ, phải nộp thuế theo đơn vị tiền việt)
- Quantity discount, goods returns and price reduction due to poor quality are excluded from the base
turnover However,cash discount and discount for early payment are not subtracted from the base
turnover.(chiết khấu giảm giá thì vào phần tài chính, còn hàng hỏng các thứ thì vào khấu trừ bình
thường)
- 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.
Example 3.7:
The financial report of the Huy Hoang [Link] for the tax year N shows that the gross turnover of the
company is 2.000 million [Link] which:
+1.300 million dongs come from exported goods;
+The quantity discount is 100 million dongs:
+Discount for early payment is 200 million dongs. Besides in the tax year this company received a
subsidy of 50 million dongs from the government for the goods sold to the poor.
Required: Define the base turnover for corporate income tax for the tax year N.
Solution:
The subsidy is added to the base turnover. The quantity discount is excluded while the discount for
early payment is not. Therefore, the base turnover for the tax year is:
2.000 million + 50 million - 100 million= 1,950 million dongs
For business establishments that pay value added tax(VAT) under credit method their base turnover is
the turnover exclusive of [Link] business establishments that pay VAT under direct method, their
base turnover is the turnover inclusive of VAT.( nếu mà doanh nghiệp mà tính VAT theo cách khấu trừ
vì trong doanh thu đã khấu trừ rồi, nên ko có VAT deductible, nếu mà ko có khấu trừ thì trong có VAT
deductible expense)
The base turnover in some specific cases is specified as follows:
-For goods sold on installment payment: The base turnover is lump-sum price,excluding interest on
deferred payment.
-For goods or services used for barter or internal consumption(except for those used for the
production or doing business of the enterprise): The base turnover is determined based on the selling
price of goods or services of the same or similar categories at the time of barter or internal
consumption.
-For goods processing activities: The base turnover is the proceeds from the processing, including
[Link] of [Link], ancillary materials and other costs for goods processing.
- For property leasing activities: The base turnover is the rent paid by the lessee for each term under
the leasing contract. If the lessee pays rent in advance for several years, the tax payer can choose one
of the following two ways to record base turnover for CIT purpose:(i)The base turnover is the
advance-paid rent divided by the number of years for which the rent has been paid in advance;(ii)The
base turnover is advance payment meaning all the advance payment recorded for the year of
payment. The matching principle requires that when you book a turnover you have to book the
corresponding expenses that generate the turnover.
Other specific cases of booking turnover for tax purpose are stipulated by the Ministry of Finance of
Vietnam The general principles for these cases are:(i) Matching principle is followed (ii)Ensure the
consistent implementation for cases with many different interpretations; (iii)True reflection of the
nature of corporate income tax is imposed on the profit of an enterprise in a tax period.
[Link] 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
supported with invoices for purchases of goods or services with total payment of VND20 million or
more.(trả lương thì kh yêu cầu bắt buộc là tiền mặt hay chuyển khoản vì nó ko có invoice)
The three conditions for a deductible expense and major non-deductible expenses will be discussed
below.
[Link].Conditions for deductible expenses
a) Actual expenses used for the production and business of the enterprise
The Act of corporate income tax in Vietnam provides no definition for “actual expenses"but in
practice, actual expenses simply are not artificial or fictitious expenses.
No explanation for what an expense “used for the production and business of the enterprise” means,
but in practice, expenses that are necessary for business operations are accepted as 'actual expenses'
Expenses for capital construction investment,financial supports for localities, mass organizations and
social organizations outside business establishments;expenses for charity purposes. except for some
donations mentioned below are regarded as "Not used for the production and business of the
enterprise".
b) Legiate voices and vouchers
In principle, there are two types of legitimate [Link] are:(i)invoices published by the tax
offices;and(ii)invoices made and issued by business establishments which are registered with the tax
offices in change. The use of the invoices must be compliant with the Act of accounting and other
regulations on invoices stipulated by the Ministry of Finance.
Vouchers are legitimate if they are in compliance with the regulations stipulated by the Ministry of
Finance.
c) Non-cash paymen
Non-cash payment is required to expenses supported with invoices for purchases of goods or services
with total payment of VND20 million or more. Non-cash payment is bank payment (such as
[Link] card,debit [Link] [Link] transfer etc.)and other non-cash payment under the
regulations stipulated by the State Bank of Vietnam such as offsetting payment,clearing payment etc.
In case of deferred payment which is specified in the contract on the deferred payment period, the
deferred payment expenses is deducted at the tax period for which such expenses are incurred. If that
expense then is paid not through bank, that expense must be excluded out of the total deductible
expense of the tax year in which the expense is paid.
[Link].Non-deductible expenses
The list of non-deductible expenses is stipulated in the Law on Corporate Income Tax and is
specifically guided by the Government and by the Ministry of Finance. This list may be changed over
time under specific circumstances and there are many reasons for these expense to be not deductible
but they can be classified into the following groups:
(1) Expenses that do not match with base turnover under matching principle The rationale of this
group of non-deductible expenses is closely related to a basic accounting principle the matching
principle according to which a company should report an expense on its income statement in the
period in which the related revenue are earned. This is to truly reflect the profit of a
[Link] of these expenses are:(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;(ii)Expenses for construction to form fixed assets.
Example 3.8: An amount of a prepaid rent for 5 years renting of a house is VND50,000,[Link] the
prepaid expense is allocated to each tax year is VND10,000,000(the prepaid rent of VND50,000,000 is
allocated for 5 years), this prepaid expense is deductible because it is compliant with the legislation
on rent expense. However, if the prepaid expense had been allocated for only two years, with
VND25,000,000 each year;the excess amount allocated (25,000,000 -10,000 15,000,000)would have
not been deductible.
(2) Capped expenses
As a best common practice,in many countries,a ceiling are imposed to certain expenses under tax
[Link] means for some expenses, the excessive amount as stipulated by law is not deductible. The
rationale is that for some expenses, the owners of the company benefit if they actually pay more than
the market price For example, salaries or remuneration paid to directors or managers who at the
same time are owners of the company.
In the current Vietnam's Law on CIT, the following expenses are capped:
- 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;
- Interest expenses paid to lenders who are not credit institutions or economic organizations:
Welfare benefit which is directly spent on employees;
- Life insurance and voluntary retirement insurance,
- Expenses for hiring management in the fields of prize-winning electronic game [Link]
business.
The ceiling of the above expenses may be changed over times depending on specific socio-economic
circumstances.
(3) Expenses which are not in compliance with specific regulations stipulated by competent state
agencies
This group of expenses accounts for the majority of the total non-deductible expenses. As for the
specific characteristics of the some expenses related to the production and business activities of the
enterprise in many cases, the lack of specific regulation may lead to different understandings in
application. Therefore, there should be specific provisions to ensure that a uniform way in the
determination of these expenses will be done for tax [Link] in this group include:Fixed
asset [Link] [Link] expenses, some charity expenses [Link] are the
most typical expenses in this group.
 Depreciation and amortization
In order to be deductible as depreciation expense,a fixed asset of a business establishment has to
meet the following criteria:(1)it must have legitimate vouchers; (ii)it is used for generating
incomes;and (ii)the depreciation has to comply with the stipulations by law.
There are three depreciation methods accepted including [Link] declining-balance and
units of production.
- Straight-line depreciation
By this method, an equal portion of the cost of the asset is allocated to each period of use. The
periodic charge is calculated as follows:
Cost of asset (Total purchase price)
Annual depreciation charge=
Useful life

The useful life is determined by the business establishment based on the asset's technical features
but should neither be shorter than the minimum service life nor longer than the maximum service life
specified by the Ministry of Finance of Vietnam. The service life is currently specified for eight groups
of assets and each group has its minimum service life and maximum service life.
Where the business establishment's efficiency is high and the assets are quickly out of date,it can
apply an accelerated rate of depreciation. The maximum accelerated rate is twice as much as the
straight-line rate. The accelerated rate is applicable only to some types of assets provided they are
not second-hand ones.
Example 3.9:The cost of a machine(the total purchase price)is VND 100,000,000. Estimated service life
is 5 years. The maximum service life of this machine stipulated by the Ministry of Finance is 6 years.
Required:Define the annual depreciation charge of this machine,using straight- line method.
Solution:
The annual depreciation charge is:
VND 100,000,000
=VND 20,000,000 per year
5

-Adjusted declining-balance method

This is an accelerated method of depreciation because a greater amount of depreciation expense is
taken in the early years of an asset's life and less is taken in the later years.
The depreciation charge is determined by multiplying the book value at the beginning of the year by
the accelerated rate. At the end of the depreciation period when the depreciation charge calculated
in that way becomes smaller than the average of the book value towards the remaining depreciation
years, the depreciation charge is calculated by dividing the book value by the remaining depreciation
years. As can be seen in example 5.4 below, the 4h year of depreciation has the book value of
21,600,[Link] you continue to multiply the book value by the accelerated rate of 40 percent, the
depreciation charge would be 8,640,000 which is smaller than the average amount of depreciation for
the last two years (The average is 21,600,000/2 -10,800,000).Therefore,the depreciation is adjusted
by dividing the book value by [Link] is why this method is called "Adjusted declining-balance instead
of 'Declining-balance".
The book value of the asset at the end of the preceding year becomes the book value at the beginning
of the following year. The book value at the beginning of the year minus the depreciation charge of
that year gives you the book value of the asset at the end of that year.
The accelerated rate can be 1.5 times or twice as much as the straight-line rate. If the service life of an
asset is 4 years or less, the accelerated rate is 1.5 times. If the service life of an asset is more than 4
years, the accelerated rate will be doubled.
Thus, the procedure of the method is to apply a fixed rate to the declining book value of the asset
each year. As the book value declines, the depreciation becomes smaller.
Example 3.10: With the data provided in example 3.9 above use the adjusted declining-balance
depreciation method.
Solution:
As the service life of the asset is 6 years, the accelerated rate is doubled. Thus, over a period of 5
years of estimated service life, the depreciation rate is 20 percent.
The accelerated rate is 20 percent x 2 = 40 percent.

Year Book value at Accelerated rate Depreciation Book value at

Beginning of Year charge for Year End of Year

1 100,000,000 40% 40,000,000 60,000,000

2 60,000,000 40% 24,000,000 36,000,000
3 36,000,000 40% 14,400,000 21,600,000
4 21,600,000 Adjusted 10,800,000 10,800,000
5 10, 800, 000 Adjusted 10,800,000 0

Adjusted declining-balance method is applicable to some types of assets such as

machines,equipment, and experimental tools in the field of business where the technology quickly
becomes out of date,provided they are not second-hand ones.
-Units of production method
This method is based on an asset's usage. According to this method,a fixed amount of depreciation is
allocated to each unit of output produced by the machine. The result of depreciation per-unit
multiplied by the number of items produced in each tax year is the annual depreciation expense
Depreciation expense is computed in two steps:
Step 1:
Cost of asset (Total purchase price)
Depreciation per unit=
Total estimated units of output

Step 2:
Units produced x Depreciation per unit = Annual depreciation expense
Example 3.11: The cost of a machine (total purchase price)is VND 100,000,000. The estimated number
of units produced during the machine's lifetime are 500,[Link] year production is 20,000 units.
Second year production is 30,000 units.
Required: Define the depreciation charge of this machine for the first and second year,using units of
production method.
Solution:
The depreciation per unit is:
VND 100,000,000
=¿VND200 depreciation per unit
500,000

The depreciation expense for the first and second year would be calculated as follows:
Year 1 : 20,000 units x VND200 = VND4,000,000
Year 2 : 30,000 units x VND200 = VND6,000,000
In order to apply this method, a machine must meet the following three criteria: (i)it is directly used
for production:
(i)estimated number of units produced by the machine can be determined and()the monthly average
use of the machine is not less than 50 percent of the design capacity.
 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. The level of provision is stipulated by the Ministry of Finance of Vietnam and
can be adjusted from time to time depending on the socio-economic situation.
In general regulations on these provisions are as follows:
- Provision for the decrease in value of inventories: The provision is applicable to only inventories(or
stock)with legitimate vouchers and the net realizable value of which is lower than the original price.
The net realizable value is the estimated selling price less the estimated cost for completing the
products and the estimated selling cost. The provision is made at the end of the financial year. Thus,
first the difference must be determined between the net realizable value and the original price, which
can be considered as the provision [Link]. all the provision demands are totaled up and
compared against the balance of the inventories provision [Link] the total provision demand is
greater than the balance of the inventories provision account,a provision for the tax year is
deductible. If they are equal no provisions are [Link] the total provision demand is smaller than
the balance of the inventories provision account, the expenses have to be written down as the
difference.
Example 3.12:
We have the information on TNT [Link] 31 December 200N as follows:
- The balance of the inventories provision account is VND 40 million.
- The prices of three items in stock (all of which have legitimate vouchers) are in the following table:
Items Quantity Estimated net book Market price (VND)
value(VND) per unit per unit
A 1,000 50,000 40,000
B 2,000 40,000 35,000
C 2,000 100,000 80,000

Required:Define the provision for the price decrease of inventories.

Solution:
Step 1: Define the provision demand by totaling all of the differences between the estimated net book
value and the market price of all items:
1,000 x(50,000- 40,000)+2,000 x (40,000-35,000) +2,000 x(100,000-80,000) = VND60 million.
Step 2: Compare the provision demand against the balance of the inventories provision account:
VND60 million VND40 million. This means the provision demand is greater than the balance of the
inventories provision account and the difference is VND60 million-VND40 million =VND20 million.
Conclusion: The provision for the price decrease of inventories of TNT Co. Lid for the tax year 200N is
VND20 million.
- Provision for bad debts: is determined in the similar manner as the provision for the decrease in
value of inventories First, the expected bad debt amount for all debts have to be determined.
According to the current [Link] can be regarded as doubtful or bad debts which require
provisions only if they are not paid by the due date stipulated in the lending contract. The amount of
expected bad debts ranges from 30 percent to 100 percent of the value of the debt,depending on
how late the payment [Link] totaling all of the amount of expected bad debts, the next step is to
compare the result against the balance of the bad debt provision account in order to make the
provision for the bad debts just like you make provision for the price decrease of inventories.
- Provision for financial investment risks:This provision is related to long-term investments in other
companies and securities investments. The way you determine this provision is similar to the way you
calculate the above provisions. The difference in the method here is the criteria Provisions are
applicable only to listed securities with legitimate vouchers.
-Provisionfor construction guarantee: The business establishment can make a provision of up to 5
percent of the building contract price.
 Materials
Under regulations stipulated by the Ministry of Finance 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;
- 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;
- 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 as
prescribed by legislation.
♦ Salaries or salary in nature
Under regulations stipulated by the Ministry of Finance, 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;
- 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 labor contracts or labor 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;
- The excess amount of salaries and/or wages actually payable but have not been paid by the due time
of annual 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.
 Donation
In general, donations are not deductible except for the following donations:(i) Donation for education:
(i)Donation for health care;(ii)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
The above donations is only deductible if they are in compliance with the specific regulations
stipulated by the Ministry of Finance.
 Transportation tickets and accommodation expenses not in compliance with the specific
regulations by the Ministry of Finance are not deductible.
 Taxes
From an enterprise perspective,every tax payable is considered a cost when determining profits. For
tax [Link] all taxes are considered deductible expenses. Under the current Law on CIT of
Vietnam,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.
(4) Tax penalties and legal fines
These fines include 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.
(5)Expenses covered by other sources
These expenses include payment made by social insurance fund for health expenses of employees,
expenses covered by the government for public services etc.
(6) Some other non-deductible expenses
- Expenses of golf fees or golf member card.
-Where the charter capital is not fully contributed as committed the interest paid for the loan that is
equivalent to the lack of the charter capital is not deductible.
- Payments of interest on loans that is equivalent to the lack of the charter capital as contribution
timetable stipulated in the enterprise's charter. 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.
- Overhead expenses allocated by an overseas parent company to a Vietnamese establishment which
exceed the permitted amount by the law of [Link] criterion for allocation of these expenses is
the river. This means the overhead expense allocated to Vietnamese establishment depends on the
ratio between the turnover of the Vietnamese establishment and the turnover of the parent
company.
Example 3.13: John Group,a Malaysian company has a resident establishment in Vietnam called
Vietnam John [Link] the tax year, N the overhead expense of the Group is 50 million dollars. The
turnover of all companies and branches belonging to John Group is 10 billion dollars of which the
turnover of Vietnam John [Link] is 1 billion dollars.
Required: Define the allocated overhead expense to Vietnam John [Link]. Solution:

1 billion
50 million × =5 million dollars
10 billion

[Link] TAXABLE INCOMES

TAXATION -A University Textbook
In general,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. Thus, almost every income received or receivable by a CIT payer other than incomes
from goods production and trading or service provision activities listed in business license or business
registration certificate of that CIT payer is treated as other taxable [Link]
include:
- Sales margin of securities dealing.
- Income from activities related to industrial property rights and copyright.
- Other incomes from property ownership.
- 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 [Link] 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:
Taxable income ¿ liquidation=Liquidation turnover − Liquidation expenses − Book value at the time of Liqu
-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 [Link] main income is
written down by the amount of the difference.
Example 3.14: We have data from Inc [Link] 20XX as follows:
+Total interest receivables for bank deposits:VND 1,400 million;
+Total deductible interest expenses for borrowings VND1,200 million.
Required:Determine other taxable income in 20XX from interest of Inc.
Solution:
+ Interest receivables are greater than deductible interest expenses. The difference is:
VND 1,400 million - VND 1,200 million = VND100 million.
+Other taxable income from interest: VND100 million.
Example 3.15: We have data from VAA Co in 20XX as follows:
+ Base turnover: VND40,000 million;
+ Total deductible expenses apart from interest expenses for borrowings: VND36,000 million;
+ Total deductible interest expenses for borrowings: VND2,200 million;
+ Total interest receivables for bank deposits: VND600 million;
Required: Determine base income in 20XX of VAA.
Solution:
+ Main income: VND40,000 million million.- VND36,000 million = VND4,000
+ Deductible interest expenses are greater than interest receivables. The difference is:
VND2,200 million - VND600 million = VND1,600 million.
+ Base income: VND4,000 - VND 1,600 million = VND2,400 million.
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 payable, the difference is recorded as other income.
+ If the fine payable 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.
The following examples will illustrate clearly the above regulation.
Example 3.16: We have data from ANV Co. in 20XX as follows:
+ Fine receivables for suppliers' breaches of contracts: VND240 million;
+ Fine payables to buyers due to ANV's breaches of contracts: VND160 million;
+ Net income from an asset liquidation VND210 million.
Required: Determine other taxable income of ANV in 20XX.
Soluiton:
+Fine receivables are greater than fine payables. The difference is:
VND 240 million - VND 160 million =VND80 million.
+ Net income from an asset liquidation:VND210 million.
+ Total other taxable incomes: VND80 million +VND210 million =VND290 million.
Example 3.17: We have data from ABC [Link] 20XX as follows:
+ Fine receivables for suppliers breaches of contracts: VND210 million;
+ Fine payables to buyers due to ANV's breaches of contracts: VND260 million;
+ Net income from an asset liquidation:VND210 million.
Required: Determine other taxable income ofABC in [Link].
Solution:
+ Fine payables are greater than fine receivables. The difference is:
VND260 million - VND210 million = VND50 million.
+ Net income from an asset liquidation: VND210 million.
+Total other taxable incomes: VND210 million - VND50 million = VND160 million.
- Sales margin from foreign currencies or foreign exchange rate difference.
- Year-end balance of provisions according to regulations by law except for bad debt provision,
provision for decrease in value of inventories,provision for risks in financial investments,provision for
the guarantee of construction and installment, and salaries/wages provision.
- 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.
-Incomes from the sale of goods or provision of services, which are not yet included into the
turnover,after deducting expenses for the generation of these income amounts under the Finance
Ministry's regulations.
-Other incomes such as income from project transfer,gain from capital transfer,real estate transfer
etc.
[Link] INCOMES
The following incomes are exempt from corporate income tax:
-Income from [Link] husbandry and aquaculture products of cooperatives and entities,
which are established under the Act of Cooperatives;
-Income from famming, 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;
- income from contracts on scientific research and/or technological development for maximum period
of time of 3 year 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
legislation on production process;
-Income from the sale of products made by new technologies applied for the first time in Vietnam,but
for no more than 5 year since the application of these new technologies to the production; -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 IIIV
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.
[Link] 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.
Example 3.18:The following table shows some possible cases related to losses and gains of Company
ABC from 2020 to 2026 (In billion Vietnam dong).
Year Profit
Case 1 Case 2 Case 3
2020 (800) (900) (700)
2021 600 (700) (740)
2022 700 (500) (720)
2023 750 400 (400)
2024 780 700 (200)
2025 830 900 (50)
2026 880 800 340
The way we determine losses carried forward for each case above is as follows:
Case 1:The amount of VND800 billion loss of the tax year 2020 is carried forward to the tax year 2021
VND600 billion which makes the assessable income of the tax year 2021 equal to 0 (600-600=0). The
rest VND200 billion loss of the tax year 2020 is carried forward to the tax year 2022 which makes the
assessable income of the tax year 2022 equal to VND500 billion (700 -200=500).
Case 2:Loss of the tax year 2020 is carried forward VND400 billion to the tax year 2023 and VND500 to
the tax year 2024. Loss of the tax year 2021 is carried forward VND200 billion to the tax year 2024 and
VND500 billion to the tax year 2025 Loss of the tax year 2022 is carried forward VND400 billion to the
tax year 2025 and the rest VND100 billion to the tax year 2026. Similarly to the way we determine the
assessable income in case 1,the assessable income of the tax year 2023 to 2025 is 0. The assessable
income of the tax year 2026 is VND700 billion (800-100=700).
Case 3: The last year for carrying loss of the tax year 2020 is 2025. The loss of the tax year 2020
cannot be carried forward to the tax year [Link] amount of loss of the tax year 2021 VND340 can
be carried forward to the tax year 2026. The rest of the loss of the tax year 2021 worth of VND400
cannot be carried forward to the tax year 2027.
[Link] OF SCIENCE AND TECHONOLOGY FUND
A maximum amount of 10 percent is deducted from base income to form the Science and Technology
Fund (STF).The business establishments have to use this fund to cover all expenses related to
scientific research and technology innovation.
Within 5 years since the year of the deduction for the [Link] only less than 70 percent of the STF have
been used the establishments have to pay income tax on the non-used fund Besides, the
establishments have to pay interest on the non-used of [Link] interest applicable is the interest for
a-year-treasury government bond. The interest payment period is two years.
If the STF is used for other purposes than scientific research and technology innovation,the
establishments it would not be accepted as a deductible expense.
[Link] 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.
[Link] INCENTIVES
Beside exempt incomes and the deduction of science and technology find as mentioned above, there
are some other incentives in the Law on CIT of Vietnam including preferential rates,tax holiday and
other forms of tax incentives. These include the followings:
[Link] RATES
The rate of 10 percent for the lifetime of a tax payer is applicable to establishments engaged in
education, training, health care,culture,sport and environment provided that provided that these
business establishments fully satisfy all of the criteria for socialization stipulated by the Government
of Vietnam.
The rate of 10 percent for 15 years since the commencement of business operation is applicable to
business establishments newly founded under investment projects engaged in:(i)localities with
exceptionally difficult socio-economic conditions; (ii)economic or high technological zones; (iii) fields
of high technology,scientific research and technology development; (iv) investment in specially
important infrastructure of the government;and(v) software production.
The rate of 10 percent for the whole lifetime of projects or of enterprises applicable to:(i)enterprises
engaging in socialization fields such as education, training, health care,culture,sport and environment;
(ii)incomes of enterprises from projects on social housing business as stipulated by law;(iii)incomes of
press agencies from printing press activities, including advertisements on printed newspapers
according to the provisions of the Press Law;the publishing agency's income from publishing activities
in accordance with the Law on Publishing:(iv)income of the enterprise from planting,tending and
protecting forests; farming and processing agricultural and aquatic products in areas with difficult
socio-economic conditions:from cultivating forest products in areas. with difficult socio-economic
conditions and from production,multiplication and crossbreeding of plant and animal varieties etc.
The rate of 15%applicable to incomes from farming breeding and agricultural processing products of
enterprises that are not located in areas with difficult socio-economic conditions or areas with
especially difficult socio-economic conditions.
The rate of 17 percent is applicable to cooperatives and people's credit funds.
The rate of 17 percent for 10 years since the commencement of business operation is applicable to
business establishments newly founded under investment projects engaged in localities with difficult
socio-economic conditions. The period for this reduced rate applicable to projects with mass
investment capital and very high technology can be longer than 10 years but no more than 15 years.
The starting time for applying the preferential rates is at the first year of turnover generating.
[Link] HOLIDAY
Tax exemption up to 4 years after the taxpayer's taxable incomes are generated and a 50% reduction
of the taxpayer's payable tax amounts up to 9 subsequent years is applicable to business
establishments newly founded under investment projects engaged in:(localities with exceptionally
difficult socio-economic conditions; (ii)economic or high technological zones; (iii)fields of high
technology,scientific research and technology development; (iv)investment in specially important
infrastructure of the government; and (v)software production, education, training,health
care,culture,sport and environment.
Tax exemption up to 2 years after the taxpayer's taxable incomes are generated and a 50% reduction
of their payable tax amounts up to four subsequent years is applicable to business establishments
newly founded under investment projects engaged in localities with difficult socio-economic
conditions.
Where the establishment generates no taxable incomes within 3 years since the first year that
tumover arises, the starting time for tax holiday is counted from the 4th year since the first year that
turnover arises.
[Link] EXEMPTS
Business establishments that engaged in production,construction or transport activities and recruit
female laborers can enjoy corporate income tax reduction corresponding to the amount of extra
expenses for the female laborers. The extra expenses are salaries paid to the female laborers for their
work done during the maternity leave,maternity allowance for the first and second parturition, and
extra training expenses.
Corporate income tax reduction is applicable to business establishments employing a large ratio of
minority corresponding to the amount of extra expenses for minority employees.
Example 3.19:
We have data from Viet [Link] tax year 20XX as follows:
[Link] statement of Viet [Link]:
 Gross turnover exclusive of VAT:VND92.000.000.000
 Quantity discount: VND2,000,000,000
 Total expenses which are all supported with legitimate invoices and vouchers and bank payment
receipts except for those stated otherwise: VND80, 000, 000, 000.
•Other incomes:
- Overseas income:Net income received from Singapore equivalent to VND:8,300,000,000. The
amount of CIT paid in Singapore equivalent to VND is 1,700,000,000. Under the Tax Treaty between
Vietnam and Singapore,tax credit is applicable to avoid double taxation.
- Income from a technical service for agriculture:VND60.000.000
- Revenue from an asset's liquidation: VND 110,000,000. Liquidation expense:VND10,000,000. The
residual value of this asset is 0.
 Last year's loss:VND200,000,000
2. Related information to prepare CIT return for the tax year 20XX:
 There was a sale of goods worth VND4,000,000,000 which was not qualified to record as
turnover under the Vietnamese accounting standards for the risks related to the sale has not
been transferred to the buyer. Therefore, the accountants of the company has not recorded to
the turnover in the turnover account. The use right of this goods has been transferred to the
buyer. The cost of this sale is VND3,800,000,000.
 Some information related to the declared expenses above:
- Salaries expenses with illegitimate vouchers: VND80,000,000
- Donation with legitimate vouchers for scholarship to a university: VND200, 000, 000
- Donation with legitimate vouchers to a church:VND20,000,000
Required: Compute the CIT payable by the company for the tax year 20XX and present the CIT
liabilities of the company in the CIT return.
Solution:
1. Accounting profit before tax (in million Vietnam dong)

No Criteria Amount
1 Gross turnover 92,000

2 Quantity discount (2,000)

3 Net turnover:1-2 90,000

4 Financial revenue:Overseas 8.300

income
5 Total expenses (80,000)

6 Net income from businesses: 18, 300

3+4-5

7 Other revenue (w1) 170

8 Other expenses (10)

9 Other profil:8-9 160

10 Accounting profit:6+10 18,460

2. Compute and present CIT payable in CIT return (In millon Vietnam dong)
No Criteria Amount
1 Accounting profit before CIT 18,460
2 Adjustment to increase taxable 5,800
income:3+4+5

3 Adjustment to increase 4,000

turnover

4 Non deductible expenses (w2) 100

5 CIT paid for overseas income 1.700

6 Adjustment to reduce taxable (3,800)

income

7 Expenses related to the (3,800)

adjustment to increase
turnover

8 Taxable income:1+2-6 20,460

9 Exempt income (w3) (60)

10 Losses carried forward (200)

11 Assessable income:9-10-11 20,200

12 CIT under standard 4,040

rate:12*20%
13 Less:CIT paid for overseas (1,700)
income

14 CIT payable: 13-14 2,340

Explanation:
(w1):Other revenue includes income from a technical service for agriculture and revenue from an
asset's liquidation:110+60=170
(w2):Non-deductible expenses include:
Salaries expenses with illegitimate vouchers: VNDD80,000,000
Donation with legitimate vouchers to a church :VND20,000,000
Total non-deductible expenses:80,000,000+20,000,000 = VND 100,000,000
(w3) Income from a technical service for agriculture is exempt from CTT.
[Link] DECLARATION AND PAYMENT
3.10.1. TAX DECLARATION
In general,a self-assessment system is applicable to income tax declaration in Vietnam. The taxpayers
themselves calculate the tax amount [Link] the tax return, and pays tax at the due time stated
by law.
Corporate income tax declaration includes annual [Link] declaration, declaration for
each time of generation of income and final declaration at the termination of business operation or
contracts, transfer of corporate ownership or corporation reorganization. Now we examine these
types of declaration in turn
(1) Annual declaration
This type of declaration is applicable to all business establishments except for those who cannot
declare expenses related to the business or cannot declare both turnover and expenses related to the
business.
In this case, the taxpayer has to pay a provisional CIT amount quarterly based on their financial
statement or their accounting books. The deadline for the provisional CIT amount is on the thirtieth
day of the quarter following the quarter in which the tax liability arises.
The annual tax return must be filed by the last day of the third month since the end of the calendar
year or the fiscal year.
Based on the annual tax return,if the total amount of quarterly provisional payments is more than the
CIT amount for the tax year,the taxpayers can claim a tax refund or choose to offset against the tax
payable of the following tax year. If the taxpayers claim a refund,they have to file a notice letter to the
tax office about their choice. If offset against is their choice,no letter is required;the software of the
tax office does the offset against automatically.
Based on the annual tax return, if the total quarterly provisional payments of the year is less than 80%
of the CIT amount for the tax year,a late payment is imposed on the difference between 80% of the
CIT amount and the total quarterly provisional amount of year. The time for the late payment is a
duration from the date after the deadline of the provisional payment of the 4th quarter to the prior
date that the company [Link] example,the provisional CIT amount from 1st quarter to 4rd quarter
of company A are:VND 1 billion, VND1.4 billion, VND1.3 million and VND 1.3 billion. This means the
total provisional CIT amount of company A during the tax year is:1+1.1+1.3 +1.3 = VND 5 [Link]
CIT payable amount shown in the annual tax return of company A is VND 10 billion Because VND5
billion is less than 80% of VND10 billion(which is VND8 billion),company A must pay a late payment
with the rate of 0.03 percent on VND3 billion(VND 8 billion - VND 5 billion = VND3 billion).
(2) Monthly declaration
The tax amount payable of monthly declaration of corporate income tax is calculated according to the
ratio of income to monthly turnover. This type of declaration is applicable to business establishments
that properly comply with regulations on goods or service sale invoices or vouchers and can
determine base turnover but cannot determine expenses.
The monthly tax return must be filed by the twentieth day of the month following the month in which
the tax liability arises.
(3) Declaration for each time of generation of income
This type of declaration is applicable to business organizations engaging in irregular business.
The taxpayer has to file the tax return by the 10th day as from the date of income arising.
(4) Final declaration at the termination of business operation or contracts. transformation of
corporate ownership or corporation reorganization
The deadline for filing tax declaration dossiers in this case is on the 45th day from the date of
termination of operation or contracts, transfer of corporate ownership or corporate reorganization.
Beside the four cases of declaration above,taxpayers who sign agency contracts with households or
individuals acting as service agents to sell their goods at set prices for commissions have to withhold
corporate income tax, which is equal to 5 percent of commission amounts paid to agents (including
supports for agents under contracts signed with taxpayers).
[Link] PAYMENT
In principle, the due date for tax payment is the filing deadline of tax declaration. This means that for
tax paid on each time of generation of income, the deadline for payment is on the 10h day since the
date of generating;for monthly payment,the deadline is the 20h of the month following the tax
month; for annual payment, the deadline to pay any balance of tax is the last day of the third month
since the end of the calendar year or the fiscal year.
[Link] USE OF EXEMPTIONS AND RELIEFS IN DEFFERING AND MINIMISING CIT LIABILIES
In order to get an economic or a social purpose, the National Assembly stipulates exemptions and
reliefs in tax laws. Taxpayers may take advantages of these stipulations to defer or minimize their CIT
liabilities. There are some typical ways to use exemptions and reliefs in differing and minimizing CIT
liabilities including:The Establishment, Profit Shifting, the Tax Arbitrage, The Postponement.
[Link] ESTABLISHMENT
A company may minims its CIT liability by choosing to invest in to a certain fields of businesses or to a
location that preferential rates or tax holiday are [Link] order to use this way for minimizing
CIT liability,a company should consider all other conditions related to the ultimate purpose of doing
business-maximizing the profit,not only minimizing CIT liability. This means that, all disadvantages
related to the choice of investment and related expenses should be considered and [Link]
short, you must find the answer to three questions:(1)How much more would you get by investing
this project in comparison to other choices?(2)How much more expenses would you have pay for this
project in comparison to other choices?(3)How much would you get after netting off your benefits
and your expenses by choosing this project?
[Link]
Because of the difference in tax rates and in exemption between types of incomes and between
companies investing in different fields of businesses or localities,a company may minimize its CIT
liabilities by shifting its profit from a certain fields of business to others or shilling profit among
related parties (For example, from parent company to its subsidiaries from a subsidiary to other
subsidiary). The way to reduce CIT liabilities is:Profit from the fields with higher CII rate would be
shifted to the fields with lower CIT rate by accounting techniques;profit from companies subject to
higher CIT rate would be shifted to companies subject to preferential rates by internal transactions of
goods and services (Known as transfer pricing as mentioned in chapter 1).
Example 3.20:Company ABC(ABC) founded in 2016 in Lai chau where a tax holiday is applicable ABC
started its production and made a profit of VND40 billion in 2017. Under the law on CIT,all of ABC's
profit earned in Lai Chau is exempt from CIT for 4 years,since 2017 to 2020;a reduction of 50% of CIT
is applicable to its profit earned from 2021 to 2019. Suppose that in 2020, ABC bought 300 equipment
worth VDN25 million each. Under the law on CIT,this expense is allocated to the deductible expenses
in maximum 3 years. This means that ABC can choose to allocate this expense only for a tax year 2020
or to allocate this expense for 3 tax year:2020,2021 and [Link] choosing to allocate this expense for
3 years instead of one year, the total deductible expenses of the tax year 2020 reduces:
[(300 x 25)x 2]/3=VND5,000 million. With CIT rate 10% and 50% reduction applicable to 2021 and
2022,ABC reduces its CIT liabilities:VND250 million(5,000x10x50%).
[Link] TAX ARBITRAGE
Tax arbitrage refers to transactions that are entered into profit off the spread between tax
systems,tax treatments,or tax rates.
A company can take advantage of tax systems, for example, by recognizing revenues in a low tax
region while recognizing expenses in a high tax region. Such a practice would minimize the tax liability
by maximizing deductions while minimizing taxes paid on earnings. A company may also resort to
profit on price differences on the same security resulting from different tax systems in the countries
or jurisdictions in which the security is traded.
A company that uses tax-exempt bonds as a short-term corporate cash management strategy engages
in tax arbitrage. The interest paid on these bonds ([Link] bonds)is not taxed by the federal
government and in many cases, state governments. Thus, a company can buy these bonds, cans more
interest on them than savings accounts offer, and then sell them after a short period of time without
the government taxing its interest income.
[Link] POSTPONEMENT
A company may postpone its CTT liability in a certain tax year by some ways: Accounting techniques
or deduction of scientific and technology find.
By using accounting techniques in the allocation of some prepaid expenses or to determine the
depreciation expenses in compliance with the tax law,a company can make the total deductible
expenses of a tax year increase while reducing the total deductible expenses of the following tax
years. Thus in this case that company would pay less CIT in the current tax year and pay more CII' in
the following tax years.
By the choice of deduction of scientific and technology find when computing CTT payable,a company
can reduce 10% of CIT payable for that [Link] course, in the next tax years instead of recognizing the
scientific expenses as deductible expenses for CIT purpose, they must use the scientific and
technology fund to cover these expenses, leading to the decrease of the deductible expenses as
compared to the case without deduction of scientific and technology fund. Therefore, the CIT payable
of the next tax years increase accordingly.