Chapter.7 Corporate.Income.Tax FINAL

Chapter Corporate Income Tax (CIT) CIT DOCUMENTS 10 11 12 Law on CIT No.14/2008/QH12 dated 03 June 2008; Law No.32/2013/QH13 dated 19 June 2013 - amendments and complements of CIT; Law No.71/2014/QH14 dated 26 November 2014 amendments and complements of CIT; Decree 218/2013/ND-CP dated 26 December 2013; Decree 91/2014/ND-CP dated 01 October 2014; Decree 12/2015/ND-CP dated 12 February 2015; Decree 100/2016/ND-CP dated 01 July 2016; Circular 78/2014/TT-BTC dated 18 June 2014; Circular 119/2014/TT-BTC dated 25 August 2014; Circular 151/2014/TT-BTC dated 10 October 2014; Circular 96/2015/TT-BTC dated 22 June 2015; Circular 130/2016/TT-BTC dated 12 August 2016 OUTLINE CIT Concept Taxable subjects & Taxpayers Tax base, Tax period & Tax rate Revenues, Expenses & Other incomes Tax exemption, Loss-carry-forward Incomes from capital transfer, Security transfer & Real-estate transfer  Tax declaration & payment  Accounting for CIT       OVERVIEW OF CIT Concept: Corporate Income Tax (CIT) is a direct tax levied on income of an enterprise through their business activities Also called Enterprise Income Tax (EIT) or Corporation Tax (CT) TAXABLE OBJECTS & TAXPAYERS Taxable objects Incomes from business activities including producing, selling goods, and performing services Other incomes Taxpayers All businesses (in accordance to Enterprise Law, Foreign Law, Investment Law) Non-profit company (Public & non-public with taxable incomes) Co-operative-society (Co-operative-society Law) Foreign contractors (Contractor's tax Law) TAX PAYABLE CIT payable Taxed income = ( Taxable income Income = -to-be- taxed Incomes-to= Revenues be-taxed Science and technology fund (if any) Taxable exemption - Expenses ) × CIT rate Losses carried forward + + Other incomes TAX PERIOD Tax period A calendar year (from Jan to 31 Dec), or, A fiscal year applied by enterprises, but not exceed 15 months: - The first tax period for newly established enterprises; - The final tax period for merging, dissolving or liquidating enterprises CIT is temporarily paid quarterly, four times a year, and one annual settlement Example Phuong Dong Company established in July 2013 => Its 1st tax period is months from July to December 2013 From 2014 onwards, its tax period is 12 months from Jan to Dec Phuong Tay Company established in Nov 2013 => Its 1st tax period is 14 months from Nov 2013 to December 2014 From 2015 onwards, its tax period is 12 months from Jan to Dec Phương Nam Company dissolved in Jan 2013 => its final tax period is 13 months from Jan 2012 to Jan 2013 Phương Bac Company dissolved in May 2013 => Its final tax period is months from Jan 2013 to May 2013 TAX RATES  Currently, CIT standard rate is 20%  Certain industries would be taxed in higher rates, such as:  Companies operating in the oil and gas industry are subject to a rate from 32% to 50%, depending on the location and specific project  Companies are in processing of exploration and exploitation of mineral resources are subject to a rate of 40% or 50%, depending on location REVENUES When to recognize CIT? For selling goods: At the point of time when transferring the right-of-ownership and/or the right-to-have the goods incur; For performing of services: At the point of time when the service(s) is(are) completed or partial completed; For air-transportation: At the point of time when the transportation service(s) is(are) completed REVENUES (CON’T.) Revenue for calculating taxable income is total proceeds including processing fee, service fee, extrafees that an enterprise may earn regardless of collecting or not-yet-collecting a) For enterprises applying VAT deduction method: taxable revenue is the selling price excluding VAT b) For enterprises applying direct VAT method: Taxable revenue is the selling price including VAT (Details in Article Circular 78/2014 and Article Circular 96/2015) OTHER INCOME (CON’T)  Interest ABC revenues, including also interest on loan, on deferred and installment payments, credit guarantee charges and other fees under loan contracts; Income from foreign currency trading (which is equals the difference between the sale price and purchase price); Income from currency exchange rate difference; 10 Income from bad debts which have been written off before 11 Payables with unidentifiable creditors 12 Income not recorded in previous years OTHER INCOMES (CON’T.) 13 Income collecting from violating economic contracts;  ABC 14 Difference of asset re-valuation of capital contribution or asset transfer due to enterprise split, separation, consolidation, merger or transformation; 15 Income from donations, gifts, marketing support, expenditure support, cash discount, promotional prizes and other supports; 16 Prepaid expense but not allocated in periods and not accounted as decrease in expenses; refunded to provisions of construction warranty; 17 Income from the sale of scraps and discarded items, after subtracting related expenses; 18 Incomes from the contribution of equity capital to joint ventures or economic associations domestically which are pre-corporateincome-tax; 19 Other incomes prescribed by law CIT EXEMPTION Incomes from cultivation, husbandry, aquaculture and salt production of co-cooperatives-society, of areas in socialeconomic-difficulty; incomes from sea-foods-catching activities; Incomes from technical services which serve directly for agriculture Income from scientific research and technological development as in contract, but not more than three years from the date where the first revenues is recognized; Income from sale of products which is the new technologies applied in Vietnam for the first time, but not more than five years from the date where the first revenues is recognized; Income from production and business activities of enterprises which have 30% of total of employees who are disabled, drugdetoxified and HIV- infected ones in a taxable year TAX-EXEMPT INCOMES (CON’T.) Income from job training for minority people, disabled people, children-in-difficultysituation, social-problem, anti-detoxification, detoxified, and HIV/AIDS-infected people; Investment revenue from capital contribution, share purchase, joint venture with domestic enterprises, after the partner had paid CIT according to CIT Law, including the partner which is eligible for CIT incentives; Income received to use for educational, scientific research, cultural, artistic, charitable, humanitarian and other social activities in Vietnam Incomes from transfer of emission-reduction-certificate for the first-time of enterprises which are granted with emission-reduction-certificates; Undivided incomes of socialized-associations in education-training, medical and other socialized activities; undivided incomes of social-co-operatives retained to establish of their assets; 10 Incomes from technology transfer in the prioritized fields and to be transferred to organizations and individuals in geographical areas with difficult-socio-economic conditions; 11 Incomes of bailiff’s offices (except for incomes from activities other than bailiff’s activities) during the experimental period according to regulations of civil law LOSS CARRY FORWARD Loss (losses) which is (are) carried from previous years; Loss in current year shall be carried forward, but not excess of years; Losses on tax-incentive-operating-activities can be offset against profits from no-tax-incentive-operating-activities, and vice versa Losses from transfer of real estate and transfer of investment projects shall be offset against profits from operating activities EX-1: In 2013, Company A suffers a loss of VND 10 billion In 2014, it generates an income of VND 12 billion So, the CIT payable in 2014 = (12B – 10B = 2B x CIT rate) EX-2: In 2013, Company B suffers a loss of VND 20 billion In 2014, it generates an income of VND 15 billion So, the loss in 2013 is offset against the income in 2014 The remaining loss (20B – 15B = 5B) will be carried forward to 2015 and so on…,but not later than 2018 EX-3: In 2013, Company C suffers a loss of VND billion and continues loss of VND 12 billion in 2014 So, the accumulated losses of the years (8B + 12B = 20B) will be carried forward to next year and so on… , but not later than 2018 for the loss of 8B and 2019 for the loss of 12B INCOMES FROM CAPITAL TRANSFER Income from capital transfer is income earned from the transfer of part or the whole of the capital amount which the enterprise has invested in one or many other organizations or individuals (including sale of the enterprise) CIT payable Taxable income = = Taxable income Purchasing Transfer price price CIT rate (20%) × + Transfer expenses INCOMES FROM SECURITY TRANSFER Income from securities transfer is income earned from the transfer of stocks, bonds, fund certificates and other securities CIT payable Taxable = incomes = Selling price Taxable income - CIT rate (20%) × Purchasing price + Transfer expenses INCOMES FROM REAL-ESTATE TRANSFER Income from real-estate transfer includes income from transfer of right-to-used land, or transfer of right-to-lease land (including transfer of projects bind to transfer right-to-used land, or transfer of right-to-lease land in accordance to law) CIT payable Taxable incomes = Taxed incomes = Income tobe-taxed Income to= Revenues be-taxed CIT rate (20%) × Cost of real estate Losses from transfer - + Deductible expenses TAX DECLARATION AND PAYMENT  Enterprises are required to pay temporary CIT in quarterly based on estimates If the total temporary payment of the quarters is less than 80% of the total CIT in the whole year, enterprise must pay for late payment which is the excess of 20% (the interest rate of late payment currently is 18% per year), applying from the deadline for payment of the 4th Quarter  CIT return (form 03/TNDN) is filed annually, not later than 90 days from the end date of fiscal year The outstanding CIT payable must be paid at the same time (not later than 90 days from the end date of fiscal year)  If the enterprise has dependent accounting unit (e.g branches) in a different province, the enterprise just need file the tax return at the place which the headquarter is located  The taxable year is the calendar year; otherwise must notify to local tax authorities ACCOUNTING FOR CIT a Hàng quý, kế toán phản ánh số thuế thu nhập doanh nghiệp tạm phải nộp Nhà nước: Nợ 8211 Có 3334 b Khi nộp thuế, kế toán ghi: Nợ 3334 Có 111/112 c Cuối năm tài chính: Nếu số thuế TNDN thực tế phải nộp năm lớn số thuế TNDN tạm nộp (phải nộp thêm), kế toán ghi: Nợ 8211 Có 3334 Nếu số thuế TNDN thực tế phải nộp năm nhỏ số thuế TNDN tạm nộp, kế tốn ghi: Nợ 3334 Có 8211 CIT EXAMPLE ANX Company in 2017 has the following information (in million): Revenues in 2017: - Sales & services’ revenues: 56,400; - Investment revenue: 600 in which joint-venture revenue is: 360 Expenses in 2017: - Cost of goods sold: 17,000; - Selling expenses: 16,000; - Managerial expenses: 15,000; - Interest expense: 1,500 However, the above expenses include some expenses which are nondeductible expenses according to tax law, as follows: - Interest payment to local bank with interest rate of 15%/year: 1,500; - Expenditures on employees' uniform: 520; - Salaries payment to owners who not directly manage the business: 300 CIT EXAMPLE Other incomes/expenses include: - Fine for violating economic contracts (with reasonable circumstances due to natural disaster): 75; - Selling of an fixed assets: 90 Requirement: Determine CIT payable in 2017? Additional information: - CIT rate = 20%; - All expenses have sufficient invoices and documents; - All expenses not mentioned above shall be deductible; - All Shareholders have contributed enough charter capital; - The Company has 80 employees; - Basic interest rate announced by the State Bank of Vietnam is 8%/year CIT EXAMPLE SOLUTION: Revenues: - Sales & services’ revenues: 56,400 - Investment revenue : 600 - Other income : 90 Total revenues = …………………………57,090 Expenses: - Cost of goods sold : 17,000 - Selling expenses : 16,000 - Managerial expenses : 15,000 - Interest expense : 1,500 - Other expense : 75 Total expenses = …………………………49,575 Income before tax: (57,090 – 49,575) = 7,515 CIT EXAMPLE Income before tax: (57,090 – 49,575) = 7,515 Non-deductible expenses: - Interest expense : 300 (*) - Employees' uniform : 120 (**) - Salaries : 300 Total non-deductible expenses = 720 Taxable income = 7,515 + 720 – 360 = 7,875 CIT payable = 7,875 x 20% = 1,575 (million) VND Chapter – CORPORATE INCOME TAX END OF CHAPTER ... Phương Nam Company dissolved in Jan 2013 => its final tax period is 13 months from Jan 2012 to Jan 2013 Phương Bac Company dissolved in May 2013 => Its final tax period is months from Jan 2013 to... enterprises, but not exceed 15 months: - The first tax period for newly established enterprises; - The final tax period for merging, dissolving or liquidating enterprises CIT is temporarily paid quarterly,