One of RSM's key tax services is payroll and labor services. Corporate income tax is one of the significant taxes profoundly affecting a company's operations. Therefore, businesses need detailed guidance on corporate income tax to avoid risks such as tax arrears, late payment penalties, administrative fines, etc. In this article, RSM Vietnam will summarize essential aspects that businesses need to know about corporate income tax.
Table of contents:
What is Corporate Income Tax?
Who is responsible for paying Corporate Income Tax?
Income subject to Corporate Income Tax
Considerations regarding Corporate Income Tax settlement
How can RSM Vietnam support businesses?
1. What is Corporate Income Tax?
Corporate Income Tax (CIT) is a direct tax levied on the taxable income of enterprises, including income from production activities, trading goods, services, and other income as stipulated by law.
2. Who is responsible for paying Corporate Income Tax?
According to Article 2 of Decree 218/2013/ND-CP, taxpayers subject to corporate income tax include:
a) Enterprises established and operating under the provisions of the Enterprise Law, Investment Law, Credit Institutions Law, Insurance Business Law, Securities Law, Petroleum Law, Commercial Law, and regulations in other legal documents, in various forms: joint-stock companies; limited liability companies; partnerships; sole proprietorships; parties in business cooperation contracts; parties in petroleum product-sharing contracts; joint-venture petroleum enterprises; joint-operating companies;
b) Enterprises established under the laws of foreign countries (hereinafter referred to as foreign enterprises) having a permanent establishment or no permanent establishment in Vietnam.
c) Entities in the public sector, aside from public production and trading of goods and services, are subject to taxable income as stipulated in Article 3 of this Decree:
d) Organizations established and operating under the Cooperative Law;
đ) Other organizations, apart from those specified in points a, b, c, and d of this Clause, engaged in production and business activities with taxable income according to the regulations in Article 3 of this Decree.
3. Income subject to Corporate Income Tax
According to Article 3 of Decree 218/2013/NĐ-CP, taxable income includes:
1. Taxable income comprises income from production and trading of goods, services, and other income stipulated in Clause 2 of this Article. For enterprises registered in business and having income as specified in Clause 2 of this Article, this income is determined as income from the enterprise's business activities.
2. Other income includes:
a) Income from capital transfer, encompassing income derived from transferring a portion or the entire invested capital into enterprises, including cases of selling enterprises, transferring securities, transferring contributed capital rights, and other forms of capital transfer as regulated by law;
b) Income from investment project transfers, income from transferring participation rights in investment projects, income from transferring exploration, exploitation, processing rights of minerals as stipulated by law; income from real estate transfers as prescribed in Articles 13 and 14 of this Decree;
c) Income from asset use rights, ownership rights, including income from intellectual property ownership, income from technology transfer as regulated by law;
d) Income from asset transfers, leasing, liquidation (excluding real estate), including various valuable papers;
đ) Income from interest on deposits, interest on capital loans, foreign currency sales, including: Interest on deposits at credit institutions, interest on capital loans in all forms as regulated by law, including late interest payments, installment interest, credit guarantee fees, and other fees in loan contracts; income from foreign currency sales; exchange rate differences resulting from evaluating year-end foreign currency-denominated debts; exchange rate differences arising within the period (excluding exchange rate differences arising during the basic construction investment to form fixed assets of newly established enterprises which have not commenced production or business operations according to the Ministry of Finance's guidelines). Concerning foreign currency-denominated receivables and loans arising in the period, the exchange rate difference of these receivables and loans is the difference between the exchange rate at the time of debt recovery and the exchange rate at the time of initial recognition of receivables or loans;
e) Prepayments for expenses but unused or not fully utilized within the stipulated period that enterprises haven't adjusted to reduce costs;
g) Previously written-off bad debts now recoverable;
i) Uncollectible debts with unidentified creditors;
k) Discrepancy between fines received, compensation for breaches of economic contracts, or rewards for fulfilling commitments under contracts (excluding fines, compensation deducted from the value of the construction in the investment stage) minus (-) penalties, compensation paid for contract breaches as regulated by law;
i) Monetary or material donations received;
m) Discrepancies resulting from revaluation of assets as stipulated by law for contribution, transfer upon division, separation, merger, consolidation, or enterprise type conversion. Enterprises receiving assets are accounted for based on the revalued price when determining deductible expenses as stipulated in Article 9 of this Decree;
n) Income received from business operations conducted outside Vietnam;
o) Other income, including tax-exempt income as stipulated in Clause 6, Clause 7 of Article 4 of this Decree. 4. Notes on Corporate Income Tax Settlement
Enterprises need to consider five important points when settling corporate income tax as follows:
Revenue Recognition Notes
- Pay attention to the timing of revenue recognition.
- Check transactions with high cost of goods sold relative to revenue; cases with revenue but without corresponding costs and vice versa;...
Non-Deductible Expenses
Enterprises need to review their expenses, ensuring they have sufficient invoices, supporting documents, and assessing their reasonability.
Applicable Tax Rates
The applicable tax rates and tax incentives are significant concerns that enterprises must focus on when settling corporate income tax.
Transfer of Interest Expense with Related-party Transactions from the previous year
Regarding interest expenses, if they exceed 30% of the net profits from business operations in the period, adding interest expenses after deducting deposit interest and lending interest incurred in the period plus depreciation expenses, then these excess interest expenses should be tracked for subsequent years. Consequently, tracking and transferring interest expenses for deduction when settling corporate income tax if conditions are met is essential.
Tax incentives according to Resolution 406/NQ-CP
Resolution 406/NQ-CP provided a series of incentives for various taxes such as Corporate Income Tax, Value Added Tax, Land Tax, and so fourth.
5. How can RSM Vietnam assist businesses?
Businesses need a dynamic partner to accompany and support them in timely monitoring, reviewing arising issues, and potential risks.
Our tax experts are always ready to provide valuable services to ensure compliance while helping identify any potential tax risks and tax-saving opportunities for businesses. Furthermore, leveraging our longstanding collaboration with the General Department of Taxation, local tax departments, and other government agencies, we assist businesses in working more effectively with the government and tax authorities.
Our services include:
Corporate Income Tax settlement support services.
In-depth tax review services.
Regular advisory services.
Tax audit support services.
Case-specific advisory services.
Assistance in applying for Double Taxation Agreements (DTA).
Government relations support.
Contact us today to explore how our tax advisory experts can assist in ensuring Corporate Income Tax compliance.
>>> See more Our Corporate Tax Services
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