When a company in Vietnam is preparing its annual corporate income tax (CIT) return it is of great importance to consider several essential issues, such as deductible expenses and the most recent tax incentives. This article investigates the most closely watched items overviewed by the State tax audit committee.

Generally, expenses that can be deducted for calculating CIT payable for the year must meet requirements as indicated below:

-          The expenses are directly related to the business operations of a company;

-          All supporting documents e.g., invoices are available;

-          More than VND 20 million (USD 870) of expenses were paid using non-cash based methods;

-          Expenses are not part of non-deductible items.

During the audit process, tax authorities are expected to closely monitor several deductible expenses, thus it is recommended for businesses to ensure the collection of all relevant supporting material and a consistency between all transactions and accounting records.

Firstly, the audit committee will closely examine items such as trade discounts, price allowances, and sales returns which all belong to the revenue reductions list. Secondly, expenses for marketing, advertising, and sales promotion will be carefully examined by the authorities. It is advisable for businesses to prior establish whether their promotional or advertising campaigns are fully compliant with the relevant Vietnamese regulations in order to make the corresponding expenses deductible. Thirdly, a special emphasis must be placed on the full compliance of the transfer pricing documents and the evidence of the performed services in the case of intercompany expenses. Lastly, companies have the right to deduct certain expenses which were the result of the COVID19 pandemic for CIT purposes.

Finally, companies are recommended to closely monitor the most recent tax incentives, as they may have a large impact on calculating the final tax liability. As such, in 2020, companies with revenues less than VND 200 billion (USD 8.7 million) were given a 30% reduction on their CIT liability for the fiscal year.

At PHC Advisory, we constantly monitor the tax policy incentives that may support your business in Vietnam. Please feel free to contact us at info@phcadvisory.com for more information.