cit corporate income tax

8/13/2019 CIT Corporate Income Tax

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CORPORATE INCOME TAX

Lecturer: Le Phuong Thao, MBA

School of Business - International University

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Objectives

After complete this lecture, you are able to

Determine the legal documents on Corporate Income

Tax

Understand the scope of Corporate Income Tax

Understand the tax bases and methods of tax

computation

Understand tax registration, withholding, declaration,

finalization and refund

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Scope of Corporate Income Tax

Corporate income tax payers

Sources of income

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Corporate income taxpayers

Any organization producing and trading goods and

services which has taxable income (hereinafter referred

to as an enterprise), comprising

1. Enterprises established and operating under

Vietnamese Laws:

worldwide income (including income sourced from

Vietnam and other countries)

2. Foreign enterprises with permanent establishments in

Vietnam:

Income sourced from Vietnam

Income sourced from overseas activities that is attributed

to the permanent establishment in Vietnam

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Corporate income taxpayers

Permanent establishment in Vietnamis

production and business establishment through which foreign

enterprises conduct some or all income-generating production

and business activities in Vietnam

Including:

Branches, executive offices, factories, workshops, means of

transport, mines, oil and gas fields, or other places for

extraction of natural resources in Vietnam;

Construction sites and construction, installation or assembly

works;

Providers of services, including consultancy services

through employees or other organizations or individuals;

Agents for foreign enterprises; Vietnam-based representatives

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Tax Computation

Other

taxable

income

Deductible

exp.Taxable income Turnover

Loss

carriedforward

from

previous

year

ExemptincomeAssessable income

+

= -

=

-

-

Taxableincome

Note: other taxable income is calculated separately

on the net basis for each activity

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Tax liabilityAssessable

income=

Science

&Technology

Fund Allocation

- X TaxRate


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Tax Period

The Western calendar year OR

The fiscal year

Note: if the first or the last tax period is less than

3 monthscould combine 2 consecutive tax

periods into 1

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Tax Rate

The standard CIT rate is 25% (from 1/1/2009)

Enterprises operating in the oil and gas industry are

subject to CIT rates ranging from 32% to 50% depending

on each project/business.

Tax holiday: 0%

Preferential rates: 5% to 20%

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Tax Rate

From 1/7/2013

20% for enterprises with a total revenue for the preceding

year not exceeding VND20 billion,

For those new established in 2013, or which have the 2012

tax year less or more than 12 months, the criteria would beaverage revenue not exceeding VND1.67 billion per month

in 2013 (by 30.6.2013 only) or in 2012 correspondingly

Applicable for all income, except

Income from capital transfer, from transfer of capitalcontribution right, from transfer of real estate, etc

Income from exploration and exploitation of oil and gas,

rare natural resources, and mineral resources.

Income from supply of services subject to special sales tax

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Turnover

Tax point: The time for fixing turnover to

calculate taxable income

In respect of goods, the time when ownership of the

goods was transferred (not the time when the sale

invoice was issued)

In the case of services, the earlier of when the

services was completedor when the invoice of theservices was issued.

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Turnover

VATdeduction method

Turnover does not include VAT

VATdirect method

Turnover is the total invoice amount

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Turnover for Special Cases

Turnover on goods sold on installments = the selling price of

the goods as for a one-off payment [lump sum price],

exc lud inginterest on late payments

Interest is classified as Other income

Example:

Car Dealer Co. sells 2 cars on 10 months installment basis.

Total installment payment is VND250 million/car.

Lump sum payment price is VND200 million/car

Turnover for CIT purposes is

2 x 200 = VND400 million.

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For goods and services used for exchange , donations, gifts, internal

consumption, turnover is determined by the sellingprice of products,

goods and services of the same or similar kind on the market at the time of

use.

For goods and services produced by the business that are internally usedto continue the business/production process, recognition of turnover is not

required

Example: Manufacturer Y produces product A,

Y issued 10 products A to exchange for a number of goods B,

Y used 20 products A to reward their employees.

The selling price (excluding of VAT) of product A at the time of exchange

and reward is VND20000 per product.

Turnover for CIT purposes is: (10+20)*20,000 = VND600,000

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For processing activities, the turnover is processing

fee, including wages, cost of fuel, power, sub-

materials, and other costs required for the processingof goods .

Example: Processing company B provides processing service to anexporter. According to the processing contract, B will provide the

necessary sub-materials for the processing. During the tax period B

issued invoice to the exporter with the details:

Processing fees: VND234,000,000

Sub-material costs: VND35,000,000VND269,000,000

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For agency or consignment activities (selling at the price

fixed by the principal), the turnover is the receivable

commission

Example: Shop X act as agent of Company A on the basis of selling As

products at the price fixed by A.

Commission is 20% on selling price.

The revenue of As products during the tax period is VND400mil.Turnover for CIT purposes of Shop X is:

The principal (i.e. Company A in the above example) shall recognize

the total sale price by the agent (VND400mil) as its turnover, thecommission (VND80 mil) paid to the agent is its deductible expense.

400mil * 20% = VND80mil

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For operating lease assets, turnover is the rent amount

receivable for each period under the contract.

If the tenant pays rent in advance for many years, the

turnover is calculated by dividing the advance rent by

the number of years

Example: According to the machinery lease contract, the monthly rent

amount is VND15mil. The lessee prepaid the rent for a period of 24

months starting from 1 March 2009 to the lessor.

Taxable turnover for 2009 tax period:



15 mil *10months = VND150mil

15mil *12months = VND180mil

15mil*2months = VND30mil

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For lending activities, finance leasing activities, turnover is the

receivable interest or rental receivable in the tax period .

For transportation, turnover shall be the total monies receivable

from transportation of passengers, luggage and cargo. For electricity and clean water supply, it is the sum of money

indicated on the value-added invoice. The time of determining

turnover used for calculating taxable income is the day on which

electricity meter readings are certified and recorded on

electricity or clean water bills.

Example: An electricity bill is recorded with an electricity meter

reading from December 5 to January 5. Turnover recorded on this

bill will be used for January.

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For golf course business activities , turnover is the proceeds from

the sale of membership cards and golf playing tickets and other

revenues in a tax period.

For insurance and reinsurance activities, turnover is the amount of

insurance premium revenue base , collecting fees for agency

services ( loss assessment , claims review , request for

reimbursement Tuesday , compensation handling 100 %)

reinsurance fees, reinsurance commissions and others income after

deduction of the refund or reduction of premiums, etc.

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Construction and installation, turnover shall be the value of the

works or items of work or the value of the entire project works

which were tested, accepted and handed over

For prize-winning game business activities (casinos, prize-winning

video games and betting entertainment), turnover is the excise tax-inclusive proceeds from these activities, excluding prizes paid to

customers.

For securities trading, turnover is the proceeds from securities

brokerage, dealing, issuance underwriting, investment portfolio

management, financial consultancy and investment, investmentfund management, fund certificate issuance, market organization

and other securities services under law.

For derivative financial services, turnover is proceeds from the

provision of derivative financial services in a tax period.

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For business cooperation contracts

If revenue sharing: turnover is the revenue each party is entitle to

under the contract.

If product sharing: turnover is the sale price of the products

shared to each party

If pre-tax/ after-tax profits sharing: turnover is the sum of goods

or service sales under the contract. The contracting parties shall

appoint one of them as a representative to issue invoices, record

turnover and expenditures and determine pre-tax profits divided

to each party.

Pre -tax sharing: Each party shall fulfill its enterprise income tax obligation under

current regulations.

After-tax sharing: the appointed party shall declare and pay enterprise income tax

on behalf of the other parties.

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Deductible expenses

Expenses

actually arise

directly related to creation of the turnover and

taxable income in the tax assessment period,

have adequate invoices and vouchers as required

by law.

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Non-deductible Expenses

1. Expenses which do not meet the general deductibility conditions, except

the value of losses from natural disasters and other unforeseen

circumstances with no compensation,

2. Depreciation of fixed assets is not deductible if

The fixed assets are not used for business activities

There is no document supporting that the fixed assets are owned by the

business (except for finance-leased ones)

Depreciation of fully depreciated assets

The depreciation expense s are not recorded and monitored in thecompany accounting books

The depreciation expense s are not in accordance with the prevailing

regulations (circular 203/2009/TT-BTC dated 20/10/2009)

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Straight-line method

Level of depreciation =

Example: Company A buys a power generator

The invoice amount of VND210 mil.

Transportation cost VND10 mil.

Installation, commissioning, tests cost totals VND20 mil.

The economical life of the machinery is 12 years.

The duration of use is expected to be 10 years which is in

accordance with the stipulated duration of use in circular 203.

The generator is put into use from 1 July 2009.

Stipulated Duration of use

Historical cost

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Depreciation expenses for CIT purpose is calculated as follow:

Historical cost:

210 + 10 + 20 = 240 mil

Annual depreciation:

24/10=24 mil

First year depreciation:

24/12*6 = 12 mil

Note: If the Company is profitable and would like to make faster depreciation

using straight line method for technology changes, the depreciation

expenses are capped at 2 times of normal expense under straight line

method

Ex: the company want to depreciate the generator asap to upgrade to a

more advanced one, the allowed period would be 5 years (i.e. 2 times

faster than the 10-year period).

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Adjusted reducing balance method

Used for the sectors with quickly development or

technology changes

Applied only for fixed assets which meet the following

conditions:

New invested fixed assets (not second hand)

Machinery and equipment, or instruments formeasurement and testing

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Adjusted reducing balance method

Annual depreciation level

= reducing balance x accelerated depreciation rate

Accelerated depreciation rate

= Straight line method depreciation rate x adjusted ratio

Straight line method depreciation rate =

1

Duration of use100X

Duration of use (t) Adjusted ratio

t 6yrs 2.5

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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 under circular 203.

The machinery and equipment is put into use from 1

January 2006.

Depreciation expenses for CIT purpose is

calculated as follow: Straight line method depreciation rate = 1/5 * 100 =

20%

Accelerated depreciation rate = 20% * 2 = 40%

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Year Reducingbalance

Calculation Annualdepreciation

Accumulated

depreciation2006 2,000,000 2,000,000*40% 800,000 800,0002007 1,200,000 1,200,000*40% 480,000 1,280,0002008 720,000 720,000*40% 288,000 1,568,0002009 432,000 432,000/2 216,000 1,784,0002010 216,000 432,000/2 216,000 2,000,000

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For enterprises which do not have

business of transportation, tourism, or

hotel in their business registration

certificates, the following depreciation

expenses shall not be deductible:

The depreciation amount corresponding to the excess

over VND1.6bil of historical cost

The entire depreciation expenses of civil airplanes or

yachts

The restriction applied for purchases from 1/1/2009

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Example:

Kingstar Ltd. is a company specialized in assembling electronics for

export, it bought a Mercedes sedan for its General Directors

business travel in April 2009 at the value of VND3 bil and is

depreciating the car over 6 years, which is within the range of

circular 203.

2009 accounting depreciation:

(9/12)*(VND3,000/6) = VND375 mil

2009 deductible depreciation expense

(9/12)*(VND1,600/6) = VND200 mil

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Upgrading vs. Repaid expense:

Expenses incurred for upgrading, improving the assets shall be added to

historical cost for depreciation.

Repaid expenses must be accounted fully for the current year or amortized for

maximum of 3 years

Note: A tax deduction is allowed for depreciation of fixed assets during

production suspension periods of less than 9 months (if due to

seasonal production) and 12 months (if due to repairs, maintenance

or relocation)

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Any portion of costs of raw materials, materials, fuel or goods which

are used in excess of the reasonable consumption levels.

Example: Cost of good sold charged to P&L for the tax period is

VND250mil of which cost of raw materials used for production of goods

that exceeds the reasonable consumption level determined by the

business is VND15mil

Deductible cost of good sold = 235mil

Enterprises shall establish its own reasonable consumption levels

of raw material and only disclose to the Tax office the main level of

basic products.

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Company payroll shows that (VND000):

Salary 1,278,000

Bonus 200,000

Total payable 1,478,000

Less personal income tax

and statutory contribution withheld (350,000)

Net payable to the employee 1,128,000

Out of the total bonus, there was VND100mil paid to some

permanent employees without any bonus policy mentioned inlabour contracts signed with the company.

So, salary and allowance cost of CIT purposes is

VND1,478mil100mil= 1,378mil

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Expenses for uniforms of employees paid in cash or in kind over VND

5,000,000 per person per year

Expenses for employees which are not strictly business-related

medical insurance premium (ex: AON Care)

golf membership and fees

incentives for initiatives, improvement without basis ( ex: no internal

regulations)

Interest on loans corresponding to the portion of charter capital not yet

contributed;

Interest on loans from non-economic and non-credit organizations

exceeding 1.5 times the interest rate set by the State Bank of Vietnam;

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The excess portion over the deductibility limit of expenses for advertising,

promotion, and marketing expenses: 10% of total other deductible expenses

or 15% for newly-established enterprises for the first 3 operating years

Expenses are subject to deductibility limit:

advertisement, marketing, sales promotion

brokerage commissions

guest reception, festivities, conferences,

Support for marketing, expense subsidy, payment discount

Newspapers given away as gift by news agency

Expenses are not subject to deductibility limit:

Commission for insurance brokers, agents selling goods at fixed price and multi level marketing

expense for market research, such as survey, exploration, interview, and information collection,

analysis and assessment

expense for product display and introduction and organization of trade fairs and exhibitions, such

as expense for opening showrooms

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(1) Total cost of trading in goods and services for the period per the company accounts. X

Less:

Non-deductible expenses X

. X (X)

Less:

Cost of goods sold (for trader) (X)

Less:

Advertising/promotion and other expenses subject to limit (X)

(2)Deductible expenses for the purposes of calculating

the deductibility limit of advertising/promotion and other expenses X

(3)Allowed advertising/promotion and other expenses (10% of 2) X

(4) Actual advertising, promotion and other expenses X

(5)Non-deductible advertising/promotion and other expenses (4-3) X

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Template for calculation of the disallowed A&P expenses


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Example: Company A was established in 2008. In 2009, it made an

enterprise income tax finalization report containing the following expense

data:

Expense for advertisement, marketing, sales promotion and brokerage

commissions; expense for reception, protocol and conferences; expense in

support of marketing and payment discount; expense for press agencies

newspapers given as presents or gifts directly related to production and business

activities, with adequate lawful invoices and documents: VND 250 million.

Total expenses allowed to be included in expenses (excluding expenses for

advertisement, marketing, sales promotion and brokerage commissions;

expenses for reception, protocol and conferences; expense in support of

marketing and payment discount; expense for press agencies newspapers given

as presents or gifts directly related to production and business activities): VND 2billion.

Calculate total deductible expenses for the year 2009


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Provisions for stock devaluation, bad debts, financial

investment losses, product warranties, or construction

work which are not in accordance with the prevailing

regulations; Management expenses allocated to permanent

establishments in Vietnam by the foreign company s

head office which are not in accordance with the

regulations;

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Unrealized foreign exchange losses due to the revaluation of

foreign currency items other than account payables at the

end of a financial year;

Donations for education, health care, natural disasters, or

building charitable homes for the poor where withoutsupporting document or with ineligible ones

Administrative penalties, fines

Fines under economic contracts should be deductible

Creditable input value added tax, corporate income tax, andpersonal income tax.

Further details can be found in Section IV, Part C of Circular

130, and in Circular 18

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Other Taxable Income

1. Income from capital or securities transfer

2. Income from real estate transfer

3. Income from asset ownership or use right, including

copyright royalties in any form paid for asset ownership

or use right; royalties from intellectual property rights;

and income from technology transfer under law.

4. Income from transfer or liquidation of assets (exceptreal estate) and other valuable papers.

Income = turnover - residual book value - expenses

related to the asset transfer or liquidation.

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Other Taxable Income

Income from interest and charges on deposit, from lending under all formsaccording to the law

Income from foreign currency trading, from realized foreign exchange

difference

Reversion of provisions which are not fully used by the due date

Bad debts written off which are now collected

Account payables of which creditors are unidentified

Receipts of fines for economic breaches (after deducting payable fines)

Income which was omitted in previous years

Difference in revaluation of assets for capital contribution, transfer uponsplit, merger consolidation, etc

Refunds of import duty or export duty related to the current year shall be

recorded as a decrease in expense, while refunds of the previous year shall

be considered as other income and taxed at 25%.

Other income items:

Further details can be found in Section V, Part C of Circular 130, and in Circular 18

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Exempt Income

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1. Income from cultivating, breeding, rearing and growing aquatic

products of organization established under Co-operative Law.

2. Income from providing technical services that directly serve for

agricultural activities such as watering, plant disease prevention,

harvesting agricultural products, etc.

3. Income from carrying out R&D contracts or from product sales duringtrial production, from selling products made from new technology

which was first applied in Vietnam, exemption only applies to the first

year.

4. Income from production, trading of goods or providing services of

enterprises having at least 51% employees who are disabledor HIV-infected, etc..

5. Income from capital contribution in domestic companies after the

investing companies have paid CIT (or exempt from CIT)

Further details can be found in Section IV, Part C of Circular 130


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Losses Carried Forward

Losses incurred in a quarter may be carried

forward to the following quarters of the same tax

year.

Losses are required to carry forward entirely and

continuously within 5 years from the year in

which the loss occurred.

Losses of incentivised activities can be offset against

profits from non-incentivised activities, and vice versa.

Losses/gains from the transfer of real estate are

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Losses Carried Forward

Year Profit/Loss Loss carried forward Assessable income

2007 (100,000) - -

2008 50,000 - -

2009 60,000 - -

2010 80,000 (80,000) -

2011 100,000 (20,000) 80,000

100,000

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JetBlue co., has the profit/loss position as follows. It is entitled to a 2 years tax

holiday (CIT exempted) from the first profitable year.

The losses cannotbe carried forward as above !!!!!!

The loss must be carried forward to 2008, then 2009

No benefit from such losses carried forward


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Tax Incentives

Tax incentives are granted based on regulated encouraged

sectors and difficult socio-economic locations.

The sectors which are encouraged include education, health

care, sport/culture, high technology, environmental protection,scientific research, infrastructural development and computer

software manufacture.

The two preferential rates of 10%and 20%are available for

15 years and 10 years respectively, starting from the

commencement of operating activities. When the preferential

rate expires, the CIT rate reverts to the standard rate.

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Tax Incentives

Taxpayers may be eligible for tax holidays and

reductions.

The holidays take the form of a complete

exemption from CIT for a certain period

beginning immediately after the enterprise

first makes profits, without taking into account

losses carried forward, of the applicable rate. where the enterprise has not derived profits within 3 years

of the commencement of operations, the tax holiday/tax

reduction will start from the fourth year of operation.

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Tax Incentives

Criteria for eligibility for these holidays and reductions

are set out in the CIT regulations. (Decree 124)

Additional tax reductions may be available for engaging

in manufacturing, construction, and transportationactivities which employ many female staff, or employ

ethnic minorities.

Tax incentives do not apply to other incomes

Income from the sale of scrap from production process

being subject to CIT incentive shall be subject to CIT

incentive. On the contrary, such income shall be

considered as other income and taxed at standard rate.

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Administration

Provisional quarterly CIT returns must be filed and taxes must be paid by

the 30th day of the first month of the subsequent quarter.

Final CIT returns are filed annually. The annual CIT return must be filed and

submitted not later than 90 days from the fiscal year end. The outstanding

tax payable must be paid at the same time the annual CIT return is

submitted. Where a taxpayer has dependent branches in different provinces, a single

CIT return is required. However, manufacturing enterprises are required to

allocate tax payments to the various provincial tax authorities in the

locations where they have manufacturing branches. The basis for allocation

is the proportion of expenditure spent by each branch over the total

expenditure of the company.

The standard tax year is the Western calendar year. Companies are

required to notify the tax authorities in case of using a tax year other than

the Western calendar year.

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cit corporate income tax

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