Understanding Corporate Income Tax
In the world of taxes, one prominent type is Corporate Income Tax (CIT). While there is no specific definition for CIT, we can grasp its meaning based on the provisions of the law, such as the Corporate Income Tax Law, Decrees, and Circulars.
CIT is a direct tax imposed on the taxable income of enterprises, including income from production activities, trading goods, services, and other income as stipulated by the law.
To gain a comprehensive understanding of CIT, let’s explore some important related concepts.
Taxpayers of Corporate Income Tax
According to Article 2 of the Corporate Income Tax Law, taxpayers of CIT include:
- Enterprises established under the regulations of Vietnamese law.
- Foreign enterprises (referred to as foreign companies) established with or without a permanent establishment in Vietnam.
- Cooperatives established under the Cooperative Law.
- Public non-business units established under Vietnamese law.
- Other organizations engaged in production and business activities with taxable income.
Taxable Income for Corporate Income Tax
As per Article 3 of the 2008 Personal Income Tax Law, the 2013 amended CIT Law, and the 2014 amended Supplemental Law on Taxes, taxable income subject to CIT includes:
Income from Production, Trading Goods, and Services
Income from production, trading goods, and services refers to the revenue generated by enterprises through providing goods and services to the market. It is important to note that goods and services must be registered with the authorities and meet the conditions for doing business (if the business requires specific conditions).
Other Income
Regarding other income, based on Article 3 of Decree 218/2013/ND-CP amended and supplemented by Article 1 of Decree 12/2015/ND-CP, taxable income includes:
Income from Capital Transfer
- Income from partially or fully transferring invested capital into a business, including cases of selling a business, transferring securities, or transferring capital contribution rights.
- Other forms of capital transfer as stipulated by the law.
- Income from transferring investment projects, income from transferring participation rights in investment projects, income from transferring exploration, exploitation, and processing of minerals as stipulated by the law. This also includes income from transferring real estate as regulated in Articles 13 and 14 of Decree 218/2013/ND-CP.
- Income from the use of ownership or usage rights over assets, including income from intellectual property ownership, income from technology transfer as regulated by the law.
- Income from transferring, leasing, or liquidating assets (excluding real estate), including various types of valuable documents.
Income from Interest on Deposits, Loans, and Foreign Currency Exchange
- Interest on deposits with credit institutions, loans in all forms as regulated by the law, including late payment interest, installment interest, credit guarantee fees, and other fees in credit contracts.
- Income from foreign currency exchange.
- Exchange rate differences resulting from the reevaluation of foreign currency debts at the end of the fiscal year.
- Exchange rate differences arising during the investment and construction process to form fixed assets of newly established enterprises that have not yet commenced production and business operations, as instructed by the Ministry of Finance.
For foreign currency-denominated receivables and loans that arise during the fiscal year, the exchange rate difference for 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 recording the receivables or initial loans.
- Amounts set aside as expenses but are unused or not fully utilized within the specified reserve period, without reducing the expenses as adjusted by the enterprise.
- Difficult-to-recover debts that are now recoverable.
- Indeterminate debts that cannot identify the creditor.
- Income from previous years’ business that has been overlooked.
- Difference between earnings from fines, compensations for economic contract violations, or rewards for fulfilling contractual commitments (excluding penalties or compensation deductions for project value during the investment phase) minus penalties or compensation for contractual violations according to the law.
- Monetary or material support received.
- Difference due to reevaluation of assets as regulated by the law for capital contribution, distribution, separation, merger, consolidation, and conversion of enterprises.
For assets received, the accounting value is reevaluated to determine the deductible costs as regulated by the law.
- Income from business activities outside of Vietnam.
- Other income includes income exempt from tax as stipulated in Item 6 and Item 7 of Article 4 of this Decree.
For more information on calculating taxable income for CIT, visit Kienthucykhoa.com.
Taxation Period for Corporate Income Tax
The taxation period for CIT is determined based on the calendar year or fiscal year, except for the cases specified for foreign enterprises below.
The taxation period for CIT per each income generation applies to foreign enterprises as follows:
- Foreign enterprises with a permanent establishment in Vietnam pay tax on income subject to tax generated in Vietnam that is unrelated to the establishment’s operations.
- Foreign enterprises without a permanent establishment in Vietnam pay tax on income subject to tax generated in Vietnam.
Corporate Income Tax Rates
The current CIT rate is 20% and applies to all enterprises.
Enterprises with total annual revenue not exceeding VND 20 billion are subject to a 20% tax rate.
The benchmark for determining whether an enterprise falls under the 20% tax rate is the revenue from the previous contiguous year.
The CIT tax rate applicable to exploration, survey, and exploitation of oil, gas, and rare natural resources in Vietnam ranges from 32% to 50% depending on each project and business establishment.
Formula for Calculating Corporate Income Tax
The general formula for calculating CIT is as follows:
CIT = Taxable Income x CIT tax rate.
If the enterprise allocates funds for scientific and technological development, the CIT payable is calculated as follows:
CIT payable = (Taxable Income – Allocated Scientific and Technological Development Fund) x CIT tax rate.
For more details on calculating CIT, please visit Kienthucykhoa.com.
This article serves as guidance on corporate income tax based on the latest legal regulations. If you have any questions, feel free to reach out to us for clarification. Alternatively, you can explore our professional tax accounting services to ensure peace of mind with corporate income tax: Full-service accounting.
