Chapter.7 Corporate.Income.Tax

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

Corporate Income Tax (CIT)

CIT DOCUMENTS

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

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

amendments and complements of CIT;

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

amendments and complements of CIT;

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

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

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

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

CIT DOCUMENTS

9 Circular 119/2014/TT-BTC dated 25 August 2014; 10 Circular 151/2014/TT-BTC dated 10 October 2014; 11 Circular 96/2015/TT-BTC dated 22 June 2015;

12 Circular 130/2016/TT-BTC dated 12 August 2016; 13 The consolidated document 11 / VBHN-BTC in 2017 guiding Decree 218/2013 / ND-CP;

14 Consolidated Document 09 / VBHN-BTC in 2018;

15 Decree 126/2020/ND-CP, effected from

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.

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

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).

TAX PAYABLE

CIT

payable = ( Taxable income

-Science and technology fund (if any)

) × CIT rate

Taxed

income =

Income

-to-be-taxed

-Taxable

exemption +

Losses carried forward

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

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

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

REVENUES (CON’T.)

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

a) For enterprises applying VAT deduction method:

taxable revenue is the selling price excluding VAT.

b) For enterprises applying direct VAT method:

Taxable revenue is the selling price including VAT.

REVENUES (CON’T.)

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

including excise tax

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

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

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

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

EX-1: Tribico Corp (applying VAT deduction) has tapes of computer selling policy as following: For 1-year deferred payment, the selling price (VAT

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

 Taxable Revenue = VND 10.5KK.

EX-2: Bisco Corp manufactures bottled water The price (VAT exclusive) is VND 4,000/bottle The Company used 1,000 bottles for its employees’ vacations and 500 bottles for its meetings

REVENUES (CON’T.)

f) For processing activities: Taxable revenue includes processing fee, fuel fee, electrical fee, materials fee, and other expenses;

g) For enterprises (consignor) selling their goods through consignees (agents):

 Taxable revenue of consignor is total amount of goods sales (not deducting commissions for agents);

 Taxable revenue of consignees is commissions under contracts;

EX: Locked Corp delivered computers to its agent with the

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

REVENUES (CON’T.)

h) For asset leasing:

 Taxable revenue is the amounts receiving periodically;  In case of prepaid-rent for many years:

 Taxable revenue is an annual rental revenue which is

determined by taking the total amount receiving in

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

 Taxable revenue is the total amount receiving in

REVENUES (CON’T.)

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

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

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

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

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

REVENUES (CON’T.)

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

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

DEDUCTIBLE EXPENSES

Expenses are CIT deductible if they meet the following requirements:

1.Expenditures incur relating to production and business activities;

2.Having sufficient legitimate invoices and vouchers;

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

NON-DEDUCTIBLE EXPENSES

1. Depreciation of fixed assets which exceed the prevailing regulations;

2. Employee salaries which are not actually incur, or are not stated in a labor contract or in general-labor-agreement;

3. Staff welfare (including benefits providing to family members of staff) exceeding one month’s average salary Expenditure of non-compulsory health and accident insurance;

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

NON-DEDUCTIBLE EXPENSES

5 Allowance for unemployment and unemployment

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

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

appropriate-revenue-allocation in the period;

7 Interest on charter-capital-contribution which is not yet contributed by contributor as stated on charter; 8 Interest of loan pay to non-economic and non-credit

NON-DEDUCTIBLE EXPENSES (CON’T.)

9 Allowance for bad debts, inventories, financial investment, product warranties or construction which are not made in accordance with the prevailing regulations of Financial Ministry; 10 Unrealized loss on foreign-currency-exchange of account

payable which is revaluated at year-end;

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

12.Administrative penalties, fines for late payment;

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

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

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

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

OTHER INCOME

 ABC

1 Income from the transfer of capital or securities. 2 Income from the transfer of real estate;

3 Income from the transfer of investment projects; transfer of the right to participate in investment projects; transfer of the right to explore, exploit and process of minerals;

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

5 Income from asset leasing;

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

OTHER INCOME (CON’T)

 ABC

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

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

9 Income from currency exchange rate difference;

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

OTHER INCOMES (CON’T.)

 ABC

13 Income collecting from violating economic contracts;

14 Difference of asset re-valuation of capital contribution or asset transfer due to enterprise split, separation, consolidation, merger or transformation;

15 Income from donations, gifts, marketing support, expenditure support, cash discount, promotional prizes and other supports;

16 Prepaid expense but not allocated in periods and not accounted as decrease in expenses; refunded to provisions of construction warranty;

17 Income from the sale of scraps and discarded items, after subtracting related expenses;

18 Incomes from the contribution of equity capital to joint ventures or economic associations domestically which are pre-corporate-income-tax;

CIT EXEMPTION

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

2 Incomes from technical services which serve directly for agriculture

3 Income from scientific research and technological development as in contract, but not more than three years from the date where the first revenues is recognized;

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

TAX-EXEMPT INCOMES (CON’T.)

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

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

including the partner which is eligible for CIT incentives;

7 Income received to use for educational, scientific research, cultural, artistic, charitable, humanitarian and other social activities in Vietnam

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

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

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

LOSS CARRY FORWARD

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

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

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

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

EX-1: In 2013, Company A suffers a loss of VND 10 billion In 2014, it generates an income of VND 12 billion So, the CIT payable in 2014 = (12B – 10B = 2B x CIT rate)

EX-2: In 2013, Company B suffers a loss of VND 20 billion In 2014, it generates an income of VND 15 billion So, the loss in 2013 is offset against the income in 2014 The remaining loss (20B – 15B = 5B) will be carried forward to 2015 and so on…,but not later than 2018

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 ×

CIT rate (20%)

Taxable

income = Transfer price

-Purchasing

price +

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

income × CIT rate (20%)

Taxable incomes =

Selling

price

-Purchasing

price +

INCOMES FROM REAL-ESTATE TRANSFER

CIT payable = incomesTaxed × CIT rate (20%)

Income to- be-taxed

= Revenues - Cost of real estate + Deductible expenses

Taxable

incomes =

Income to-

be-taxed

-Losses from 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

TAX DECLARATION AND PAYMENT

 Enterprises are required to pay temporary CIT in quarterly based

on estimates If the total temporary payment of the quarters is less than 80% of the total CIT in the whole year, enterprise must pay for late payment which is the excess of 20% (the interest rate of late payment currently is 18% per year), applying from the deadline for payment of the 4th Quarter

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

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

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

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

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

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 tốn ghi:

Nợ 8211 Có 3334

Nếu số thuế TNDN thực tế phải nộp năm nhỏ số thuế

TNDN tạm nộp, kế toán ghi:

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 non-deductible 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;

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;

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

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

END OF CHAPTER

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