INSTRUCTION OF ENTERPRISE INCOME TAX CALCULATION METHODS
- CIT rate
Except for the application of certain tax incentives, the standard CIT rate from 01 January 2014 is 22% of assessable income. From 01 January 2016, the CIT rate shall be 20% of assessable income. However, for the enterprises with revenue of less than 20 billion Vietnamese Dong per year, the CIT rate is 20% of assessable income.
For certain activities such as prospecting, exploration and mining or drilling of petroleum and gas and other rare and precious natural resources in Vietnam, the CIT rates shall be from 32% to 50% depending on each specific project and business establishment.
- CIT incentives
There are two levels of CIT incentive rates of 10% and 20%, applied for a period of 15 years and 10 years respectively. The CIT incentive rate of 10% is also applied for some specific business sectors including education, vocational training, health, culture, sports, and environment; investments in social housing for sale, for lease, or for hire or purchase according to the Law on Housing, and others. In principle, the CIT incentive rates shall be continuously applied from the first year when the investment projects produces revenue. For special projects that require significant investment and high technologies, the preferential tax rate period may be extended (to a maximum of 15 years).
Furthermore, to encourage investment, the Vietnamese Government may also grant eligible enterprises a CIT exemption and CIT reduction for a certain duration (subject to conditions required by law)
Enterprises may be exempted from CIT for a maximum of 04 years and 50% CIT reduction for a maximum of 09 years; or the CIT exemption for a maximum of 02 years, and 50% CIT reduction for a maximum of 04 years.
The CIT exemption and CIT reduction shall be applied to the revenue of an enterprise implementing new investment projects from the first year in which taxable revenue from such investment projects is earned. If no taxable revenue is produced in the first three years from the first year in which revenue from the investment project was to have been earned, the duration of the CIT exemption and CIT reduction shall begin from the fourth year.
Moreover, enterprises that transfer technology of priority to other organizations and individuals in localities facing socio-economic difficulties are eligible for a 50% CIT reduction on the revenue from technology transfers.
- Conditions for CIT incentives
CIT incentives are applied to enterprises investing in promoted business sectors and/or difficult socio-economic areas. Promoted business sectors include healthcare, education, sport, culture, infrastructure development, environment protection, cutting-edge technology, computer software manufacturing, and others. Difficult socio-economic areas and special difficult socio-economic areas are listed specifically by the Vietnamese Government from time to time.
CIT incentives are also granted to enterprises employing numerous female employees or ethnic minorities, or performing a transfer of technology in the fields encouraged to transfer technology and in the difficult socio-economic areas.
- Computation of the CIT
- Payable CIT = Assessable income x Tax rate
- Assessable income = Taxable income– (Exempted income + Loss carried forward)
- Taxable income = Turnover + Other income – Deductible expenses
- Deductible expenses
Generally speaking, enterprise expenses may be deducted before calculating the assessable income if they are directly related to business and production activities. This must be supported by adequate invoices or documentation provided that they are not subject to non- deductible expenses provided by law.
There must also be non-cash payment documents for the expenses relating to the purchase of goods or services with invoices valued from VND 20 million (including VAT).
- Carrying forward losses
Enterprises are permitted to transfer their losses to the next year and the losses shall be deducted from the assessable income. The period of loss transfer must not exceed five years counting from the year following the year where the losses incurred.
- Profit remittance
Foreign investors are permitted to remit their profits after tax to their home countries at the end of the fiscal year or upon termination of their investment in Vietnam without payment of tax for profit remittance. Foreign investors are not entitled to remit profits if their invested enterprises accumulated losses.
The standard fiscal year is a western calendar year from 01 January, but enterprises may apply the fiscal year rather than the western calendar year if they notify local tax authorities beforehand.
Enterprises shall submit an annual CIT return to the local tax authorities no later than the 90th day from the end of the preceding calendar year or fiscal year. The annual payable amount of CIT must be paid within the limited period of submission for annual CIT returns. However enterprises must temporarily pay CIT on a quarterly basis no later than the 30th day of the following quarter in which the CIT obligations arise. Enterprises must therefore determine their quarterly CIT temporarily paid based on the payable CIT of the preceding year and forecast the business result of the next year.
CIT returns must further be submitted to local tax authorities within 10 days for revenue gains resulting from real estate transfers or capital transfers by foreign investors not having business activities in accordance with the Law on Investment and the Law on Enterprises of Vietnam.