Expenditures Deductible and Not Deductible from Corporate Income Tax

Reasonable costs to consider when calculating corporate income tax include both expenses that are tax-deductible and those that are not tax-deductible. Faro Vietnam will provide a detailed analysis of these specific cases in this article.

1. Definition of Deductible and Non-Deductible Costs in the Calculation of CIT Tax

Expenses that qualify for deduction when calculating corporate income tax must satisfy the following criteria:

• They are actual expenses incurred during the enterprise's business operations.
• They are supported by valid documents and invoices, as required by the law.
• Expenses with invoice values equal to or exceeding 20 million VND (including VAT) must have payment records through banks, not in cash.

Expenses that are not eligible for deduction when calculating corporate income tax are those that fail to meet the above conditions.

2. Deductible and Non-Deductible Expenses: Raw material costs

For this cost, businesses themselves balance and establish norms for loss and use of raw materials. This norm is usually built and planned at the beginning of the year or the beginning of the production period and is stored and managed at the enterprise.

• Deductible expenses include expenses for purchasing raw materials and goods within the norms that the enterprise has established.
• Non-deductible expenses include expenses that exceed the material consumption norms that the enterprise has established.

Businesses may still claim these expenses as deductible for tax purposes.

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3. Deductible and Non-Deductible Expenses: Loan Interest Expenses

3.1 Deductible Expenses

• For individual loan subjects: Loan interest rates should not exceed 150% of the base interest rate declared by the State Bank of Vietnam at the time of borrowing. Additionally, a 5% personal income tax deduction is required from the interest paid by the individual.
• For business loan subjects (non-credit institutions): Businesses are required to request the lender to issue an invoice when paying loan interest.

Conditions for loan interest expenses to be deductible when calculating corporate income tax include: A valid loan contract and documentation of payment through checks or payment orders. When the lending subject is a bank or credit institution, it must adhere to the published interest rate. In this case, there is no requirement for the borrower to make payments through a bank; cash payments are acceptable.

If the enterprise has contributed sufficient charter capital and, during its operations, incurs interest payments on loans for investments in other enterprises, these expenses are considered reasonable and deductible when determining taxable income.

3.2 Non-Deductible Expenses

Loan interest costs have been recorded in capital contributed assets and capitalized investment project values are not included in deductible expenses when determining taxable income;

When an enterprise needs to borrow capital to supplement its charter capital, the loan interest payment corresponding to the missing charter capital is not considered a deductible expense if it does not meet the following conditions:

If the loan amount is less than or equal to the missing charter capital: All loan interest expenses are non-deductible expenses;

4. Purchase costs without invoices

4.1 Expenses are deductible

Expenses for purchasing goods and services, attach a list according to form No. 01/TNDN but do not attach a list of payment documents to the seller in the following cases:

• Expenses for purchasing goods that are seafood, agricultural products, and aquatic products from direct fishermen;
• Expenses for purchasing handicraft products such as jute, rush, bamboo, straw, coconut shells from direct producers who do not sell directly;
• Expenses for purchasing land, sand, gravel, and stone from individuals who exploit it themselves;
• Expenses for purchasing scrap from people who directly collect it;
• Expenses for purchasing goods and services from individuals or households not directly doing business.

4.2 Expenses are not deductible

• Expenses for purchasing goods from individuals and organizations without invoices and documents and without making a list according to form No. 01/TNDN;
• The purchase cost is attached with a statement according to form No. 01/TNDN but the price is higher than the market price at the time of purchase.

Expenditures Deductible and Not Deductible from Corporate Income Tax

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5. Pay salaries, wages, and bonuses to employees

5.1 Expenses are deductible

• Expenditures must have their benefit levels and conditions specifically stated in the labor agreement, financial regulations and salary and bonus regulations of the enterprise;
• Must have salary payment vouchers with employee signature.

5.2 Expenses are not deductible

• Salaries and wages of the owner of a limited liability company or private enterprise owner;
• Salaries paid to members of the board of members and administrators but not directly involved in operating the company;
• There is no proof of salary payment or the deadline for submitting tax finalization documents has not been paid yet;
• Not specifically stated in the labor agreement or salary and bonus regulations of the enterprise.

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