On June 24th, 2020, the Government issued Decree 68/2020/ND-CP amending and supplementing Clause 3 Article 8 of Decree No. 20/2017/ND-CP dated February 24, 2017, of the Government. Regulations on tax administration for enterprises having associated transactions, which takes effect on June 24th, 2020. According to this Decree, the Government raises the ceiling on interest expense for enterprises as follows:
- The Loan interest expense is deducted when calculating corporate income tax calculated after deduction of deposit interest and loan interest. This provision is wider than that in Decree 20/2017 (Loan interest expenses include both deposit and loan interests).
- The ceiling of the loan interest expense deducted when calculating corporate income tax arising in the period is raised from not exceeding 20% (as prescribed in Decree 20/2017) to not exceeding 30% of the net profit from business activities in the period plus interest expenses (after deducting interest on deposits and loan interests) arising in the period plus depreciation expenses incurred in the period.
- In addition, Decree 68/2020 further stipulates the loan interest costs which are not deducted (due to exceeding 30% or more) shall be carried forward to the next tax period when determining total loan interest cost to be deducted provided total loan interest cost to be deducted in the next tax period is lower than 30% as above. The loan interest costs may be carried forward for a maximum consecutive period of 05 years, counting from the year following the year in which such loan interest costs are not yet deducted.
However, this regulation does not apply to loans which the taxpayer is:
- Credit institutions;
- Insurance Business;
- Loans on-lent by the Government from ODA loans;
- Concessional loans of Government;
- Loans grated for implementing national target programs;
- Loans granted for investment in programs/projects for implementation of State social welfare policies.
Moreover, Decree 68/2020 also provides for the application of this new regulation in the tax period of 2019 and also retroactive for the tax period of 2017 and 2018. Specifically, taxpayers are allowed to declare and supplement their declarations corporate income tax finalization in 2017 and 2018 for determining loan interest costs and corporate income tax amounts payable (if any), and submit it to the supervisory tax authority before January 1, 2021. In case completing the additional declaration, if the total amount of the corporate income tax payable is reduced, a corresponding amount of late payment interests shall be also reduced (if any).
If taxpayers, in practice, have to pay the total amount of corporate income tax and a penalty for late payment of tax which is higher than that of the tax and penalty re-determined, the difference between these amounts shall offset against the corporate income tax in 2020. In case the corporate income tax of 2020 is insufficient for the offsetting, the remaining of the difference will be continued to be deducted from the payable corporate income tax of the following year. The offsetting, however, shall not excess 05 years from the year 2020. The remaining of the difference will not be kept processing after the 5-year period is ended.
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This article is for general information only and is not a substitute for legal advice.
