Enterprises always want to reduce the amount of corporate income tax paid as much as possible but do not foresee the risks. When the tax authority inspects and collects the tax arrears, not only will they collect the tax amount but they will also be fined 1 to 3 times the tax amount along with the late payment penalty. Therefore, to minimize corporate income tax costs, it is extremely necessary to record expenses in accordance with tax regulations and in accordance with reality, especially to understand the tax authority’s inspection methods to identify risks for appropriate prevention. The most concerning thing is that when foreign enterprises enter Vietnam, Vietnamese people themselves do not update enough changes as well as the complexity of Vietnamese tax law, let alone foreigners always feel insecure as well as do not understand the constant changes of Vietnamese law because as a developing country, everything is relative, so a issued document still has many question marks, each person has their own argument and understanding, tax officers understand differently, leading to conflicts and disputes between enterprises and tax authorities. Therefore, we list the following issues for enterprises to pay attention to.
To easily distinguish whether that cost is considered a deductible cost or not, it is necessary to consider the core factor of whether that cost serves a business purpose and whether the money is actually spent or not, if not spent, there is a clear plan and finally the money must be spent.
The most basic cost is salary cost:
“Salary, wages of private enterprise owners; owners of single-member limited liability companies (owned by an individual), remuneration paid to founding members of enterprises who are not directly involved in production and business management; salaries, wages, other accounting expenses to pay employees but not actually paid or without invoices or documents as prescribed by law; bonuses, life insurance expenses for employees that are not specifically stated in terms of eligibility and level of eligibility in one of the following documents:
Labor contract;
Collective labor agreement;
Financial regulations of the Company, Corporation, Group;
Reward regulations prescribed by the Chairman of the Board of Directors, General Director, Director according to the financial regulations of the Company, Corporation.
Payment of salaries, wages and allowances payable to employees but the deadline for submitting the decision dossier has passed The actual tax settlement for the year has not been paid, except in cases where the enterprise has set aside a reserve fund to supplement the salary fund of the following year to ensure that salary payment is not interrupted and is not used for other purposes. The annual reserve level is decided by the enterprise but must not exceed 17% of the implemented salary fund (the total actual salary paid in that settlement year up to the deadline for submitting the settlement dossier as prescribed, excluding the amount set aside for the salary reserve fund of the previous year spent in the tax settlement year). In cases where the enterprise has set aside a salary reserve fund in the previous year but after 6 months from the end of the fiscal year, the enterprise has not used or has not used up the salary reserve fund, the enterprise must reduce the following year’s expenses;
==> The control of salary costs of private business owners and owners of single-member LLCs is because they have only one person and cannot sign a labor contract with themselves, the risk of controlling salaries is not independent in work as well as determining the value of salaries, and also because these incomes are not subject to personal income tax because salary and wage income is money paid by the employer, but in this case they are both employees and employers, so it is not called income from salary and wages, so it is not subject to personal income tax and is not included in the expenses from ==> Where are salary expenses regulated? The company, according to the management, has documents with titles that do not match the tax titles, the Tax will not agree, so when internal documents have titles that must be amended to match the tax regulations, the regulations must be clear, with a basis for verification, although the tax perspective is more substantial than formality, but checking and proving is the business’s job, so be careful. ==> Regarding the issue of salary reserve fund deduction, businesses see tax regulations and just close their eyes to deduct to reduce the amount of tax payable, but do not see the regulations and how this fund is actually used?; so the issue of this regulation is that there must be a plan and follow the accounting principles before considering taxes, so normally only large enterprises and state-owned corporations have salary funds and financial plans to use, and businesses that finish their work each month receive their full salary, so where do workers wait for a large salary fund and have policies for workers?”
“- Expenses of a welfare nature paid directly to employees for which the enterprise has invoices and documents according to regulations such as:
Expenses for funerals and weddings of the employee and his/her family;
Expenses for vacations, treatment support expenses; expenses to support additional knowledge and study at training facilities;
Expenses to support employees’ families affected by natural disasters, war, accidents, and illness;
Expenses to reward employees’ children with good academic achievements;
Expenses to support travel expenses on holidays and Tet for employees and other welfare expenses according to the guidance of the Ministry of Finance;
The total amount of expenses must not exceed 01 month of the actual average salary in the tax year. ==> What are the documents for these expenses to be considered deductible expenses? Basically, they are documents associated with the arising business, the contract has regulations, internal regulations have content, the agency receiving the amount of money will issue documents according to regulations At the place of receiving money according to tax regulations, there is no standard document, but depending on the place, they will have a suitable type of document.
Determining permanent establishment in transactions of selling imported goods at bonded warehouses in Vietnam.
The General Department of Taxation received an official dispatch dated January 26, 2015 from Dalhoff Larsen & Horneman A/S (DLH Denmark) requesting guidance on determining the permanent establishment (PE) in the sale of imported goods at bonded warehouses in Vietnam. Regarding this issue, the General Department of Taxation has the following opinions:
1. For the case of bonded warehouses
1.1. Regarding determining the PE of bonded warehouses
a) Provisions in domestic law and Agreements:
Point d, Clause 1, Article 2, Circular 78/2014/TT-BTC guiding on corporate income tax stipulates that taxpayers are foreign enterprises as follows:
“In case the Double Taxation Avoidance Agreement signed by the Socialist Republic of Vietnam has different provisions on the permanent establishment, the provisions of that Agreement shall apply.”
Therefore, the determination of the CSTT of the company’s bonded warehouses will be based on the application of the Vietnam – Denmark Tax Agreement. Specifically, Clauses 4 and 5, Article 5 of the Agreement and the provisions of the Protocol on Clauses 4 and 5, Article 5 of the Agreement. Specifically as follows:
Clause 4, Article 5 of the Agreement stipulates:
“4. Notwithstanding the above provisions of this Article, the term “permanent establishment” does not include:
a. the use of facilities exclusively for the purpose of storage or display of goods or merchandise belonging to the enterprise;
b. the maintenance of a warehouse of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;”
The Protocol on paragraphs 4 and 5 of Article 5 of the Agreement provides:
“Regarding subparagraphs (a.) and (b.) of paragraph 4 of Article 5, it is agreed that the maintenance in the other Contracting State of a stock of goods or merchandise solely for the purpose of future delivery or of facilities used solely for the purpose of future delivery of goods or merchandise by an enterprise of a Contracting State shall not constitute a permanent establishment in that other Contracting State if the conditions of subparagraph (b.) of paragraph 5 of this Article are not satisfied.”
Subparagraph (b.) of paragraph 5 of Article 5 of the Agreement provides:
“5. Notwithstanding the provisions of paragraphs 1 and 2, where a person – other than an agent of an independent status to whom paragraph 6 applies – is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State in respect of any activities which that person performs for the enterprise, if that person:
a. …
b. has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise.”
Based on the above provisions, if Danish DLH maintains a warehouse in Vietnam that satisfies both of the following conditions:
i) for the sole purpose of storing and delivering goods or assets in the future, and
ii) does not satisfy point (b.) of clause 5 above, meaning that the representative of Danish DLH does not regularly deliver goods or assets in Vietnam from this warehouse,
it will not create a CSTT in Vietnam.
In case both of the above conditions are not satisfied, the maintenance of a warehouse in Vietnam by Danish DLH will create a CSTT in Vietnam. Specifically, from the time Danish DLH delivers goods from the warehouse in Vietnam, the warehouse will become a CSTT of Danish DLH in Vietnam because the delivery is an actual commercial activity, not the purpose of future delivery; and the warehouse has a representative of DLH Denmark regularly delivering goods according to the contracts signed between DLH Denmark and customers.
b) Provisions in the Contract
In the Bonded Warehouse Lease Contract No. 010413/GLC – DLH DM, in which Party A is Gemadept Logistics LLC; Party B is DLH Denmark Company, there are the following provisions:
– Point 1.3, Article 1, General Terms stipulates:
“Party B is the owner or the person authorized by the legal owner of the goods to sign the bonded warehouse lease contract with Party A and act as a representative to store and distribute the goods stored in the warehouse.”
– Point 3, Article 3, Responsibilities of Party A stipulates:
“Party B is required to send someone to supervise and sign the goods receipt/goods delivery note. Party A is not allowed to import/export goods without Party B supervising and signing the goods receipt/goods delivery note.”
– Article 4, Point 4, Responsibilities of Party B stipulates that Party B:
“is responsible for supervising, counting goods and signing confirmation on the export/import notes of Party A during the entire process of exporting and importing goods. Ensure that Party A loads goods into containers or trucks in accordance with Party B’s technical requirements. Ensure that goods are exported from the warehouse in accordance with the Delivery Order or Packing List of Party B in terms of quantity, type, product code, etc. …”
According to the above provisions, after renting a bonded warehouse in Vietnam, DLH Denmark has a representative in Vietnam responsible for storing and distributing goods in the bonded warehouse, supervising and counting the process of exporting and importing goods according to the technical requirements of DLH Denmark, signing confirmation of goods export to deliver goods to partners in Vietnam. Therefore, DLH Denmark has satisfied the conditions in point (b.) clause 5: “…regularly maintains in the first State a warehouse of goods or assets, from which the above subject regularly delivers goods or assets on behalf of the enterprise.”
Based on the provisions of the Agreement and the contract, the process of signing and implementing the Bonded Warehouse Lease Contract with the above contents, DLH Denmark has created a CSTT in Vietnam.
1.2. Determining tax obligations of bonded warehouses
Clause 5, Article 1, Article 2, Circular No. 103/2014/TT-BTC dated August 6, 2014 of the Ministry of Finance guiding tax policies for foreign contractors stipulates:
– Applicable subjects as follows:
“5. Foreign organizations and individuals exercising the right to export, import, distribute in the Vietnamese market, purchase goods for export, sell goods to Vietnamese traders in accordance with the law on commerce.”
– Non-applicable subjects as follows:
“5. Foreign organizations and individuals using bonded warehouses, inland ports (ICDs) as warehouses for goods to support international transportation, transit, transshipment, storage of goods or for processing by other enterprises.”
Based on the above provisions, in case an enterprise uses a bonded warehouse as a warehouse for goods to support international transportation, transit, transshipment, storage of goods or for processing by other enterprises, it will not be subject to Circular No. 103/2014/TT-BTC mentioned above.
Because DLH Denmark specializes in buying and selling wood and wood products, the delivery of goods from the bonded warehouse to partners in Vietnam is not an activity supporting international transportation, transit, transshipment, storage of goods or for processing by other enterprises, but is one of the main business activities. Thus, DLH Denmark is subject to contractor tax in Vietnam.
2. Regarding the operation of the representative office of DLH Denmark in Vietnam
Regarding the determination of CSTT for representative offices of foreign traders, the General Department of Taxation issued Official Letter No. 3289/TCT-HTQT dated October 4, 2013 providing guidance on the principle that if representative offices operate in accordance with the provisions of the establishment license, they will not create CSTT in Vietnam.
Therefore, if the representative office of DLH Denmark is a representative office of a foreign trader, operating only in accordance with the license issued by the local Department of Industry and Trade, the representative office will not create CSTT of DLH Denmark in Vietnam. In case the above representative office is related to the delivery of goods from the bonded warehouses of DLH Denmark to partners in Vietnam, the representative office will create CSTT of DLH Denmark in Vietnam.
Incentives for commercial activities.
The General Department of Taxation received Official Letter No. 5891/CT-THNVDT dated October 17, 2014 of the Kon Tum Provincial Tax Department on corporate income tax policy. Regarding this issue, the General Department of Taxation has the following opinion:
Clause 4, Article 18 of Circular No. 123/2012/TT-BTC dated July 27, 2012 of the Ministry of Finance stipulates:
In case a newly established enterprise from an investment project in an investment incentive area is entitled to corporate income tax incentives according to the investment incentive area, if it has income from production and business activities in the investment incentive area and outside the investment incentive area, the enterprise must separately calculate the income from production and business activities in the investment incentive area to enjoy corporate income tax incentives.”.
On August 27, 2014, the Ministry of Finance issued Official Letter No. 123/2012/TT-BTC to the Tax Departments of provinces and cities providing general guidance on preferential corporate income tax policies by location.
Based on the above regulations and instructions, the determination of corporate income tax incentives for the 3 activities of Tay Nguyen Import-Export Company Limited is as follows:
For activities 1 and 2: The General Department of Taxation agrees with the proposal of the Tax Department: Tay Nguyen Import-Export Company Limited purchases goods inside or outside Kon Tum province, but the goods are transported and stored in Kon Tum province before being sold, therefore, it is determined that revenue and income are generated in Kon Tum province and is entitled to corporate income tax incentives according to the investment incentive area in Kon Tum province.
Regarding activity 3: request the Tax Department to inspect and review the trading activities of Tay Nguyen Import-Export Company Limited. If there is no basis to prove that the revenue is generated in Kon Tum province, the General Department of Taxation agrees with the proposal of the Kon Tum Provincial Tax Department: Tay Nguyen Import-Export Company Limited purchases goods, imports goods into the warehouse, and sells them outside Kon Tum province (not in the preferential investment area), so the income from this activity is not entitled to corporate income tax incentives according to the preferential investment area in Kon Tum province.
Request the Kon Tum Provincial Tax Department to be responsible for inspecting and specifically identifying invoices and documents related to the trading activities of Tay Nguyen Import-Export Company Limited to ensure clarity, transparency, and accurately reflect the actual trading activities of the Company.
Other income incentives for local incentives
The General Department of Taxation received Official Letter No. 6215/VPCP – DMDN dated July 12, 2019 of the Government Office, along with a petition from Nam Phat Telecommunication Services Trading Company Limited. Regarding this issue, the General Department of Taxation has the following comments:
– In Clause 3, Article 10 of Circular No. 96/2015/TT – BTC dated June 22, 2015 of the Ministry of Finance guiding on corporate income tax, amending and supplementing Clause 5, Article 18 of Circular No. 78/2014/TT-BTC as follows:
“5. Regarding new investment projects:
a) New investment projects that are entitled to corporate income tax incentives as prescribed in Articles 15 and 16 of Decree No. 218/2013/ND-CP are:
Projects that are granted the first Investment Certificate from January 1, 2014 and generate revenue from that project after being granted the Investment Certificate.
Domestic investment projects associated with the establishment of new enterprises with investment capital of less than VND 15 billion and not included in the List of conditional investment sectors are granted a Certificate of Enterprise Registration from January 1, 2014.
Independent investment projects from operating enterprise projects (including projects with investment capital of less than VND 15 billion and not included in the List of conditional investment sectors) are granted an Investment Certificate from January 1, 2014 to implement this independent investment project.
…
New investment projects that enjoy corporate income tax incentives according to regulations must be granted an Investment License or Investment Certificate by a competent State agency or be permitted to invest according to regulations of the law on investment.
b) New investment projects that enjoy corporate income tax incentives under the new investment category do not include the following cases:
– Investment projects formed from: division, separation, merger, consolidation, conversion of enterprise forms according to regulations of law;
– Investment projects formed from the change of ownership (including cases of implementing new investment projects but still inheriting assets, business locations, business lines of the old enterprise to continue production and business activities; repurchasing investment projects in operation).
Enterprises established or enterprises with investment projects from converting enterprise types, changing ownership, dividing, separating, merging, or consolidating are entitled to inherit corporate income tax incentives of the enterprise or investment project before the conversion, division, separation, merging, or consolidation for the remaining period if they continue to meet the conditions for corporate income tax incentives. c) For enterprises that are enjoying corporate income tax incentives as newly established enterprises from investment projects, this only applies to income from production and business activities that meet the investment incentive conditions stated in the enterprise registration certificate or the enterprise’s first investment certificate…”. Clause 2, Article 10 of Circular No. 96/2015/TT-BTC mentioned above amends and supplements Clause 4, Article 18 of Circular No. 78/2014/TT-BTC as follows:
Enterprises with investment projects that enjoy corporate income tax incentives due to meeting the conditions on investment incentive sectors and investment incentive locations are determined as follows:
…
b) Enterprises with investment projects that enjoy corporate income tax incentives due to meeting the conditions on location incentives (including industrial parks, economic zones, high-tech zones), the income that enjoys corporate income tax incentives is the entire income arising from activities production and business in preferential areas, except for incomes specified in Points a, b, c, Clause 1 of this Article.
…
– Enterprises with investment projects entitled to corporate income tax incentives due to meeting the conditions on location and generating income outside the location where the investment project is implemented:
(i) If this income arises in a location that is not in the preferential investment area, they will not be entitled to corporate income tax incentives according to the location conditions.
(ii) If this income arises in an area that is an investment incentive area, it will be entitled to corporate income tax incentives according to the conditions of the area. The determination of corporate income tax incentives for this income is determined for each area based on the time and level of corporate income tax incentives of the enterprise in the area where the investment project is implemented…”.
Based on the above provisions, in principle, an enterprise with an investment project that is entitled to corporate income tax incentives due to meeting the conditions of preferential area, the income entitled to incentives is all income arising from the production and business activities of the investment project in the preferential area, except for income that is not entitled to incentives according to the provisions of the Law on Corporate Income Tax (such as project transfer, real estate transfer, mineral exploitation, production and trading of goods and services subject to special consumption tax).
In case an enterprise is operating and enjoying CIT incentives and adds a commercial business line but the enterprise does not increase capital or make expansion investments to increase assets, the income from the added commercial activities will not be eligible for CIT incentives. For this case, the Ministry of Finance has issued Official Letter No. 17008/BTC-CST dated November 17, 2015 to the People’s Committee of Ha Tinh province (a photocopy of the official letter is attached)
”
Are uninsured wages deductible expenses?
The General Department of Taxation received Official Letter No. 1869/CT-TTR dated July 23, 2013 from the Ha Nam Provincial Tax Department on salary expenses not subject to social insurance when calculating corporate income tax. Regarding this issue, the General Department of Taxation issued Official Letter No. 3884/TCT-CS dated November 20, 2013, providing the following guidance:
– Clause 1, Article 6, Chapter II of Circular 123/2012/TT-BTC dated July 27, 2012 of the Ministry of Finance stipulates:
“”1. Except for the expenses specified in Clause 2 of this Section, enterprises are allowed to deduct all expenses if they meet the following conditions:
1.1 Actual expenses related to the production and business activities of the enterprise;
1.2. Expenses with sufficient legal invoices and documents as prescribed by law.””
– Point 2.5, Clause 2, Article 6 of Circular 123/2012/TT-BTC dated July 27, 2012 of the Ministry of Finance stipulates that expenses for salaries, wages, and bonuses for employees are not deductible when determining taxable income as follows:
“”2.5. Expenses for salaries, wages, and bonuses for employees in one of the following cases:
a) Expenses for salaries, wages, and other payable amounts to employees that the enterprise has accounted for in production and business costs during the period but has not actually paid or does not have payment documents as prescribed by law.
b) Bonuses and life insurance payments for employees that do not specifically state the conditions for enjoyment and the level of enjoyment in one of the following documents: Labor contract; Collective labor agreement; Financial regulations of the Company, Corporation, Group; The bonus regulations are determined by the Chairman of the Board of Directors, the General Director, and the Director according to the financial regulations of the Company and the Corporation.
…
c) Payment of salaries, wages, and allowances payable to employees but not actually paid by the deadline for submitting annual tax settlement dossiers, except in cases where the enterprise has set aside a reserve fund to supplement the salary fund of the following year to ensure that salary payments are not interrupted and are not used for other purposes. The annual reserve level is decided by the enterprise but must not exceed 17% of the implemented salary fund.
…
d) Salaries and wages of owners of private enterprises, owners of single-member limited liability companies (owned by an individual); remuneration paid to founders, members of the board of members, and board of directors who are not directly involved in production and business management.””
Based on the above provisions, the actual expenses of salaries, wages, and bonuses paid to employees, directly related to the production and business activities of the enterprise, with legal invoices and documents and not falling under the provisions of Point 2.5, Clause 2, Article 6 of Circular 123/2012/TT-BTC dated July 27, 2012 of the Ministry of Finance, shall be included in reasonable expenses when calculating corporate income tax. In case an enterprise violates the regulations on social insurance payment, it shall be handled according to the provisions of the law on social insurance.
During the process of tax inspection and audit related to salary expenses, tax authorities need to specifically check salary payment documents, payrolls, labor contracts and personal income tax declarations of employees to have sufficient basis for tax handling according to regulations, preventing and handling cases where enterprises intentionally falsely declare salary expenses to calculate deductible expenses when determining taxable income of enterprises.
Choosing exchange rates when converting financial statements
In response to Official Letter No. 387/CV-AAC dated November 27, 2015 of Your Company regarding some issues related to the enterprise accounting regime issued under Circular No. 200/2014/TT-BTC dated December 22, 2014 of the Ministry of Finance (hereinafter referred to as Circular No. 200), the Ministry of Finance has the following comments:
1/. Regarding the selection of exchange rates when converting financial statements prepared in foreign currencies into Vietnamese Dong for public disclosure and submission to competent state management agencies.
a) Article 107 of Circular No. 200 stipulates that “Items in the Statement of Business Performance and Statement of Cash Flows are converted into Vietnamese Dong at the actual exchange rate at the time of the transaction. In case the average exchange rate of the accounting period is approximately the actual exchange rate at the time of the transaction (the difference does not exceed 3%), the average exchange rate can be applied (if selected)”.
Circular No. 200 does not specifically stipulate how to calculate the average exchange rate of the accounting period, so enterprises can use the average exchange rate between the buying rate and the selling rate of the foreign currency transfer of commercial banks to convert for the Items in the Business Performance Report and the Cash Flow Statement. This average exchange rate can be calculated based on the average of the days, weeks or months of the accounting period.
The difference of 3% is determined based on the comparison between the average exchange rate of the accounting period and the lowest buying rate or the highest selling rate of the commercial bank in the accounting period.
b) In case the enterprise chooses the actual transaction exchange rate at the time of the transaction
– The depreciation of fixed assets must be based on the currency unit in the enterprise’s accounting.
At Point a Clause 2 Article 107 Circular No. 200/2014/TT-BTC stipulates that when converting financial statements prepared in foreign currency to Vietnamese Dong, assets and liabilities are converted at the actual transaction exchange rate at the end of the period, therefore, the fixed asset depreciation expenses that have been deducted will be converted into Vietnamese Dong at the actual transaction exchange rate at the end of each accounting period with converted financial statements, not converted at the exchange rate at the date of asset purchase or the date of periodic depreciation of fixed assets.
Similarly, for raw materials released from the warehouse for production that are in inventory, they are also converted into Vietnamese Dong at the actual transaction exchange rate at the end of each accounting period with converted financial statements, not converted at the exchange rate at the date of raw materials purchase or the date of releasing raw materials from the warehouse for production.
2/. Presenting detailed explanations of changes in equity as of December 31, 2014 and January 1, 2015:
– Circular 200 does not have retroactive provisions for comparative figures for 2014 on financial statements presented in accordance with Circular 244/2009/TT-BTC, therefore, to ensure the logic and appropriateness of the figures on undistributed profit after tax as of December 31, 2014 and January 1, 2015, when presenting detailed explanations of changes in equity between December 31, 2014 and January 1, 2015, the enterprise will present the difference between the figures for equity at the end of the previous year and the beginning of the following year due to changes in accounting policies.
– Exchange rate used to convert comparative data of the 2014 Equity Item:
For the 2015 financial statements, comparative data of the 2014 Equity Item is determined based on the data at the end of the 2014 accounting period and the opening balance is adjusted due to changes in accounting policies to ensure comparability of the 2015 financial statements.
3/. For the Equity Item, according to the provisions of Article 107 of Circular 200/2014/TT-BTC: “Equity (owner’s contributed capital, capital surplus, other capital, bond conversion options) is converted into Vietnamese Dong at the actual transaction exchange rate on the date of capital contribution”.
Based on the above provisions, enterprises using accounting currency other than Vietnamese Dong, when converting financial statements to Vietnamese Dong to submit to competent state management agencies, must use the actual exchange rate at the date of capital contribution to convert the Owner’s Equity Item on the financial statements.
Therefore, in any case, enterprises must base on the historical exchange rate (exchange rate at the time of capital contribution) to convert the Owner’s Equity Item. The loss or non-retention of relevant accounting documents as a basis for determining accounting figures is the responsibility of the enterprise.
4/. The use of which financial statements to determine the tax obligations of enterprises is implemented in accordance with the provisions of the law on tax.
5/. In case an enterprise incurs a loss from 2010 to 2014, the use of exchange rate to convert the loss allowed to be transferred to deduct from taxable income in 2015 shall be carried out in accordance with the provisions of the law on tax.
Dam and new construction assets
The General Department of Taxation received Official Letter No. VM-1412-01 dated December 26, 2014 from Vietnam Meiwa Company Limited on how to determine the original price of construction works. Regarding this issue, the General Department of Taxation has the following opinion:
– Clause 5, Article 2 of Circular No. 45/2013/TT-BTC dated April 25, 2013 of the Ministry of Finance stipulates:
“Original price of tangible fixed assets is the total cost that an enterprise must spend to have tangible fixed assets up to the time of putting that asset into a state of readiness for use.”
Section a, Clause 1, Article 4 of Circular No. 45/2013/TT-BTC dated April 25, 2013 of the Ministry of Finance stipulates:
“”a) Purchased tangible fixed assets.
Original price of purchased tangible fixed assets (including new and used purchases): is the actual purchase price payable plus (+) taxes (excluding refundable taxes), directly related costs incurred up to the time of putting the fixed assets into a state of readiness for use such as: loan interest arising during the process of investing in the purchase of fixed assets, transportation and unloading costs; upgrading costs, installation and trial costs; registration fees and other directly related costs.
In case of tangible fixed assets purchased on deferred payment or installment payments, the original price of the fixed asset is the purchase price paid immediately at the time of purchase plus (+) taxes (excluding refundable taxes), directly related costs incurred up to the time of putting the fixed assets into a state of readiness for use such as: transportation and unloading costs; upgrading costs, installation and trial costs, registration fees (if any).
In case of purchasing tangible fixed assets such as houses and architectural objects attached to land use rights, the value of land use rights must be determined separately and recorded as intangible fixed assets if they meet the criteria prescribed in Point d, Clause 2 of this Article. In case of tangible fixed assets such as houses and architectural objects, the original price is the actual purchase price paid plus (+) expenses directly related to putting the tangible fixed assets into use.
In case after purchasing tangible fixed assets such as houses and architectural objects attached to land use rights, the enterprise removes or destroys them to build new ones, the value of land use rights must be determined separately and recorded as intangible fixed assets if they meet the criteria prescribed in Point d, Clause 2 of this Article; the original price of newly constructed fixed assets is determined as the final settlement price of construction investment projects according to the provisions of current investment and construction management regulations. Assets that are removed or destroyed are handled and accounted for according to current regulations on liquidation of fixed assets. – Clause 1, Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance stipulates:
Except for non-deductible expenses specified in Clause 2 of this Article, enterprises are allowed to deduct all expenses if they meet the following conditions:
a) Actual expenses arising in relation to the production and business activities of the enterprise
b) Expenses with sufficient legal invoices and documents according to the provisions of law.
c) Expenses with invoices for each purchase of goods and services with a value of VND 20 million or more (prices including VAT) must have non-cash payment documents when paying.
Non-cash payment vouchers shall comply with the provisions of legal documents on value added tax.””
Based on the above provisions, in case the Company demolishes assets attached to leased land for which annual land rent is paid to build and expand a new factory, the original price of the newly constructed fixed assets shall be determined as the settlement price of the construction investment project in accordance with the provisions of the current Investment and Construction Management Regulations.
The assets demolished or destroyed shall be handled and accounted for in accordance with current regulations on liquidation of fixed assets.
Costs incurred abroad
1/ Regarding deductible expenses for overseas business expenses:
Pursuant to Decree No. 218/2013/ND-CP dated December 26, 2013 of the Government detailing and guiding the implementation of the Law on Corporate Income Tax (CIT) effective from the 2014 CIT calculation period.
+ Clause 1, Article 9 stipulates:
“Except for the expenses specified in Clause 2 of this Article, enterprises are allowed to deduct all expenses if they meet the following conditions:
a) Actual expenses arising in relation to the production and business activities of the enterprise…
…
b) Expenses with sufficient invoices and documents as prescribed by law.
In the following cases: Purchase of agricultural, forestry and aquatic products directly sold by producers and fishermen; Purchase of handicraft products made of jute, sedge, bamboo, rattan, leaves, reeds, rattan, straw, coconut shells, coconut shells or raw materials recovered from agricultural products directly sold by handicraft producers; purchase of soil, stone, sand, gravel directly sold by households and individuals who exploit them themselves; purchase of scrap from direct collectors; purchase of utensils and assets directly sold by households and individuals; and purchase of services from households and individuals who are not doing business must have payment documents to pay the seller and a list of purchased goods and services signed and taken responsibility for by the legal representative or authorized person of the business enterprise. c) For invoices for purchasing goods and services each time with a value of twenty million VND or more, there must be a non-cash payment document, except for expenses of the enterprise for: Performing national defense and security tasks, for HIV/AIDS prevention and control activities at the workplace, supporting the activities of party organizations and socio-political organizations in the enterprise as prescribed in Point a, Clause 1 of this Article; for the purchase of goods and services for which the List is prepared as prescribed in Point b, Clause 1 of this Article.
The Ministry of Finance shall provide specific guidance for cases of payment under a contract where the payment time is different from the time of recording expenses as prescribed and other expenses that do not require non-cash payment documents.”
– Pursuant to Clause 4, Article 5 of Circular No. 156/2013/TT-BTC dated November 6, 2013 of the Ministry of Finance guiding the implementation of a number of articles of the Law on Tax Administration and the Law amending and supplementing a number of articles of the Law on Tax Administration, it is stipulated that:
“The language used in tax records is Vietnamese. Documents in foreign languages must be translated into Vietnamese. The taxpayer signs and stamps the translation and is legally responsible for the content of the translation. In case the document in foreign language is more than 20 A4 pages long, the taxpayer must have a written explanation and request that only the contents and provisions related to determining tax obligations be translated.
…”
In case the Company incurs expenses for employees on business trips abroad, if there are full legal invoices and documents from the business trip country, they will be included in deductible expenses when calculating corporate income tax. In case invoices and documents arising abroad are written in a foreign language, the Company must translate them into Vietnamese according to the instructions in Clause 4, Article 5 of Circular No. 156/2013/TT-BTC mentioned above.
2/ Regarding determining the permanent establishment of a foreign company and applying the 0% value added tax rate to the services provided by the Company to a foreign company:
In order to have a basis to respond to the Company’s document in accordance with the provisions of law, the Company is requested to supplement the copy of the economic contract, the appendix of the contract signed between the Company and the foreign partner (Vietnamese translation with the Company’s confirmation stamp) and related documents (if any).
Difference in real estate revaluation
In response to Official Dispatch No. 467/2019/CV-AMC dated December 23, 2019 of SeABank Debt Management & KTTS Company Limited asking about the difference when re-evaluating real estate, Hanoi Tax Department has the following opinion:
– Pursuant to Article 4 of Circular 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance guiding on corporate income tax, amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC (amended and supplemented in Clause 2, Article 6 of Circular No. 119/2014/TT-BTC and Article 1 of Circular No. 151/2014/TT-BTC) stipulating deductible and non-deductible expenses when determining taxable income
“Article 6. Deductible and non-deductible expenses when determining taxable income
1. Except for non-deductible expenses stated in Clause 2 This means that enterprises are allowed to deduct all expenses if they meet the following conditions:
a) Actual expenses incurred are related to the production and business activities of the enterprise.
b) Expenses with sufficient legal invoices and documents as prescribed by law.
c) Expenses with invoices for purchasing goods and services each time with a value of VND 20 million or more (prices including VAT) must have non-cash payment documents when paying.
Non-cash payment documents must comply with the provisions of legal documents on value added tax.
…2. Expenses that are not deductible when determining taxable income include:
…2.19. Provisions are not made, established and used in accordance with the Ministry of Finance’s guidance on provisioning: provisions for inventory price reduction, provisions for losses on financial investments, provisions for bad debts, provisions for product, goods and construction works warranties and provisions for occupational risks of valuation enterprises and enterprises providing independent auditing services.” – Pursuant to Clause 1, Article 1 and Clause 1, Article 2 of Circular No. 48/2019/TT-BTC dated September 8, 2019 of the Ministry of Finance Guiding the provisioning and handling of provisions for inventory price reduction, investment losses, bad debts and product, goods, services and construction works warranties at enterprises, stipulating the scope of regulation and applicable subjects
“Article 1. Scope of regulation and applicable subjects
1. This Circular guides the provisioning and handling of provisions for inventory price reduction, investment losses, bad debts and product, goods, services and construction works warranties as a basis for determining deductible expenses when determining taxable income of enterprises according to regulations.
The provisioning of provisions for the purpose of preparing and presenting financial statements of economic organizations shall comply with the law on accounting.
…Article 2. Interpretation of terms
In this Circular, the following terms are construed as follows:
1. Provision for inventory price reduction: is a provision when there is a decrease in the net realizable value lower than the book value of the inventory.
2. Provision for investment losses: is a provision for the loss of value that may occur due to the decrease in the price of the securities that the enterprise is holding and a provision for the loss that may occur due to the decrease in the value of other investments of the enterprise in economic organizations receiving capital contributions (excluding investments abroad).
3. Provision for bad debts: is a provision for the loss of value of receivables that are overdue for payment and receivables that are not yet due for payment but are unlikely to be collected on time.
4. Provision for warranty of products, goods, services, construction works: is the provision for costs for products, goods, services, construction works that have been sold, provided or handed over to the buyer but the enterprise is still obliged to continue to repair and complete according to the contract or commitment to the customer.”
Based on the above provisions, in the case of SeABank Debt Management & KTTS Company Limited (hereinafter referred to as the Company) purchasing real estate for resale (land use rights and housing), by the end of the year the value of this real estate is reduced compared to the original purchase price and is not subject to provision according to the provisions of Clause 1, Article 1 of Circular No. 48/2019/TT-BTC dated September 8, 2019, the Company is not allowed to set up a provision for the above real estate price decrease to calculate into deductible expenses when determining taxable income of CIT.
Accounting issues are not under the jurisdiction of the Hanoi Tax Department. The Company is requested to contact the Department of Accounting and Auditing Management and Supervision – Ministry of Finance for specific instructions.
Procedures for transferring profits abroad
In response to Document No. SVBHO2011/Dep03 dated March 1, 2011 of the Bank on the procedure for transferring profits abroad, the City Tax Department has the following opinion:
Pursuant to Clause 3, Article 4, Article 5 of Circular No. 186/2010/TT-BTC dated November 18, 2010 of the Ministry of Finance guiding the transfer of profits abroad by foreign organizations and individuals with profits from investment in Vietnam according to the provisions of the Investment Law:
“Enterprises where foreign investors participate in capital investment are responsible for fully performing their financial obligations to the State of Vietnam according to the provisions of law related to the income forming the profits that foreign investors transfer abroad”.
“Foreign investors shall directly or authorize the enterprise in which the foreign investor participates in investment to notify the transfer of profits abroad according to the form issued with this Circular and send it to the tax authority directly managing the enterprise in which the foreign investor participates in investment, at least 07 working days before transferring profits abroad”. In the case of foreign-invested enterprises, after having fulfilled all financial obligations to the Vietnamese State in accordance with the provisions of law relating to the income that forms the profit that the foreign investor transfers abroad, and having submitted audited financial statements and the corporate income tax finalization declaration for the fiscal year to the directly managing tax authority, the foreign investor shall directly or authorize the enterprise in which the foreign investor participates in investment to prepare a notification form according to the form attached to Circular No. 186/2010/TT-BTC and send it to the tax authority directly managing the enterprise at least 7 working days before transferring profits abroad. The notification of profit transfer abroad shall be self-declared by the foreign investor or the enterprise in which the foreign investor participates in investment and shall be responsible before the law. The tax authority shall not confirm on the declaration or issue a written confirmation of the investor’s profit transfer abroad.
Welfare costs
The General Department of Taxation received Official Letter No. 2091/CT-KT1 dated May 4, 2015 of the Dong Nai Provincial Tax Department regarding the declaration of VAT deduction for welfare expenses paid directly to employees. Regarding this issue, with the consent of the Ministry of Finance, the General Department of Taxation has the following opinion:
According to the provisions of Clause 1, Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance guiding on deductible and non-deductible expenses when determining taxable income as follows:
“1. Except for non-deductible expenses specified in Clause 2 of this Article, enterprises are allowed to deduct all expenses if they meet the following conditions:
a) Actual expenses; arising in relation to the production and business activities of the enterprise;
b) Expenses with sufficient legal invoices and documents in accordance with the provisions of law.
c) Expenses if there is an invoice for purchasing goods or services each time with a value of 20 million VND or more (prices including VAT) when paying must have a non-cash payment document.
Non-cash payment documents are implemented in accordance with the provisions of legal documents on value added tax.”
According to the provisions of Article 1, Chapter I of Circular No. 151/2014/TT-BTC dated October 10, 2014 of the Ministry of Finance amending and supplementing Point 2.31, Clause 2, Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance, the following guidance is provided:
“Expenses of a welfare nature paid directly to employees such as: Expenses for funerals, weddings of the employee and his/her family; vacation expenses, treatment support expenses; expenses to support additional knowledge to study at training facilities; only support the families of employees affected by natural disasters, war, accidents, illness; reward employees’ children with good academic performance; support travel expenses for employees on holidays and Tet and other welfare expenses. The total of the above welfare expenses shall not exceed 01 month’s average actual salary in the tax year of the enterprise”;
According to the provisions of Clause 1, Article 14 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance guiding the principles of input VAT deduction:
“Input VAT of goods and services used for production and trading of goods and services subject to VAT shall be fully deducted, including the uncompensated input VAT of damaged VAT goods…”.
Based on the above instructions, in case an enterprise has a welfare expense that employees directly benefit from, that expense is included in deductible expenses when determining taxable income for welfare expenses for employees if there are full invoices and vouchers and the total expense does not exceed 01 month’s average actual salary made in the tax year as prescribed. At the same time, the enterprise is allowed to deduct VAT on welfare expenses corresponding to the amount included in deductible expenses when determining taxable income as mentioned above if it meets the deduction conditions as prescribed.
Sign up for promotions
In response to the Company’s document dated June 13, 2011 on registration of the promotion program; the City Tax Department has the following comments:
– Pursuant to Section a, Point 2.4, Section IV, Part B of Circular No. 129/2008/TT-BTC dated December 26, 2008 of the Ministry of Finance guiding on value added tax (VAT):
“2.4. Use of invoices and documents for promotional goods, advertising services, samples, gifts, presents and internal consumption:
a) For goods and services used for promotion, advertising, samples serving the production and trading of goods and services (products, goods and services used for promotion, advertising, samples according to the provisions of the law on trade promotion activities), VAT invoices must be issued, the name and quantity of goods must be stated on the invoice, clearly stating that they are promotional goods, advertising goods, samples for free; The tax rate line, VAT is not recorded, crossed out.”
– Pursuant to Point 2.19, Section IV, Part C of Circular No. 130/2008/TT-BTC dated December 26, 2008 of the Ministry of Finance guiding on corporate income tax (CIT):
“2.19. The portion of advertising, marketing, promotion, brokerage commission expenses; reception, ceremony, conference expenses; marketing support expenses, cost support expenses, payment discounts; newspaper gifts, newspapers donated by press agencies directly related to production and business activities exceeding 10% of the total deductible expenses; for newly established enterprises, the portion of expenses exceeding 15% in the first three years from the date of establishment. The total deductible expenses do not include the controlled expenses specified in this point; for commercial activities, the total deductible expenses do not include the purchase price of goods sold;”
In case the Company implements programs to sell goods with promotional goods to customers at supermarkets and distribution agents in accordance with the commercial law on trade promotion activities, the Company must register with the competent state agency; when exporting promotional goods, it must issue invoices in accordance with the above instructions, the cost of promotional goods is included in deductible expenses (belonging to the controlled expense item) when calculating corporate income tax. Regarding the registration of promotional programs, the Company is requested to contact the competent state agency (Department of Industry and Trade) for instructions.
Exchange rate regulations
In response to the official dispatch No. SEAPS-V/161101_01 dated November 14, 2016 of SEAPS Vietnam Company Limited (hereinafter referred to as the company) asking about foreign currency conversion in tax declaration, the Hanoi Tax Department has the following opinion:
– Pursuant to Circular No. 200/2014/TT-BTC dated December 22, 2014 of the Ministry of Finance guiding the enterprise accounting regime:
+ Article 4 stipulates the selection of currency units in accounting:
“1. Enterprises with revenue and expenditure transactions mainly in foreign currency shall, based on the provisions of the Law on Accounting, consider and decide on the selection of currency units in accounting and be responsible for that decision before the law. When selecting the currency unit in accounting, enterprises must notify the direct tax authority.”
+ Article 6 stipulates the auditing of Financial Statements in cases where the accounting currency is foreign currency:
“Financial statements with legal status for public announcement and submission to competent authorities in Vietnam are Financial Statements presented in Vietnamese Dong and must be audited.”
– Pursuant to Point e, Clause 2, Article 16 of Circular No. 39/2014/TT-BTC dated April 31, 2014 guiding the implementation of Decree No. 51/2010/ND-CP dated May 14, 2010 and Decree No. 04/2014/ND-CP dated January 17, 2014 of the Government regulating invoices for the sale of goods and provision of services, the issuance of invoices is regulated as follows:
“e) Currency on invoices
The currency on invoices is Vietnamese Dong.
In case the seller is allowed to sell goods for foreign currency according to the provisions of law, the total payment amount is recorded in the original currency, the text part is recorded in Vietnamese.
For example: 10,000 USD – Ten thousand US dollars.
The seller also records on the invoice the foreign currency exchange rate with Vietnamese Dong according to the average exchange rate of the interbank foreign exchange market announced by the State Bank of Vietnam at the time of invoice issuance.
In case the foreign currency collected is a type that does not have an exchange rate with Vietnamese Dong, the cross exchange rate with a foreign currency whose exchange rate is announced by the State Bank of Vietnam…”
– Pursuant to Clause 1, Article 10 of the Law on Accounting passed by the National Assembly on November 20, 2015, which stipulates the unit of calculation used in accounting:
“1. The currency unit used in accounting is Vietnamese Dong, the national symbol is “đ”, the international symbol is “VND”. In case economic and financial transactions arise in foreign currencies, the accounting unit must record in the original currency and Vietnamese Dong at the actual exchange rate, unless otherwise provided by law; for foreign currencies that do not have an exchange rate with Vietnamese Dong, they must be converted through a foreign currency that has an exchange rate with Vietnamese Dong. Accounting units that mainly receive and spend in one foreign currency may choose that foreign currency as the accounting currency, be responsible before the law and notify the directly managing tax authority. When preparing financial statements for use in Vietnam, accounting units must convert them into Vietnamese Dong at the actual exchange rate, unless otherwise provided by law… ”
– Pursuant to Clause 4, Article 2 of Circular No. 26/2015/TT-BTC dated February 27, 2015 of the Ministry of Finance guiding on value added tax and tax administration in Decree No. 12/2015/ND-CP dated February 12, 2015 of the Government detailing the implementation of the Law amending and supplementing a number of articles of the Laws on tax and amending and supplementing a number of articles of the Decrees on tax and amending and supplementing a number of articles of Circular No. 39/2014/TT-BTC dated March 31, 2014 of the Ministry of Finance on invoices for the sale of goods and provision of services amending and supplementing Article 27 of Circular No. 156/2013/TT-BTC dated 6/11/2013 of the Ministry of Finance as follows:
“Article 27. Currency for tax payment and determination of revenue, expenses, taxable prices and payments to the state budget.
1. Taxpayers shall pay taxes and payments to the state budget in Vietnamese Dong, except in cases where tax is allowed to be paid in foreign currency according to the provisions of law.
… 3. In case of revenue, expenses, and taxable prices in foreign currency, foreign currency must be converted into Vietnamese Dong at the actual transaction exchange rate according to the guidance of the Ministry of Finance in Circular No. 200/2014/TT-BTC dated December 22, 2014 guiding the enterprise accounting regime as follows:
– The actual transaction exchange rate for accounting for revenue is the buying rate of the commercial bank where the taxpayer opens an account.
– The actual transaction exchange rate for accounting for expenses is the selling rate of the commercial bank where the taxpayer opens an account at the time of the foreign currency payment transaction.
– Other specific cases are implemented according to the guidance of the Ministry of Finance in Circular No. 200/2014/TT-BTC dated December 22, 2014.”
– Pursuant to Clause 3, Article 1 of Circular No. 53/2016/TT-BTC dated March 21, 2016 of the Ministry of Finance amending and supplementing Article 69 of Circular No. 200/2014/TT-BTC dated December 22, 2014 of the Ministry of Finance, guiding:
“3. Clause 1.3, Article 69 of Circular No. 200/2014/TT-BTC is amended and supplemented as follows:
“1.3. Principles for determining exchange rates:
…- In case the contract does not specifically stipulate the payment exchange rate:
+ Enterprises record accounting books according to the actual transaction exchange rate: When recording capital contribution or receiving capital contribution, the foreign currency buying rate of the bank where the enterprise opens an account to receive capital from the investor on the date of capital contribution; When recording receivables, the buying rate of the commercial bank where the enterprise designates the customer to pay at the time of transaction; When recording payables, the selling exchange rate of the commercial bank where the enterprise plans to transact at the time of the transaction is used; When recording asset purchases or expenses paid immediately in foreign currency (not through payable accounts), the buying exchange rate of the commercial bank where the enterprise makes the payment is used.
+ In addition to the actual transaction exchange rate mentioned above, the enterprise can choose the actual transaction exchange rate as an approximate exchange rate with the average transfer buying and selling exchange rate of the commercial bank where the enterprise regularly conducts transactions. The approximate exchange rate must ensure that the difference does not exceed +/-1% compared to the average transfer buying and selling exchange rate. The average transfer buying and selling exchange rate is determined daily, weekly or monthly based on the average between the daily buying and selling exchange rate and the daily transfer selling exchange rate of the commercial bank.
The use of the approximate exchange rate must ensure that it does not significantly affect the financial situation and business performance of the accounting period.”
Based on the above regulations, the Hanoi Tax Department responds in principle as follows:
In case the Company uses US dollars (USD) for accounting, the Company must still declare and pay taxes in Vietnamese Dong (VND).
In case the Company declares VAT, CIT, contractor tax (paid on behalf of), the conversion to Vietnamese Dong is carried out in accordance with the provisions in Clause 4, Article 2 of Circular No. 26/2015/TT-BTC dated February 27, 2015, Clause 3, Article 1 of Circular No. 53/2016/TT-BTC dated March 21, 2016 mentioned above.
When declaring corporate income tax finalization, the Company can use the data on the audited financial statements (the financial statements are presented in Vietnamese Dong) to declare according to the instructions in Circular No. 156/2013/TT-BTC dated November 6, 2013 of the Ministry of Finance.
Regarding VAT deduction and accounting for costs of exported goods that do not meet quality standards and must be destroyed
The Tax Department has received Official Letter No. 01-2014-ROH dated February 6, 2014 from the Company regarding documents for goods destroyed abroad. On February 20, 2014, the Tax Department issued an official letter requesting the Company to provide documents. Based on the documents provided by the Company on March 18, 2014, the Tax Department issued Official Letter No. 3164/CT-TT&HT informing the Company to wait for consideration and resolution.
Now, the Tax Department has the following comments:
In Clause 1, Clause 2, Article 6, Circular No. 123/2012/TT-BTC dated July 27, 2012 of the Ministry of Finance, it is stipulated that:
“1. Except for the expenses specified in Clause 2 of this Article, enterprises are allowed to deduct all expenses if they meet the following conditions:
a) Actual expenses arising in relation to the production and business activities of the enterprise;
b) Expenses with sufficient legal invoices and documents as prescribed by law
2. Expenses that are not deductible when determining taxable income include:
2.1. Expenses that do not satisfy the conditions specified in Clause 1 of this Article.
In case an enterprise has expenses related to the value of losses due to natural disasters, epidemics, fires and other force majeure events that are not compensated, these expenses will be included in deductible expenses when determining taxable income, specifically as follows:
Enterprises must clearly determine the total value of losses due to natural disasters, epidemics, fires and other force majeure events as prescribed by law.
The value of losses due to natural disasters, epidemics, fires and other force majeure events that are not compensated is determined by the total value of losses minus the compensation that organizations and individuals are responsible for paying according to the provisions of law.”
Article 161, Clause 1 of the Civil Code No. 33/2005/QH11 dated June 14, 2005 stipulates:
“A force majeure event is an event that occurs objectively and cannot be foreseen and cannot be overcome despite the application of all necessary measures and capabilities.”
According to the Inspection Report dated January 9, 2014 of the Office of Product and Manufacturing Quality – International Drug Quality Division of the US Department of Health and Human Services, it concluded:
“Our review of the significance of the current incompatibilities indicates that the Company’s quality department is unable to fully perform its responsibilities. The Company needs to delegate authority and appropriate personnel to the quality department to be able to fully perform its quality tasks. If necessary, we recommend that the Company engage a third-party CGMP consultant to evaluate the facility, procedures, processes and systems to ensure that the Company’s manufactured drugs are of appropriate consistency, potency, quality and purity.
Until the investigator can confirm that the corrective actions have been properly and adequately implemented at the next inspection, we will continue to place the Company on an unacceptable status.”
At the same time, in Section d, Clause 3, Article 16 of Circular No. 06/2012/TT-BTC dated January 11, 2012 of the Ministry of Finance stipulates:
“d) Cases of export without bank payment documents are eligible for tax deduction and refund:
d.2) In the case of exported goods that do not ensure quality and must be destroyed, the goods exporting establishment must have a written explanation clearly stating the reason and may use the destruction record (or document confirming the destruction) of the goods abroad of the agency performing the destruction (01 copy), accompanied by bank payment documents for the destruction costs that are the responsibility of the goods exporting establishment or accompanied by documents proving that the destruction costs are the responsibility of the buyer or a third party (01 copy).
In the case where the importer of goods must carry out the destruction procedures abroad, the destruction record (or document confirming the destruction) shall state the name of the importer of goods.”
Based on the above regulations, in 2013, the Company exported a batch of drugs to a foreign country but because it did not meet the quality inspection standards, the foreign side did not accept it and requested that it be destroyed. The Company’s products did not meet the quality inspection standards from the foreign side due to errors in the Company’s drug production process as assessed in the Inspection Report dated January 9, 2014 of the Office of Product and Manufacturing Quality – International Drug Quality Division of the US Department of Health and Human Services. Therefore, the Company’s need to destroy substandard drug products is not considered a force majeure event, so the cost and value of the destroyed products are not included in deductible expenses when determining taxable income.
Payment of airline tickets and electronic invoices
The General Department of Taxation received Official Letter No. 4895/TCKT dated September 12, 2014 of the Mobile Information Company (VMS) regarding difficulties in implementing Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance. Regarding this issue, the General Department of Taxation has the following comments:
1. Regarding tax policies for goods and services used for promotion and gifts, donations, and donations to serve production and business activities.
Clause 2.21, Article 6 of Circular 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance stipulates that expenses that are not deductible when determining taxable income include:
“2.21. Expenses exceeding 15% of total deductible expenses, including: expenses for advertising, marketing, promotion, brokerage commissions; expenses for reception, ceremonies, conferences; marketing support expenses, cost support expenses; expenses for giving, donating, donating goods and services to customers.””
Clause 3 and Clause 5, Article 7 of Circular 219/2014/TT-BTC dated December 31, 2013 of the Ministry of Finance stipulate input VAT as follows:
“”3. For products, goods, services (including those purchased from outside or produced by the business establishment itself) used for exchange, giving, donating, donating, paying in lieu of salary, the VAT taxable price is the price of goods, services of the same or equivalent type at the time these activities occur.””
“”5. For products, goods, services used for promotion according to the provisions of the law on commerce, the taxable price is determined as zero (0); In case goods and services are used for promotion but not in accordance with the provisions of the law on commerce, they must be declared and taxed as goods and services used for internal consumption, gifts, donations, and grants. “”
Clause 5, Article 14 of Circular 219/2014/TT-BTC above stipulates the principle of tax deduction:
“”5. Input VAT of goods (including goods purchased from outside or goods produced by the enterprise itself) that the enterprise uses for giving, donating, donating, promoting, advertising in various forms, serving the production and business of goods and services subject to VAT shall be deducted. “”
In Clause 4, Article 1 of Law No. 71/2014/QH13 dated November 26, 2014 amending and supplementing a number of articles of the Laws on Taxation, it is stipulated that:
“” 4. Abolish Point m, Clause 2, Article 9 “”
Based on the above provisions:
In case of goods and services used for promotion according to the provisions of the Commercial Law on Trade Promotion Activities, VMS must issue invoices according to the instructions in Official Dispatch No. 2815/TCT-DNL dated July 24, 2014 of the General Department of Taxation guiding on tax policies and is not required to calculate output VAT, and is not required to account for revenue to calculate CIT.
– In case of goods and services used for gifts, donations, or donations, output VAT must be calculated but revenue is not required to be accounted for to calculate CIT. In case of goods and services used for promotion but not in accordance with the provisions of the law on commerce, the same shall apply as in case of goods and services used for gifts, presents, or donations.
– Mobile information companies shall specifically determine the calculation of deductible expenses for the value of goods and services used for giving, donating, presenting, or promoting production and business activities according to regulations.
2. Regarding payment documents for air tickets.
Based on the provisions of Article 15 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance on conditions for deducting VAT.
Based on Clause 1, Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance stipulating deductible and non-deductible expenses when determining taxable income;
“1. Except for the non-deductible expenses specified in Clause 2 of this Article, enterprises are allowed to deduct all expenses if they meet the following conditions:
a) Actual expenses arising in relation to the production and business activities of the enterprise;
b) Expenses with sufficient legal invoices and documents as prescribed by law.
c) Expenses with invoices for purchasing goods and services each time with a value of VND 20 million or more (prices including VAT) must have non-cash payment documents when paid.
Non-cash payment documents must comply with the provisions of legal documents on value added tax. “”
Based on the above regulations, in case VMS sends employees on business trips to serve production and business activities and assigns individuals to buy air tickets through agents (value under 20 million VND/purchase) with VAT invoices from the air ticket agent, then the individuals return to pay VMS if VMS has sufficient documents and vouchers proving that this expense serves production and business activities including: air tickets, boarding passes (in case the cards are recovered), documents related to the dispatch of employees on business trips with confirmation from VMS, VMS regulations allow employees to pay for air tickets themselves, VMS’s payment vouchers for tickets for individuals buying tickets with VAT invoices, VMS is allowed to declare input VAT deduction and include it in deductible expenses when calculating corporate income tax. VMS is responsible for the legality of the above documents and vouchers.
In case VMS sends employees on business trips to serve production and business activities and allows individuals to purchase air tickets through e-commerce websites, it shall comply with Official Dispatch No. 3997/TCT-DNL dated September 16, 2014 of the General Department of Taxation guiding tax policies.
Expansion investment
In response to Official Letter No. 78/2016 CV/FMV dated August 2, 2016 of Fuji Mold Vietnam Co., Ltd. requesting guidance on corporate income tax incentives for expansion investment activities, the General Department of Taxation has the following comments:
– At Point a, Clause 6, Article 18 of Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance stipulates:
“6. Regarding incentives for expansion investment
a) Enterprises with investment projects to develop operating investment projects such as expanding production scale, increasing capacity, innovating production technology (collectively referred to as expansion investment projects) in the fields and areas eligible for corporate income tax incentives according to the provisions of Decree No. 218/2013/ND-CP (including economic zones, high-tech zones, industrial parks except industrial parks located in the inner city districts of special-class cities, centrally-run type I cities and industrial parks located in provincial type I cities) if meeting one of the three criteria specified in this point, shall be entitled to enjoy corporate income tax incentives according to the operating project for the remaining period (if any) or be entitled to a tax exemption or tax reduction period for the additional income generated by the expansion investment (not entitled to preferential tax rates) equal to the tax exemption or tax reduction period applicable to the investment project In case an enterprise chooses to enjoy corporate income tax incentives according to the project in operation for the remaining time, the expansion investment project must be in the field or locality with corporate income tax incentives according to the provisions of Decree No. 218/2013/ND-CP and also in the field or locality with the project in operation. The expansion investment project specified in this point must meet one of the following criteria:
– The original value of fixed assets increased when the investment project is completed and put into operation reaches at least VND 20 billion for expansion investment projects in the fields enjoying corporate income tax incentives according to the provisions of Decree No. 218/2013/ND-CP or from VND 10 billion for expansion investment projects implemented in areas with difficult or extremely difficult socio-economic conditions according to the provisions of Decree No. 218/2013/ND-CP.
– The proportion of the original value of fixed assets increased reaches at least 20% compared to the total original value of fixed assets before investment.
– The designed capacity when investing in expansion increases by at least 20% compared to the designed capacity according to the technical and economic feasibility study before the initial investment.
…
In case an operating enterprise invests in upgrading, replacing, or innovating the technology of an operating project in a tax-incentive field or area as prescribed in Decree No. 218/2013/ND-CP but does not meet one of the three criteria specified in this point, the tax incentives shall be applied to the operating project for the remaining period (if any).”
– Clause 4, Article 10 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance stipulates the addition of Point a, Clause 6, Article 18 of Circular No. 78/2014/TT-BTC as follows:
“Enterprises with investment projects currently enjoying tax incentives, which in the period 2009 – 2013 regularly invest in additional machinery and equipment in the production and business process that is not part of the above-mentioned expansion investment project, the additional income due to this regular additional investment in machinery and equipment will also enjoy tax incentives at the level that the project is applying for the remaining time from the tax period of 2014.”
– Clause 1, Article 13 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance stipulates the supplement of Clause 2a, Article 23 of Circular No. 78/2014/TT-BTC as follows:
“2a. Enterprises with expansion investment projects that have been granted investment licenses by competent authorities or have made investments in the period 2009 – 2013, up to the tax period of 2014, meeting the conditions for tax incentives (incentive sectors or preferential locations including industrial parks, economic zones, high-tech zones) according to the provisions of Law No. 32/2013/QH13, Law No. 71/2014/QH13 and implementing documents shall enjoy tax incentives for expansion investment according to the provisions of Law No. 32/2013/QH13, Law No. 71/2014/QH13 and implementing documents for the remaining period from the tax period of 2015.” – Article 5 of Circular No. 130/2016/TT-BTC dated August 12, 2016 of the Ministry of Finance guiding Decree No. 100/2016/ND-CP dated July 1, 2016 of the Government detailing the implementation of the Law amending and supplementing a number of articles of the Law on Value Added Tax, the Law on Special Consumption Tax and the Law on Tax Administration and amending a number of articles in the Circulars on tax stipulates: “Article 5. Add point a1 after Point a, Clause 6, Article 18 of Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance guiding the implementation of Decree No. 218/2013/ND-CP dated December 26, 2013 of the Government stipulating and guiding the implementation of the Law on Corporate Income Tax (amended and supplemented in Clause 4, Article 10 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance) as follows:
“a1) For the period from 2009 to 2013, enterprises in the process of production and business that use the basic depreciation fund of fixed assets of the enterprise; use after-tax profits for reinvestment; use capital within the investment capital registered with the competent state management agency to invest in additional machinery and equipment regularly and do not increase production and business capacity according to the registered or approved business plan are not required to invest in expansion”.
– Official dispatch No. 4769/BTC-TCT dated April 7, 2016 of the Ministry of Finance provided specific guidance on criteria for determining and providing corporate income tax incentives for regular investment activities in the period of 2009 – 2013.
Based on the above regulations and the content of the documents attached to the Company’s inquiry letter:
– In case the Company in the period of 2009 – 2013 has built additional factories and invested in purchasing machinery and equipment:
+ If it meets the criteria for regular investment stated in Article 5 of Circular No. 130/2016/TT-BTC and Official dispatch No. 4769/BTC-TCT mentioned above, it will be entitled to the corporate income tax incentives that the project is applying.
+ If the conditions for expansion investment specified in Point a, Clause 6, Article 18 of Circular No. 78/2014/TT-BTC mentioned above are met, the Company shall enjoy corporate income tax incentives for income from the expansion investment project for the remaining period from 2015 according to the incentive rate of the operating project (if any) or apply the tax exemption or tax reduction period for the additional income generated by the expansion investment (not entitled to the preferential tax rate) equal to the tax exemption or tax reduction period applied to the new investment project in the same locality. In case the enterprise chooses to enjoy corporate income tax incentives according to the operating project for the remaining period, the expansion investment project must be in the field or locality with corporate income tax incentives according to the provisions of Decree No. 218/2013/ND-CP and also in the field or locality with the operating project. – In case the Company invests in upgrading machinery and equipment in 2015:
+ If the Company invests in upgrading, replacing, or innovating the technology of an operating project that does not meet the criteria for expansion investment specified in Point a, Clause 6, Article 18 of Circular No. 78/2014/TT-BTC above, the Company will enjoy corporate income tax incentives according to the operating project for the remaining period (if any).
+ If the conditions for expansion investment specified in Point a, Clause 6, Article 18 of Circular No. 78/2014/TT-BTC mentioned above are met, the Company can choose to apply tax incentives according to the project currently enjoying incentives for the remaining period (if any) or apply the tax exemption or tax reduction period for the additional income generated by the expansion investment (not enjoying the preferential tax rate) equal to the tax exemption or tax reduction period applied to the new investment project in the same area with CIT incentives. In case the enterprise chooses to enjoy corporate income tax incentives according to the project in operation for the remaining period, the expansion investment project must be in the field or area with corporate income tax incentives according to the provisions of Decree No. 218/2013/ND-CP and also in the field or area with the project in operation. The General Department of Taxation received Official Letter No. 2968/CT-KTr2 dated July 27, 2018 of the Da Nang City Tax Department on tax declaration and payment for real estate business activities with progress-based payment collection. Regarding this issue, the General Department of Taxation has the following opinion:
Article 55 of the Law on Real Estate Business No. 66/2014/QH13 dated November 25, 2014 stipulates the conditions for real estate formed in the future to be put into business:
Article 55. Conditions for real estate formed in the future to be put into business
1. Having documents on land use rights, project documents, construction drawings approved by competent authorities, Construction Permit in cases where a Construction Permit is required, documents on acceptance of the completion of construction of technical infrastructure corresponding to the project progress; In the case of future apartment buildings or mixed-use buildings intended for residential purposes, there must be a record of acceptance of the completion of the building’s foundation. 2. Before selling or leasing future housing, the investor must notify the provincial housing management agency in writing that the housing is eligible for sale or lease-purchase.
Within 15 days from the date of receipt of the notice, the provincial housing management agency shall be responsible for responding in writing to the investor about the housing that is eligible for sale or lease purchase; in case of ineligibility, the reason must be clearly stated.”
In Clause 4, Article 8 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance guiding the time for determining VAT:
4. For real estate business, infrastructure construction, construction of houses for sale, transfer or lease, the time for collecting money is according to the project implementation progress or the collection progress stated in the contract. Based on the amount of money collected, the business establishment shall declare the output VAT arising in the period.”
At Clause 2, Article 16 of Circular No. 39/2014/TT-BTC dated March 31, 2014 of the Ministry of Finance guiding on invoice issuance:
2. How to prepare some specific criteria on invoices
a) Criterion “Date month year” for invoice issuance
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In case the organization doing business in real estate, constructing infrastructure, building houses for sale, transferring and collecting money according to the project progress or the collection progress stated in the contract, the invoice issuance date is the payment collection date.”
At Point 2.11 of Appendix 4 issued together with Circular No. 39/2014/TT-BTC dated March 31, 2014 of the Ministry of Finance guiding on invoice issuance:
2.11. In case an organization or individual doing real estate business, building infrastructure, building houses for sale or transfer collects money according to the project progress or the progress of collecting money stated in the contract, when collecting money, the organization or individual must issue a VAT invoice. The invoice must clearly state the amount collected, the land price deducted from the VAT taxable revenue, the VAT rate, and the VAT amount.”
In Section a, Clause 1, Article 17 of Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance stipulates:
a) Revenue from real estate transfer activities.
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– The time for determining taxable revenue is the time when the seller hands over the real estate to the buyer, regardless of whether the buyer has registered the property ownership, land use rights, or established land use rights at a competent state agency.
– In case an enterprise implements an infrastructure investment project, houses for transfer or lease, and collects advance payments from customers according to progress in any form, the time to determine the revenue for calculating provisional corporate income tax is the time of collecting money from customers, specifically:
+ In case an enterprise collects money from customers and determines the cost corresponding to the recorded revenue (including the pre-deducted cost of the unfinished construction item estimate corresponding to the recorded revenue), the enterprise shall declare and pay corporate income tax based on revenue minus costs.
+ In case an enterprise collects money from customers but has not yet determined the cost corresponding to the revenue, the enterprise shall declare and temporarily pay corporate income tax at the rate of 1% on the revenue collected and this revenue is not yet included in the revenue for calculating corporate income tax in the year.
When handing over real estate, the enterprise must make a corporate income tax finalization and re-finalize the amount of corporate income tax payable. In case the amount of corporate income tax provisionally paid is lower than the amount of corporate income tax payable, the enterprise must pay the full amount of tax arrears to the State Budget. In case the amount of corporate income tax provisionally paid is greater than the amount of tax payable, the enterprise may deduct the overpaid tax from the corporate income tax payable for the following period or receive a refund of the overpaid tax.
For real estate businesses that collect advance payments from customers according to progress and declare and pay temporary tax at a percentage of the revenue collected, this revenue is not yet included in the revenue for calculating corporate income tax in the year, and at the same time, there are expenses for advertising, marketing, promotion, and brokerage commissions when starting to offer for sale in the year of revenue collection according to progress, these expenses are not included in the year of cost arising. These expenses for advertising, marketing, promotion, and brokerage commissions are included in deductible expenses according to the prescribed control level in the first year of real estate handover, generating revenue for calculating corporate income tax.” Based on the above regulations, it is recommended that the Da Nang Tax Department conduct an inspection and review of the records of Thien Thai Hotel and Tourism Joint Stock Company and the Customer to clearly determine the nature of the real estate transfer activities (buying and selling apartments) and borrowing capital from the Customer, and the conditions for offering real estate formed in the future of Thien Thai Hotel and Tourism Joint Stock Company. Based on the above regulations and the actual situation for handling.
Solution
The corporate income tax rate is also quite high in the company’s profits, so it is necessary to handle it reasonably in managing costs for tax purposes, as well as assessing the adverse risks to be prepared, especially the use of tax incentives to save tax costs, especially to avoid additional collection, penalties, and disputes with taxes later, Contact us for a more detailed discussion of the Company’s situation.