Chapter.7 Corporate.Income.Tax

Income from real-estate transfer includes income from transfer of right-to-used land, or transfer of right-to-lease land (including transfer of projects bind to transfer right-to-used [r]

Corporate Income Tax

(CIT)

Chapter 7

CIT DOCUMENTS

1 Law on CIT No.14/2008/QH12 dated 03 June 2008;

2 Law No.32/2013/QH13 dated 19 June 2013 -

amendments and complements of CIT;

3 Law No.71/2014/QH14 dated 26 November 2014 -

amendments and complements of CIT;

4 Decree 218/2013/ND-CP dated 26 December 2013;

5 Decree 91/2014/ND-CP dated 01 October 2014;

6 Decree 12/2015/ND-CP dated 12 February 2015;

7 Decree 100/2016/ND-CP dated 01 July 2016;

8 Circular 78/2014/TT-BTC dated 18 June 2014;

CIT DOCUMENTS

9 Circular 119/2014/TT-BTC dated 25 August 2014;

10 Circular 151/2014/TT-BTC dated 10 October 2014;

11 Circular 96/2015/TT-BTC dated 22 June 2015;

12 Circular 130/2016/TT-BTC dated 12 August 2016;

13 The consolidated document 11 / VBHN-BTC in

2017 guiding Decree 218/2013 / ND-CP;

14 Consolidated Document 09 / VBHN-BTC in 2018;

December 5, 2020

 CIT Concept.

 Taxable subjects & Taxpayers.

 Tax base, Tax period & Tax rate

 Revenues, Expenses & Other incomes.

 Tax exemption, Loss-carry-forward

 Incomes from capital transfer, Security

transfer & Real-estate transfer.

 Tax declaration & payment.

 Accounting for CIT.

OVERVIEW OF CIT

Concept:

levied on income of an enterprise through their business activities

Corporation Tax (CT).

TAXABLE OBJECTS & TAXPAYERS

 Co-operative-society (Co-operative-society Law).

 Foreign contractors (Contractor's tax Law).

TAX PAYABLE

CIT

payable = ( Taxable income

-Science and technology fund (if any)

Taxed

Income -to-be- taxed -

Taxable

Losses carried forward

TAX PERIOD

Tax period

A calendar year (from 1 Jan to

31 Dec), or,

A fiscal year applied by

enterprises, but not exceed 15

CIT is temporarily paid

quarterly, four times a year, and

one annual settlement

Example

Phuong Dong Company established in July 2013 => Its 1 st tax period is 6 months from July to December 2013 From 2014 onwards, its tax period is 12 months from Jan to Dec.

Phuong Tay Company established

in Nov 2013 => Its 1 st tax period is 14 months from Nov 2013 to December

2014 From 2015 onwards, its tax period is 12 months from Jan to Dec.

Phương Nam Company dissolved

in Jan 2013 => its final tax period is 13 months from Jan 2012 to Jan 2013

Phương Bac Company dissolved

in May 2013 => Its final tax period is 5 months from Jan 2013 to May 2013

TAX RATES

 Certain industries would be taxed in higher rates,

such as:

 Companies operating in the oil and gas industry

are subject to a rate from 32% to 50%, depending

on the location and specific project.

 Companies are in processing of exploration and

exploitation of mineral resources are subject to a rate of 40% or 50%, depending on location.

When to recognize CIT?

transferring the right-of-ownership and/or the right-to-have the goods incur;

time when the service(s) is(are) completed or partial completed;

when the transportation service(s) is(are)

completed

REVENUES (CON’T.)

Revenue for calculating taxable income is total proceeds including processing fee, service fee, extra- fees that an enterprise may earn regardless of collecting or not-yet-collecting.

a) For enterprises applying VAT deduction method:

taxable revenue is the selling price excluding VAT.

b) For enterprises applying direct VAT method:

Taxable revenue is the selling price including VAT.

(Details in Article 5 Circular 78/2014 and Article 3 Circular 96/2015).

REVENUES (CON’T.)

c) For enterprises subject to excise tax: Taxable revenue is the selling price

including excise tax

d) For goods/services selling/performing in installment or deferred payment:

Taxable revenue is price of goods/services of one-time payment, excluding interests.

e) For goods/services exchange or internal consumption (except for using in continuing the process of production of an entity) : Taxable revenue is

selling price of similar goods/services at the same time on the market.

EX-1: Tribico Corp (applying VAT deduction) has 2 tapes of computer selling

policy as following: For 1-year deferred payment, the selling price (VAT

exclusive) is VND 11KK per computer For cash sale, the selling price (VAT exclusive) is VND 10.5KK per computer.

 Taxable Revenue = VND 10.5KK.

EX-2: Bisco Corp manufactures bottled water The price (VAT exclusive) is

VND 4,000/bottle The Company used 1,000 bottles for its employees’

vacations and 500 bottles for its meetings

=> Taxable Revenue = VND 4KK (1,000 bottles x VND 4,000).

EX: Locked Corp delivered 5 computers to its agent with the

selling price (VAT exclusive) of 10KK/unit Commissions (VAT exclusive) are 5% on the selling price The agent sold 4 units and returned 1 to Locked

=> Taxable Revenue of Locked: 10KK x 4 = 40KK

=> Taxable Revenue of the agent: 40KK x 5% = 2KK

REVENUES (CON’T.)

h) For asset leasing:

 Taxable revenue is the amounts receiving periodically;

 In case of prepaid-rent for many years:

 Taxable revenue is an annual rental revenue which is determined by taking the total amount receiving in

advance divided by the number of years as in contract; or

 Taxable revenue is the total amount receiving in

advance.

REVENUES (CON’T.)

i) For golf business: Taxable revenue is the revenue from membership cards, golf tickets and other revenues in the tax period

j) For credit activities of credit institutions and banks: Taxable revenue includes interests on deposits, loans and financial revenue from leasing activities in the tax period

k) For transportation activities: Taxable revenue is total revenues from ticked-sale, cargo-delivery and luggage-delivery in the tax period

l) For electricity and clean-water supply: Taxable revenue is the charge on VAT invoices

m)For insurance business: Taxable revenue is total revenues from services insurances and merchandise insurance, and other services, including any charges

n) For construction and installation activities: Taxable revenue is revenues from construction, installation billed to customer

REVENUES (CON’T.)

o) For game business (casino, electronic games, betting): Taxable revenue is revenues from these activities including excise tax, but minus the winning prizes.

p) For securities trading: Taxable revenue is revenues from brokerage services, self-trading, securities guarantee, investment portfolio management, financial & securities investment consultancy, investment fund management, issuance of fund certificates, market organization services and other securities services as prescribed by law.

q) For derivative financial services: Taxable revenue is revenues from derivative financial services in the tax period.

2 Having sufficient legitimate invoices and vouchers;

3 Expenditures with invoices of VND 20 million or more (VAT inclusive) must be electronic-fund-transfer;

4 Expenditures are not identified as being deductible.

4 Research and development funds establish not accordance with the prevailing regulations;

Note: Maximum deduction for company’s uniform =

5KK/person/year

NON-DEDUCTIBLE EXPENSES

5 Allowance for unemployment and unemployment

benefits are established in excess as is prescribed by Labor Code;

6 Managerial expenses allocated by foreign company to Vietnamese entities exceeding the appropriate-

revenue-allocation in the period;

7 Interest on charter-capital-contribution which is not

yet contributed by contributor as stated on charter;

8 Interest of loan pay to non-economic and non-credit organizations exceeding 1.5 times of base-interest-

rate set by the State Bank of Vietnam;

NON-DEDUCTIBLE EXPENSES (CON’T.)

9 Allowance for bad debts, inventories, financial investment, product warranties or construction which are not made in accordance with the prevailing regulations of Financial Ministry;

10 Unrealized loss on foreign-currency-exchange of account payable which is revaluated at year-end;

11.Donations except for education, health care, natural disaster or building charitable homes for the the poors;

12.Administrative penalties, fines for late payment;

13.Contributions to voluntary pension funds exceeding VND 1 million per month per person;

14.Certain expenses directly related to the issuance, purchase or sale of shares;

15.Creditable input value added tax, corporate income tax and personal income tax

Maximum of 10% of income-to-be-taxed is deducted to establish a science & technology development fund

(*) (See note)

OTHER INCOME

 ABC

1 Income from the transfer of capital or securities.

2 Income from the transfer of real estate;

3 Income from the transfer of investment projects; transfer

of the right to participate in investment projects; transfer

of the right to explore, exploit and process of minerals;

4 Income from right-to-own of asset or right-to-use of asset.

5 Income from asset leasing;

6 Income from asset’s transfer or asset’s liquidation (excluding real estate) and other valuable paper.

(Taxable Income = transfer or liquidation price – book values – deductible expenses)

OTHER INCOME (CON’T)

 ABC

7 Interest revenues, including also interest on loan, on deferred and installment payments, credit guarantee charges and other fees under loan contracts;

8 Income from foreign currency trading (which is equals the difference between the sale price and purchase price);

9 Income from currency exchange rate difference;

10 Income from bad debts which have been written off before.

11 Payables with unidentifiable creditors

12 Income not recorded in previous years.

OTHER INCOMES (CON’T.)

13 Income collecting from violating economic contracts;

14 Difference of asset re-valuation of capital contribution or asset

transfer due to enterprise split, separation, consolidation, merger

or transformation;

15 Income from donations, gifts, marketing support, expenditure

support, cash discount, promotional prizes and other supports;

16 Prepaid expense but not allocated in periods and not accounted

as decrease in expenses; refunded to provisions of construction warranty;

17 Income from the sale of scraps and discarded items, after

subtracting related expenses;

18 Incomes from the contribution of equity capital to joint ventures or

economic associations domestically which are income-tax;

pre-corporate-19 Other incomes prescribed by law

CIT EXEMPTION

1 Incomes from cultivation, husbandry, aquaculture and salt production of co-cooperatives-society, of areas in social-economic-difficulty; incomes from sea-foods-catching activities;

2 Incomes from technical services which serve directly for agriculture

3 Income from scientific research and technological development as

in contract, but not more than three years from the date where the first revenues is recognized;

Income from sale of products which is the new technologies applied in Vietnam for the first time, but not more than five years from the date where the first revenues is recognized;

4 Income from production and business activities of enterprises which have 30% of total of employees who are disabled, drug-detoxified and HIV- infected ones in a taxable year

TAX-EXEMPT INCOMES (CON’T.)

5 Income from job training for minority people, disabled people, situation, social-problem, anti-detoxification, detoxified, and HIV/AIDS-infected

children-in-difficulty-people;

6 Investment revenue from capital contribution, share purchase, joint venture with domestic enterprises, after the partner had paid CIT according to CIT Law,

including the partner which is eligible for CIT incentives;

7 Income received to use for educational, scientific research, cultural, artistic,

charitable, humanitarian and other social activities in Vietnam

8 Incomes from transfer of emission-reduction-certificate for the first-time of enterprises which are granted with emission-reduction-certificates;

9 Undivided incomes of socialized-associations in education-training, medical and other socialized activities; undivided incomes of social-co-operatives retained to establish of their assets;

10 Incomes from technology transfer in the prioritized fields and to be transferred to organizations and individuals in geographical areas with difficult-socio-economic conditions;

11 Incomes of bailiff’s offices (except for incomes from activities other than bailiff’s activities) during the experimental period according to regulations of civil law.

LOSS CARRY FORWARD

1 Loss (losses) which is (are) carried from previous years;

2 Loss in current year shall be carried forward, but not excess of 5 years;

3 Losses on tax-incentive-operating-activities can be offset against profits from no-tax-incentive-operating-activities, and vice versa

4 Losses from transfer of real estate and transfer of investment projects shall be offset against profits from operating activities.

EX-1: In 2013, Company A suffers a loss of VND 10 billion In 2014, it

generates an income of VND 12 billion So, the CIT payable in 2014 = (12B – 10B = 2B x CIT rate)

EX-2: In 2013, Company B suffers a loss of VND 20 billion In 2014, it

generates an income of VND 15 billion So, the loss in 2013 is offset against the income in 2014 The remaining loss (20B – 15B = 5B) will be carried forward to 2015 and so on…,but not later than 2018.

EX-3: In 2013, Company C suffers a loss of VND 8 billion and continues

loss of VND 12 billion in 2014 So, the accumulated losses of the 2 years (8B + 12B = 20B) will be carried forward to next year and so on… , but not later than 2018 for the loss of 8B and 2019 for the loss of 12B.

INCOMES FROM CAPITAL TRANSFER

Income from capital transfer is income earned from the transfer of part or the whole of the capital amount which the enterprise has invested in one or many other organizations

or individuals (including sale of the enterprise)

INCOMES FROM SECURITY TRANSFER

Income from securities transfer is income earned from the transfer of stocks, bonds, fund certificates and other securities.

Purchasing

Transfer expenses

INCOMES FROM REAL-ESTATE TRANSFER

Income from real-estate transfer includes income from transfer

of right-to-used land, or transfer of right-to-lease land (including transfer of projects bind to transfer right-to-used land, or

transfer of right-to-lease land in accordance to law)

TAX DECLARATION AND PAYMENT

 Enterprises are required to pay temporary CIT in quarterly based

on estimates If the total temporary payment of the quarters is less than 80% of the total CIT in the whole year, enterprise must pay for late payment which is the excess of 20% (the interest rate

of late payment currently is 18% per year), applying from the deadline for payment of the 4th Quarter

 CIT return is filed annually, not later than 90 days from the end

date of fiscal year The outstanding CIT payable must be paid at the same time (not later than 90 days from the end date of fiscal year)

 If the enterprise has dependent accounting unit (e.g branches) in

a different province, the enterprise just need file the tax return at the place which the headquarter is located

 The taxable year is the calendar year; otherwise must notify to

local tax authorities