Question 1: Our company has a contract for “Supply and installation of magnetic card lock system”. According to the contract, as soon as the magnetic card locks are delivered to the construction site (before handing over the goods, before installation), the customer will pay 60% of the contract value and the Company will issue a corresponding invoice for this amount. In addition, the installation of magnetic card locks is an important part for the customer to be able to use these goods. Do we have to recognize this amount as revenue from the supply of goods and services in the period for calculating corporate income tax? If not recognized as revenue from the supply of goods and services, how can we recognize the amount paid by the customer?
Answer:
According to Article 3 of Circular No. 96/2015/TT-BTC, the time of revenue recognition for corporate income tax calculation for service provision is the time when the service is completed or partially completed for the buyer. If your company has not handed over the goods or performed the installation service for the customer according to the signed service contract, revenue for corporate income tax calculation has not yet been determined.
Question 2: Company A is a subsidiary of Company B (B is a 100% foreign-invested enterprise in Vietnam). Company A borrowed money from Company B’s parent company abroad.
According to the EBITDA calculation formula for deductible interest expenses, is the interest expense the actual expense paid during the year or does it include all expenses, including accrued expenses?
Is it true that interest expenses are fully disallowed if Company B incurs losses and has negative EBITDA?
Answer:
Point a, clause 3, Article 16 of Decree No. 132/2020/ND-CP stipulates:
“a) The total interest expense after deducting deposit interest and loan interest incurred in the period of the taxpayer, which is deductible when determining corporate income tax, shall not exceed 30% of the total net profit from business activities in the period plus interest expense after deducting deposit interest and loan interest incurred in the period plus depreciation expense incurred in the period of the taxpayer;
b) The portion of interest expense not allowed for deduction under point a of this clause shall be carried forward to the subsequent tax period when determining the total deductible interest expense if the total deductible interest expense incurred in the subsequent tax period is lower than the level stipulated in point a of this clause. The period for carrying forward interest expense shall not exceed 05 consecutive years from the year following the year in which the non-deductible interest expense arose;..”
Deductible interest expense is defined as the interest expense accounted for corresponding to the Company’s production and business revenue in the year, including accrued interest expense corresponding to production and business revenue.
If the total net profit from business activities in the period plus interest expense after deducting deposit interest and loan interest incurred in the period plus depreciation expense incurred in the period is negative (negative EBITDA), then the entire interest expense will not be deductible when determining corporate income tax.
Question 3: Due to the Covid pandemic, in 2020, the Company signed a labor contract with a foreign expert, committing in the contract to cover hotel isolation costs and treatment costs (if any) upon their arrival in Vietnam for work, but the employee pays monthly housing costs themselves. Can isolation costs be included in the Company’s deductible expenses?
Answer:
Regarding this issue, the General Department of Taxation issued Official Letter No. 5032/TCT-CS dated November 26, 2020, providing guidance on tax policy for Covid-19 prevention and control isolation costs for foreign experts. Based on Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015, of the Ministry of Finance guiding corporate income tax: For isolation costs at hotels and treatment costs for foreign experts where the enterprise has a labor contract with the employee that states the housing expenses are paid by the enterprise, the costs paid to the isolation facility shall be included in deductible expenses when determining corporate income subject to tax if there are sufficient invoices, documents, and payments in accordance with regulations.
Question 4:
- Expenses from 2019 but departments forgot to submit documents, and accounting only received these documents at the end of 2020. Can these expenses be included in the legitimate expenses for 2020?
- Performance bonuses for 2020 were intended to be paid during Lunar New Year (2021), but due to economic difficulties, the Company has not yet paid employees and will pay in April or May 2021. Can the Company recognize this as a legitimate expense for 2021? If not, in which tax period can the Company recognize this payment as a legitimate expense?
Answer:
- According to current corporate income tax law, expenses deductible when determining taxable corporate income in a tax period must be related to production and business activities and have full invoices and documents as prescribed. If invoices and documents from 2019 meet the conditions to be included as deductible expenses when determining corporate income tax for 2019, the enterprise must declare adjustments and supplements to the 2019 corporate income tax declaration dossier in accordance with corporate income tax and tax administration laws.
- According to current corporate income tax law: Salaries, wages, and allowances payable to employees but not actually paid by the deadline for submitting the annual tax finalization dossier are not included in deductible expenses when determining corporate income tax.
Annually, businesses may set aside a salary provision fund not exceeding 17% of the actual salary fund. If a business set aside a salary provision fund in the previous year and has not used or fully used it after 6 months from the end of the fiscal year, the business must reduce the expenses of the subsequent year.
Therefore, payments of salaries after the tax finalization deadline can be made by the enterprise from the salary provision fund as stipulated above.
Question 5: In 2020, due to the epidemic, the Company had a case where a foreign employee came to Vietnam to work but had to comply with Resolution 28/NQ-CP dated March 10, 2020, of the Government on isolation. According to regulations, only after receiving the isolation certificate can a work permit be obtained. Can the salary expenses of foreign employees incurred after completing isolation and while waiting for a work permit be included as deductible expenses for corporate income tax purposes?
Answer:
Regarding this issue, the General Department of Taxation issued Official Letter No. 357/TCT-CS dated January 30, 2019, sent to the Hanoi Tax Department, which states: If an enterprise hires foreign labor to perform work in Vietnam but has not yet been granted a work permit by the competent authority in Vietnam according to the Labor Code, there is not enough basis to include it as a deductible expense when determining corporate income tax.
Question 6: In 2020, due to the epidemic, the Company ceased operations and did not produce additional goods, only selling existing inventory from 2019. Can we include depreciation expenses for production machinery in 2020 as deductible expenses for 2020?
Answer:
To alleviate difficulties for businesses affected by the Covid-19 epidemic, the Ministry of Finance has instructed that businesses facing difficulties who have temporarily ceased operations of some fixed assets for less than 9 months during the 2020 corporate income tax period, and then subsequently put these fixed assets back into production and business activities, may deduct the depreciation expense of these fixed assets when determining corporate income tax.
Question 7: The enterprise has a warehouse rental contract for a period of 3 years (from June 2020 to June 2023). The company has issued an invoice for 1 year of warehouse rental (from June 2020 to June 2021) and has received payment. Is the revenue for corporate income tax calculation in 2020 the rental amount for 6 months of 2020 or the revenue already invoiced?
Answer:
According to clause 3, Article 5 of Circular No. 78/2014/TT-BTC, the time of revenue recognition for corporate income tax calculation for asset leasing activities is the amount paid by the lessee in each period according to the lease contract. If the lessee pays in advance for multiple years, the revenue for taxable income calculation shall be allocated to the years for which advance payment was made or determined by the one-time payment revenue.
Question 8: The company does not have a welfare fund. Every year, during Mid-Autumn Festival and Lunar New Year, the company purchases gifts (Mid-Autumn cakes / cakes / Tet gifts) for employees.
Can the company include the cost of these gifts as an expense when calculating corporate income tax, and does the company need to issue an invoice for these gifts?
Answer:
At Clause 4, Article 3 of Circular No. 25/2018/TT-BTC dated March 16, 2018, of the Ministry of Finance (amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC) stipulates that welfare expenses directly paid to employees are deductible when determining corporate income tax.
Based on the above regulations, enterprises may include welfare expenses directly paid to employees as deductible expenses when determining corporate income tax if they have full invoices and documents as prescribed and the total expenses do not exceed 01 month of the average actual salary paid during the tax year.
Question 9: The Company installs rooftop solar power systems for projects. Some projects have had systems installed and accepted for connection to the electricity authority before December 31, 2020, so that customers can receive preferential electricity prices. However, the project is still not 100% complete due to other remaining items, such as clean-up, etc. Will the revenue from the installation of this electricity system be recognized in 2020 or will it be based on the 2021 invoice?
Answer:
Revenue for corporate income tax calculation, as stipulated in point m, clause 3, Article 5 of Circular No. 78/2014/TT-BTC (as amended and supplemented by Circular No. 96/2015/TT-BTC) for construction and installation activities, is the value of the work, the value of the work item, or the value of the completed construction and installation volume accepted. Therefore, if the work was accepted and invoiced in 2020, revenue for 2020 corporate income tax calculation must be recognized.
Question 10: Our company is a foreign company located in an industrial park, enjoying corporate income tax incentives, and is in the basic construction investment phase. We have incurred interest from savings deposits. Can this deposit interest enjoy tax exemption under this project?
Answer:
Clause 1, Article 10 of Circular No. 96/2015/TT-BTC dated June 22, 2015, of the Ministry of Finance stipulates:
“1. Amending and supplementing clause 3, Article 18 of Circular No. 78/2014/TT-BTC as follows:
“3. Corporate income tax incentives and the 20% tax rate (including enterprises eligible for the 20% tax rate as stipulated in clause 2, Article 11 of Circular No. 78/2014/TT-BTC) shall not apply to the following incomes:
a) Income from capital transfer, transfer of capital contribution rights; income from real estate transfer (except income from investment in social housing as stipulated in point d, Clause 3, Article 19 of Circular No. 78/2014/TT-BTC); income from investment project transfer, transfer of investment project participation rights, transfer of exploration and exploitation rights for minerals; income received from production and business activities outside Vietnam.
b) Income from activities of searching, exploring, exploiting oil, gas, other rare resources, and income from mineral exploitation activities.
c) Income from business services subject to special consumption tax according to the Law on Special Consumption Tax.”
Clause 2, Article 10 of Circular No. 96/2015/TT-BTC dated June 22, 2015, of the Ministry of Finance stipulates:
“2. Amending and supplementing clause 4, Article 18 of Circular No. 78/2014/TT-BTC as follows:
4. Enterprises with investment projects eligible for corporate income tax incentives due to meeting conditions on investment incentive sectors or investment incentive geographical areas shall determine incentives as follows: ….
b) Enterprises with investment projects eligible for corporate income tax incentives due to meeting conditions on investment incentive geographical areas (including industrial parks, economic zones, high-tech zones) shall have the entire income arising from production and business activities in the investment incentive geographical area eligible for corporate income tax incentives, except for the incomes mentioned in points a, b, c, Clause 1 of this Article.”
Based on the above regulations, if an enterprise is eligible for corporate income tax incentives due to meeting conditions on investment incentive geographical areas (investment projects in industrial parks established by the Prime Minister’s decision), then the income eligible for corporate income tax incentives is the income arising from production and business activities in the investment incentive geographical area, excluding the incomes mentioned in points a, b, c, Clause 3, Article 18 of Circular No. 78/2014/TT-BTC (as amended and supplemented in Clause 1, Article 10 of Circular No. 96/2015/TT-BTC).
Question 11: The Standing Committee of the National Assembly (UBTVQH) issued Resolution No. 406/UBTVQH15 on some solutions to support businesses and people affected by the Covid-19 epidemic, which stipulates that businesses are entitled to a 30% reduction in corporate income tax payable for 2021. So, which cases are eligible for the 30% reduction in corporate income tax payable for 2021?
Answer:
Based on Article 1 of Resolution 406/UBTVQH15 of the Standing Committee of the National Assembly on some tax exemption and reduction solutions, the 30% reduction in corporate income tax applies to taxpayers as stipulated by the Corporate Income Tax Law whose revenue in 2021 does not exceed 200 billion VND and whose revenue in 2021 decreases compared to revenue in 2019.
