Question 1: The company has a contract "Supply and install magnetic card locking system". According to the contract, as soon as the key cards are gathered to the construction site (the goods have not been handed over, the installation has not been carried out), the customer will make a payment of 60% of the contract value and the Company will issue an invoice corresponding with this amount. Besides, the installation of magnetic card lock is an important work for customers to be able to use these goods. Is the company required to record this amount in revenue from the provision of goods and services in the period to calculate corporate income tax (“CIT”)? If we do not recognize revenue from the provision of goods and services, how can we recognize the amount paid by customers?
According to Article 3 of Circular 96/2015/TT-BTC, the revenue recognition time for calculation of taxable income for service provision activities is when the service was completed or partially completed. If the company has not yet delivered goods or provided installation services to customers according to signed service contracts, revenue should not been recognized in the income for CIT calculation purpose.
Question 2: Company A is a subsidiary of Company B (B is a 100% foreign-invested enterprise in Vietnam). Company A has borrowed money from the overseas parent company of Company B.
In the EBITDA formula for calculating the deductible interest expense, should we use the actual paid interest expense in the year or the total interest expense which included the accrual expense?
Would the entire interest expense be non-deductible, if Company B recorded loss and negative EBITDA?
If the EBITDA is negative and Company A has income from deposit interest, is the non-deductible interest expense equal to the total interest expense minus income from deposit interest?
According to Point a, Clause 3, Article 16 of Decree 132/2020/ND-CP:“a) Total interest expense arising after deducting deposit interests and lending interests within a specific taxable period which is deducted during the process of determination of income subject to the corporate income tax is not 30% more than the net profit generated from business activities within the taxable period plus interest expense arising after deducting deposit interests and lending interests arising within the taxable period plus depreciation/amortization expenses arising within that period of a taxpayer;
b) The portion of interest expense which is non-deductible as prescribed in point a of this clause is carried forward to the next taxable period for the determination of total interest expense deductible if total interest expense deductible in the next taxable period is lower than the amount prescribed in point a of this clause. The interest expense may be carried forward for a maximum consecutive period of 05 years, counting from the year following the year in which non-deductible interest expense arise.”
Deductible interest expense is determined as the accounting interest expense corresponding to the Company’s revenue in the year, including accrual interest expense corresponding to the Company’s revenue.
If the total net profit from business activities in the period plus interest expense after deducting deposit interest and lending interest incurred in the period plus amortization expense incurred in the period is negative (negative EBITDA), the entire interest expense is not deductible when determining taxable income.
Question 3: Due to the Covid-19 epidemic, in 2020 the Company signs a labor contract with a foreign expert with a commitment in the contract to pay the quarantine cost at the hotel and the cost of treatment (if any) when entering Vietnam to work, but the monthly rent is paid by the employees themselves. Can the quarantine cost be included in the company's deductible expenses?
Related to this issue, the General Department of Taxation has issued Official dispatch No. 5032/TCT-CS dated November 26, 2020 providing guidance on tax policies for foreign experts' expenses for quarantine and prevention of Covid-19 epidemic. Pursuant to Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance guiding on corporate income tax: For the cost of quarantine at the hotel and the cost of treatment for foreign experts who the enterprise signs a labor contract with, in which the expenses for housing paid by the enterprise for the employee are recorded, the expenses paid for the quarantine shall be included in the deductible expenses when determining taxable income, if there are sufficient invoices and documents and payment as prescribed.
- Expenses incurred in 2019 but the departments forgot to provide vouchers to accounting team. At the end of 2020, the accountants receive these documents, are the above expenses included in the allowable expenses of 2020?
- Performance salary in 2020 is planned to be paid on Lunar New Year (2021) but due to economic difficulties the Company has not been able to pay employees but will pay in April or May 2021. Can the Company recognize this as allowable expense in 2021? If not, in which tax year does the Company recognize the allowable expense of this payment?
- According to the current CIT law, deductible expenses when determining taxable income of CIT in the taxable period must be related to production and business activities and have sufficient invoices and vouchers according to regulations. If the invoices and vouchers of 2019 meet the prescribed conditions to be included in the deductible expenses when determining the taxable income of 2019, the company declare amendment and supplement their 2019 CIT declarations in accordance with the Law on CIT and Law on tax administration.
- According to the current CIT law: Expenses for salaries, wages, and other allowances payable to employees but not yet paid by the deadline for submitting the actual annual tax finalization dossiers shall not be calculated in deductible expenses when determining taxable income of CIT.
Every year, enterprises are allowed to make salary reserve fund provision with the value no more than 17% of the actual paid salary during the year. In case, the enterprise had made provision of salary reserve fund in the previous year, but within 6 months after the end of the fiscal year, the enterprise has not paid out or has not fully used the fund, the enterprise must make downward adjustment the the deductible expenses of the year.
Therefore, with the salary payments after the time of tax finalization, enterprises can spend from the salary reserve fund according to the above regulations.
Question 5: In 2020, the Company has foreign expatriates come to Vietnam to work but must comply with Resolution 28/NQ-CP dated March 10, 2020 of the Government on the implementation of quarantine, according to the regulations: Only if the expatriates have quarantine certificate, they can get work permit. Can the salary expenses paid to foreign expatriates during the period after quarantine completion but before obtaining work permit be included in the deductible expenses when calculating CIT?
Related to this issue, the General Department of Taxation has issued Official Letter No. 357/TCT-CS dated January 30, 2019 to the Hanoi Tax Department, which contains the following regulations: In case the enterprise hires foreign expatriates, whom had not yet been granted work permit by Vietnamese competent authority according to the provisions of the Labor Code, to work in Vietnam, there is not enough basis to treat the salary expenses paid to foreign expatriates in this case as deductible expense for CIT.
Question 6: In 2020 because of the epidemic, the Company did not produce additional products, but to sold the existing inventories produced in 2019. Is the 2020 machineries’ depreciation expense treated as deductible expense in 2020?
In order to reduce the difficulties for businesses affected by the Covid-19 epidemic, the Ministry of Finance has issued guidance that for struggling businesses who had fixed assets suspended from operations for less than 9 months in the 2020 tax year and then resumed for production activities, the depreciation expense of these fixed assets will be treated as deductibe expenses for CIT purpose.
Question 7: The Company has a 3-year warehouse lease contract (from June 2020 to June 2023). The company has issued warehouse lease invoice for 01 year (from June 2020 to June 2021) and has received the payment. Should the 2020 taxable revenue be the 6-month rental fees or the invoiced amount for 01 year?
According to provisions of Point 3, Clause 5, Circular 78/2014/TT-BTC, the time of determining the revenue to calculate the taxable income for property leasing activities is the amount the lessee pays each period according to the lease contract. In case the lessee pays the rental in advance for many years, the turnover for calculating taxable income shall be distributed to the number of years of advance payment or is the turnover paid in a lump sum.
Question 8: Company doesn’t have welfare fund, every year on the Mid-Autumn Festival and the Lunar New Year, they buy gifts (moon cakes / cakes / Tet gifts) for employees.
Are these gifts expenses included in the expense when calculating CIT, and does the company have to issue invoice for these gifts?
In Clause 4, Article 3 of Circular No. 25/2018/TT-BTC dated March 16, 2018 of the Ministry of Finance (amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC) regulated that expenses having the nature of welfare, which is directly paid to employees, is deductible when determining taxable income.
Based on the above provisions, company may treated these expenses as deductible expenses for CIT purpose as welfare expenditures, if these expenses were directly paid to employees, supported by sufficient invoices and documents according to regulations, and not exceed the average 01 month’s actual salary paid in the tax year.
Question 9: Company installs rooftop solar power systems for constructions. Some constructions have installed the system and tested to connect with the electricity authority before December 31, 2020 so that customers can get preferential electricity rates. However, the actual construction is not completed 100% with the outstanding tasks such as cleaning, etc. Will the revenue from the installation of this electrical system be recognized in 2020 or 2021 tax year?
According to point m, clause 3, Article 5 of Circular No. 78/2014/TT-BTC (amended and supplemented in Circular No. 96/2015/TT-BTC) on revenue determination to calculate taxable income, for construction and installation activities, the revenue is the value of constructions or construction items or constructions and installation volume which was already tested and accepted. Therefore, if the project had been tested and accepted, and the invoice had been issued in 2020, the revenue must be recognized in 2020 CIT calculation.
Question 10: Our company is a foreign company located in an industrial park, enjoying CIT incentives, and in the stage of investment in capital construction. We has generated income from interest of savings deposits. Is the income from deposit interest eligible for tax exemption of this project?
According to Clause 1, Article 10 of Circular 96/2015/TT-BTC dated June 22, 2015 of Ministry of Finance regulated that:
“ 1. Clause 3 Article 18 of the Circular No. 78/2014/TT-BTC is amended as follows:
“3. CIT incentives and 20% tax do not apply to the following incomes (including those of enterprises eligible for 20% tax prescribed in Clause 2 Article 11 of Circular No. 78/2014/TT-BTC):
a) Incomes from transfer of contributed capital or right to contribute capital; incomes from real estate transfer (except for incomes from investment in operation of social housing prescribed in Point d Clause 3 Article 19 of Circular No. 78/2014/TT-BTC); Incomes from transfer of project of investment or the right to participate in project of investment, transfer of the right to mineral exploration and extraction; incomes from overseas business operation.
b) Incomes from exploration and extraction of petroleum, other rare and valuable resources, and income from mineral extraction.
c) Income from provision of services subject to special excise tax prescribed by the Law on Special excise tax.”
2. Clause 4 Article 18 of the Circular No. 78/2014/TT-BTC is amended as follows:
“4. Incentives for enterprises whose projects of investment are given CIT incentives because their fields or areas are given investment incentives (hereinafter referred to as favored fields and favored areas) are determined as follows:
b) In case of an enterprise whose project of investment is given CIT incentives because it is located in a favored area (including industrial parks, economic zones, hi-tech zones), incomes given CIT incentives are those derived from business activities within such area, except for the incomes mentioned in Points a, b, c Clause 1 of this Article.”
Pursuant to the above provisions, in case an enterprise is entitled to corporate income tax incentives due to geographical conditions (investment projects in industrial parks established by decision of the Prime Minister) then the income eligible for CIT incentives is the income which incurred from the production and business activities within the preferential areas, minus the incomes mentioned above at Points a, b and c, Clause 3, Article 18 of Circular No. 78/2014/ TT-BTC (amended and supplemented in Clause 1, Article 10 of Circular No. 96/2015/TT-BTC).
Question 11: The Standing Committee of the National Assembly (UBTVQH) issued Resolution No. 406/UBTVQH15 on some solutions to support businesses and people affected by the Covid-19 epidemic, of which businesses are entitled to a 30% reduction in the amount of corporate income tax payable in 2021. Which cases are entitled to a 30% reduction in corporate income tax payable in 2021?
Pursuant to Article 1 of Resolution 406/UBTVQH15 of the UBTVQH regulating some solutions on tax exemption and reduction, the 30% CIT reduction shall be applied to taxpayers in accordance with the Law on CIT having revenue in 2021 is not more than 200 billion VND and revenue in 2021 is lower than the revenue in 2019.