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5 Important notices businesses need to know about corporate income tax settlement for 2022

Although corporate income tax settlement is not a new issue, most businesses still encounter many difficulties and challenges in the process of implementation. The end of 2021 also signifies that businesses are approaching the end of the financial year and preparing tax settlement documents. In this article, RSM once again provides readers with the most general knowledge and issues that businesses should take note of.


Table of contents:

  1. What is the Corporate Income Tax (CIT) settlement? What does the CIT settlement document consist of? The deadline for submitting the CIT settlement document.

  2. Important notices for corporate income tax (CIT) settlement.

  3. Frequently asked questions about corporate income tax (CIT) settlement in 2021.

  4. RSM Vietnam's Corporate Income Tax (CIT) Settlement consulting services.


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Corporate income tax finalization

1. What is the Corporate Income Tax (CIT) settlement? What does the CIT settlement document consist of? The deadline for submitting the CIT settlement document


What is the corporate income tax (CIT) settlement?

Corporate income tax settlement, also known as tax finalization, refers to the process where a business declares the total amount of corporate income tax it must pay to the tax authority. Corporate income tax finalization includes finalizing the annual tax liability and making declarations in cases where there are decisions regarding the dissolution, division, consolidation, merger, conversion of business types, ownership structure changes, or termination of business activities. In such situations, the tax authority issues a finalization decision to the business, primarily for the purpose of collecting corporate income tax owed.


So, in simple terms, it's the process where a business reports its corporate income tax obligations for that financial year.

What does the settlement documents include?

When a business conducts corporate income tax settlement, it needs to prepare a complete set of documents, including:

- Financial statements for the settlement year or financial statements up to the point of decisions on dissolution, division, merger, consolidation, change of business form, ownership transformation, or termination of operations.

- The corporate income tax settlement declaration in the form of Form 03/TNDN and accompanying appendices, if applicable. These appendices often include: the production and business operation results appendix, the corporate income tax preferential appendix, the appendix on corporate income tax paid abroad (for businesses with foreign-sourced income), the corporate income tax appendix for income from real estate transfers, and the corporate income tax calculation appendix for businesses with dependent accounting units headquartered in centrally governed provinces or cities, different from the locality where the main office is located.


Especially since 2017:

An additional four appendices were added for enterprises with related-party transactions, including: Appendix 01: Information on related-party relationships and related-party transactions; Appendix 02: List of information and documents to be provided in the national dossier; Appendix 03: List of information and documents to be provided in the global dossier; Appendix 04: Declaration of information on cross-border profit reports.


Deadline for submitting the corporate income tax settlement document:

According to Article 44, Clause 2 of Law on Tax Administration No. 38/2019/QH14, the deadline for submitting the annual tax settlement dossier is no later than the last day of the third month from the end of the Gregorian year or the fiscal year. The tax settlement dossier may be extended for up to 60 days.

To request an extension, the taxpayer must submit a request for an extension (before the deadline for submitting the tax settlement dossier) with a clear explanation of the reasons for the extension, along with confirmation from the People's Committee (commune, ward, township), or the police (commune, ward, township) where the case of extending the tax settlement dossier arises. Within 3 working days from the date of receiving the request, the tax authority will issue a written response to the taxpayer. If the tax authority does not respond, it means the extension request has been accepted.


2. Important notices for corporate income tax (CIT) settlement

Revenue recognition considerations:

- Pay attention to the timing of revenue recognition:

  • For the sale of goods, it is recognized at the point in time when ownership and the right to use the goods are transferred to the buyer.

  • For air transportation activities, it is recognized upon the completion of providing transportation services to the buyer.

  • For service provision activities, it is recognized upon the completion of providing the service or upon the completion of each part of the service provision to the buyer.

- Review high-cost transactions where revenue and cost of goods sold may not align properly; identify situations where revenue is recognized without corresponding cost of goods sold, and vice versa;...


Expenses that cannot be deducted

According to Article 4 of Circular 96/2015/TT-BTC dated June 22, 2015, amended and supplemented by Circular 25/2018/TT-BTC, specific conditions are outlined for expenses to be considered deductible for the purpose of Corporate Income Tax (CIT) settlement.


Therefore, businesses need to review their expenses to ensure that they have proper invoices and supporting documents and to assess their reasonableness.


Regarding applicable tax rates and tax incentives:

The tax rate applied and tax incentives are significant considerations for businesses when settling Corporate Income Tax (CIT). In practice, businesses often face challenges related to the tax rates and incentives they are entitled to. RSM has encountered numerous cases where incorrect interpretations were made regarding the duration of tax incentives or misunderstandings regarding the content of tax incentives, resulting in underpayment of CIT, potential tax liabilities, and penalties.


Transferring interest expense with related-party transactions from the previous year:

Based on Decree 20/2017/ND-CP and Decree 132/2020/ND-CP, the following regulations apply:


The total interest expense after deducting deposit interest and lending interest incurred during the tax period can be deducted when determining the taxable income for Corporate Income Tax (CIT) purposes, provided it does not exceed 30% of the net profit from business activities during the tax period, plus the interest expense after deducting deposit interest and lending interest incurred during the tax period, plus the depreciation expense incurred during the tax period.


Interest expenses that are not deductible as stipulated in point a can be carried forward to the next tax period when determining the total interest expense that can be deducted if the total interest expense incurred in the subsequent tax period is lower than the limit specified in point a. The continuous transfer of interest expenses should not exceed five years from the year following the year in which the interest expenses were not deductible.


Therefore, if interest expenses exceed 30% of the net profit from business activities during the tax period, plus the interest expense after deducting deposit interest and lending interest incurred during the tax period, plus the depreciation expense, then this portion of interest expenses needs to be monitored for subsequent years. This implies that monitoring and carrying forward interest expenses to calculate the deductible expenses for Corporate Income Tax (CIT) settlement, if eligible, is required.


Tax incentives according to resolution 406/NQ-CP

Resolution 406/NQ-CP has introduced a series of tax incentives, including Corporate Income Tax (CIT), Value Added Tax (VAT), land tax, and more. Businesses need to determine whether they qualify for these incentives in order to apply them appropriately for Corporate Income Tax (CIT) settlement purposes.


3. Frequently asked questions about corporate income tax (CIT) settlement in 2021

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Frequently asked questions about corporate income tax finalization

Question: Which businesses are eligible for the CIT (Corporate Income Tax) reduction under Resolution 406?


Answer: Resolution 406 stipulates a 30% reduction in corporate income tax for the year 2021 for taxpayers who, according to the provisions of the Corporate Income Tax Law, have 2021 revenues not exceeding VND 200 billion and whose 2021 revenues have decreased compared to 2019.

The criterion of 2021 revenue reduction compared to 2019 is not applicable to taxpayers who were newly established, consolidated, merged, divided, or separated in the tax years 2020 and 2021.


Question: The condition for the tax reduction in 2021 is that revenue should not exceed VND 200 billion. Does this mean that revenue here refers to the total revenue on the VAT declaration for the year?


Answer: The revenue for the year 2021 is used as a basis to determine the entities eligible for the 30% CIT reduction, and it refers to the revenue from the sale of goods and the provision of services by the enterprise as stipulated by the Corporate Income Tax Law and related implementing documents.

Question: Can quarantine expenses be included in the deductible expenses of the company?


Answer: Regarding this matter, the General Department of Taxation issued Official Letter No. 5032/TCT-CS on November 26, 2020, providing guidance on tax policies for quarantine expenses related to Covid-19 for foreign experts. Based on Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015, issued by the Ministry of Finance, which provides guidance on corporate income tax, the following applies: Quarantine expenses incurred at hotels and treatment expenses for foreign experts with whom the enterprise has signed labor contracts, including the specified portion for rent paid by the enterprise to the employee, are considered deductible expenses if they are supported by complete invoices, supporting documents, and payments in accordance with regulations when determining the corporate income tax, if applicable.


Question: How is corporate income tax calculated?


Answer: According to Article 1 of Circular 96/2015/TT-BTC issued by the Ministry of Finance, the corporate income tax amount to be paid for the tax period is calculated by subtracting the provision for scientific and technological development funds (if any) from the taxable income and then multiplying it by the corporate income tax rate.

The corporate income tax to be paid is determined by the following formula: Corporate Income Tax = (Taxable Income - Provision for Scientific and Technological Development Funds (if any)) x Corporate Income Tax Rate

Taxable income for the tax period includes income from manufacturing, trading in goods, services, and other income. Taxable income for the tax period is determined as follows:

Taxable Income = Revenue - Deductible Expenses + Other Income


4. RSM Vietnam's Corporate Income Tax (CIT) Settlement consulting services

Understanding the difficulties and challenges faced by businesses, RSM Vietnam - Hanoi Office is ready to provide a range of specialized support services to help businesses comply with taxes confidently and securely.


Our services include:

  1. Corporate Income Tax Settlement Support Services for the year.

  2. In-depth Corporate Income Tax Compliance Review and Support Services.

  3. In-depth Corporate Income Tax Settlement Review and Support Services.

  4. Periodic advisory services based on specific situations.

>>> See more Tax and Customs Advisory Services


RELATED CONTENTS:


Guide to Corporate Income Tax (CIT)


Latest Corporate Income Tax Calculation guide for 2021


6 things to know about post-corporate income tax profit

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JUNE 2024 NEWS SUMMARY

DECREE NO. 64/2024/ND-CP ON EXTENDING THE DEADLINE FOR PAYING TAXES AND LAND RENT IN 2024 Issued by: Gorverment Issued date: 17 June 2024 Effective date: 17 June 2024 Expiration date: 31 December 2024

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