Corporate tax compliance has always been near the heart of a successful business. Nevertheless, the field is quite complex and understanding the basics is often a daunting task for a non-specialist. In this section, we will provide you with the fundamentals for the calculation of Corporate Income Tax and related issues.
What is Corporate Income Tax?
The current tax legislation does not provide a specific definition of “Corporate Income Tax”. However, based on the provisions related to this tax, Corporate Income Tax can be understood as a direct tax imposed on the income after deducting reasonable and legitimate expenses related to the business income.
Taxpayers of Corporate Income Tax
Article 2 of the Law on Corporate Income Tax of 2008 (amended in 2013 and revised and supplemented by the Law amending tax laws in 2014) (the Law on Corporate Income Tax) stipulates that the taxpayer of Corporate Income Tax is an organization engaged in the production, trading of goods, and services with taxable income (hereinafter referred to as “business”) including businesses established according to the regulations of Vietnamese laws; foreign laws with or without permanent establishments in Vietnam; organizations established under the Law on cooperatives; units established according to the regulations of Vietnamese laws; and other organizations engaged in production or business activities with income.
The Role of Corporate Income Tax
Corporate income tax plays a significant role in the management and social development of a country. Some prominent purposes may be highlighted as follows:
- Ensuring a stable revenue source for the state budget.
- Serving as an important tool for the state in macroeconomic management and regulation of business activities.
- Reflecting the characteristic role of taxation in ensuring social equity.
- Acting as a tool to assess the effectiveness of the taxpayers’ operations.
- Playing a crucial role in economic structural transformation and attracting investment.
The Tax Calculation for Corporate Income Tax
The tax period for corporate income tax is determined based on the Gregorian calendar year or the fiscal year, except for foreign enterprises as specified in points c and d, Clause 2, Article 2 of the Law on Corporate Income Tax.
Calculation Method for Corporate Income Tax According to the Latest Regulations
Based on Article 6 of the Law on Corporate Income Tax and Article 5 of Decree 218/2013/ND-CP, corporate income tax is calculated as follows:
Corporate Income Tax = Taxable income for the period x Tax rate
In which:
- Taxable income for the period = Taxable income – (Tax exemptions + Transferred losses as regulated)
- Taxable income = Revenue – Deductible expenses + Other income
- The tax rate for corporate income tax: Based on Article 10, Article 13, and Article 14 of the Law on Corporate Income Tax and Article 10 of Decree 218/2013/ND-CP, the tax rate for corporate income tax is 20%, except for cases where preferential tax rates apply or for activities related to exploration, exploitation of oil and gas, and other rare resources in Vietnam.
Loss Carry-Forward (Carryover) Provisions
The amount of losses carried forward by a business is determined based on the following principles:
- Losses are only carried forward when the business has determined a profit in the period. If there is a loss, it cannot be carried forward from the previous period.
- The entire and continuous amount of losses can be carried forward to subsequent years.
- Losses can be carried forward between quarters and between years.
- The period for carrying forward losses continuously shall not exceed 5 years, starting from the year that follows the year in which the loss was incurred.
Income Exempt from Corporate Income Tax
Income exempt from corporate income tax is determined according to the provisions in Article 4 of the Law on Corporate Income Tax. Some examples of income exempt from tax include:
- Income from providing direct technical services for agricultural purposes.
- Income distributed from capital contribution, joint ventures, and partnerships with domestic enterprises after corporate income tax has been paid by the provisions of this Law.
- Income from vocational training activities exclusively for ethnic minorities, disabled individuals, children in special difficult circumstances, and socially disadvantaged groups.
The Basis for Calculating Corporate Income Tax (or Taxable Income)
According to Article 3 of the Law on Corporate Income Tax and related guidelines:
- Income from production and the business activities of goods and services.
- Other income: income from capital transfer, capital contribution transfer; income from real estate transfer, investment project transfer, transfer of participation rights in investment projects, transfer of exploration, exploitation, and processing rights for minerals, etc.
Revenue
Revenue refers to the total amount of money received during the process of buying and selling goods, providing services, and engaging in other activities by individuals or organizations. Revenue is also commonly referred to as income.
Deductible Expenses
Deductible expenses when calculating corporate income tax are costs that meet the following conditions: (i) Actual expenses incurred are related to the production and business activities of the enterprise; expenses for vocational education activities; expenses incurred for national defense and security missions as prescribed by law; (ii) Supported by sufficient and valid documents and invoices as required by law; (iii) Invoices with a value of 20 million VND or more must have non-cash payment documents.
The Procedure for Declaring and Settling Corporate Income Tax
Step 1: Prepare the tax settlement dossier.
Step 2: Submit the corporate income tax settlement dossier to the tax authority.
Step 3: The tax authority receives and processes the dossier, conducts the necessary reviews, and audits, and determines the final tax liability.
The Procedure for Filing Corporate Income Tax
First, the business determines the amount of corporate income tax to be paid for the taxable period. Subsequently, the tax can be submitted through various channels, including: via banks, the State Treasury, the tax authority’s office, authorized tax collection organizations, and through online tax submission methods.
The Corporate Income Tax Declaration Should be Submitted to the Directly Managing Tax Authority
- Submit to the directly managing tax authority.
- If the business has independent accounting for subordinate units, those subordinate units should submit the corporate income tax declaration to the directly managing tax authority of the subordinate unit.
- However, if the business has subordinate units that are dependent in terms of accounting, those subordinate units are not required to submit a corporate income tax declaration.
The Place to Submit the Corporate Income Tax Declaration
The place to submit corporate income tax declaration is at the tax authority’s office where the enterprise’s main headquarters is located. The enterprise can choose from the following methods for tax submission:
- Directly submit at the tax authority’s office.
- Submit through the postal system.
- Submit the documents electronically through the tax authority’s online portal.
The Time Limit for Paying Corporate Income Tax
Based on Article 44 of the 2019 Tax Administration Law, the deadlines for filing, paying, and settling corporate income tax are as follows:
- Deadline for quarterly provisional corporate income tax payment: No later than the last day of the first month of the following quarter in which the tax liability arises.
- Deadline for annual tax settlement dossier submission: No later than the last day of the third month following the end of the calendar year or fiscal year.
Corporate Income Tax Incentives
Corporate income tax incentives are a legal concept in which the state establishes forms of support and assistance to help entities fulfill their corporate income tax obligations under certain conditions. These incentives aim to promote investment activities, business development and provide incentives to stimulate economic growth through state policies.
The content of corporate income tax incentives includes provisions regarding tax rates, tax exemption or reduction periods, and other forms of tax incentives. These provisions are implemented by Chapter 3 of the Law on Corporate Income Tax.
Some types of preferential corporate income tax rates include
- Preferential tax rates for corporate income tax
The tax rate incentives are implemented according to the provisions of Article 13 of the Law on Corporate Income Tax. Accordingly, if a business falls under the prescribed cases, it will enjoy preferential tax rates:
- Newly established enterprises from investment projects in economically and socially difficult areas are eligible for a preferential tax rate of 20% for a period of ten years.
- Agricultural service cooperatives and people’s credit funds are eligible for a preferential tax rate of 20%.
- Tax exemption or reduction periods
Preferential treatment regarding tax exemption or reduction periods is governed by Article 14 of the Law on Corporate Income Tax. Under this provision, certain cases are eligible for tax exemption or reduction periods. For example, income from new investment projects implemented in industrial zones, excluding industrial zones in economically and socially favorable areas as stipulated by law, may enjoy maximum tax exemption for up to two years and a 50% reduction in tax payable for a period of four subsequent years.
Declaring a Corporate Income Tax Reduction
To declare a corporate income tax reduction, you can follow the following steps:
Step 1: Determine the amount of tax reduction when making quarterly corporate income tax payments.
Step 2: Declare the corporate income tax reduction.
Step 3: Confirm the results.
If readers have any specific questions or concerns regarding corporate income tax, please contact our experienced lawyers at letran@corporatecounsels.vn.