Filing Corporate Income Taxes in Vietnam
By Joyce Roque
Mar. 25 – Companies operating in Vietnam should be aware that the Vietnamese government has delayed the schedule for quarterly payments of corporate income tax for 2010. Tax payments for the first quarter of the year has been moved to July 30, 2010 and the second quarter payment deadline is now October 30, 2010 while the third quarter payment deadline is on January 31, 2011. The fourth quarter payment is due on April 30, 2011.
Corporate income tax is based on the sales of goods and services. In 2009, the CIT rate changed from 28 percent to 25 percent. Businesses in the oil and gas industry are subject to higher CIT rates ranging from 32 to 50 percent based on their projects. A company computes its taxable profits based on the difference between total revenue, be it locally or foreign sourced, and deductible expenses in addition to assessable income.
Tax deductible expenses include expenses connected to increasing profits with proper documentation and not on the list of non-deductible expenses. It is advised that a company seek professional advice to confirm the latest regulations. As in the case for businesses like insurance companies, securities trading and lotteries, the Ministry of Finance was outlined specific guidance on deductible expenses for CIT purposes. Research and development funds for companies doing business in the country are tax deductible with the option of setting aside up to 10 percent of annual profits before tax to the fund.
Expenses considered non-deductible include:
- Depreciation of fixed assets not in accordance with the prevailing regulations
- Employee remuneration expenses which are not actually paid or are not stated in a labor contract or collective labor agreement
- Life insurance premiums for employees
- Interest on loans corresponding to the portion of charter capital not yet contributed
- Reserves for research and development not in accordance with the prevailing regulations
- Interest on loans from economic organizations exceeding one and a half times the interest rate set by the State Bank of Vietnam
- Provisions for stock devaluation, bad debts, financial investment losses, product warranties or construction work which are not in accordance with the prevailing regulations
- Advertising, promotion (except certain items), conferences/parties, commissions or prompt payment discounts exceeding 10 percent of total other deductible expenses (this cap has been increased to 15 percent for newly established enterprises for the first three operating years)
- Unrealized foreign exchange losses
- Donations except donations for education, healthcare, natural disasters or building charitable houses for the poor
- Management expenses allocated to permanent establishments in Vietnam by the foreign company’s head office which are not in accordance with the regulations
- Creditable input value-added tax, corporate income tax, personal income tax and other fees and charges
The government allows taxpayers to carry forward tax losses for five years although carry-back of losses is not allowed. The country also follows transfer pricing regulations and cases wherein transactions are determined between related parties, and the mechanisms for determining the market “arm’s length” transaction value are present. Companies will need to submit an annual declaration detailing related party transactions and transfer pricing methodologies used to authorities along with their annual CIT return.