Tiếng Việt
中文 (中国)
(Vietnam). Allowable expense is a very important aspect to a business, a company, or a corporation, etc. This is because allowable expense will determine the overall revenue, turnover of an entire year of operating of a business. However, many businesses (mostly startups) are still new to this strange form of expense and don’t know how to maximize their business’s benefits by maximizing allowable expenses. So, what are the notes that need attention about allowable expenses in Vietnam?
Determining reasonable expenses when calculating corporate income tax is very important because it helps to reduce tax payable which will help to allow the business to gain more benefits at the end of the year.
Basically, allowable expenses are essential business costs that are not taxable. Allowable expenses aren’t considered part of a business’s taxable profits. Accordingly, the business doesn’t need to pay tax on these expenses.
To clarify in simple terms, if a business has an annual turnover of 100 million VND and spends 30 million VND on allowable expenses, the business will only need to pay tax on the remaining 70 million VND.
That being said, in the law of Vietnam, there is still no clear definition of allowable expenses and most importantly, what can be considered allowable expenses.
This is because allowable expenses of determining taxable income and calculating corporate income tax are very diverse and complex, so it is not possible to prescribe a general concept to identify them.
Although the law does not define it, it does provide for the conditions to be deducted when determining taxable income. Specifically, an expense that meets the prescribed conditions will become an allowable expense and be deductible when determining taxable income.
Based on the conditions of deductible expenses specified in Article 4 of Circular 96/2015/TT-BTC, allowable expenses can be understood as follows:
Allowable expenses are expenses that are deductible when determining taxable income and calculating corporate income tax if all conditions are met as prescribed by the law on corporate income tax.
Conditions on the expenses to become allowable expenses
Article 4 of Decree 96/2015/ND-CP stipulates that except for non-deductible expenses as prescribed in the law, businesses may deduct all expenses if they fully satisfy the following 03 conditions:
- Actual expenses incurred in connection with production and business activities of the company.
- Expenses have sufficient legal invoices and documents as prescribed by law.
- Expenses if there is an invoice for purchasing goods and services each time with a value of 20 million VND or more (this amount includes value-added tax), when making payment, there must be a non-cash payment voucher in accordance with the law on value-added tax.
In short, all expenses will be deducted if such expenses are incurred in connection with the production and business activities of the company, and such expenses have all legal invoices and documents.
Business expenses and personal expenses
Knowing that expenses incurred in connection with the production and business activities of the company are classified as allowable expenses, but will the line between business expenses and personal expenses that easy to split?
When claiming allowable expenses, it’s crucial to distinguish between business expenses and personal expenses as private purchases can’t be classified as allowable expenses, and doing that will be, in some cases, counted as tax evasion and action of violating the law and may lead to the most severe penalty of 7 years in prison and a fine of 3 times the amount of tax evasion in Vietnam.
What counted as allowable expenses in Vietnam?
Normally, the following expenses are counted as allowable expenses in Vietnam:
- Office expenses such as stationery, phone bills, or other items that the business use for less than two years;
- Expenses of business premises such as utility bills and rent;
- Travel expenses such as fuel, parking, or train tickets;
- Staff expenses such as wages, salaries, bonuses, and pensions;
- Clothing expenses such as uniforms or protective clothing;
- Legal and financial expenses such as credit card charges, overdraft fees, insurance policies, or hiring the services of accountants, bookkeepers, solicitors, or surveyors;
- Advertising and marketing expenses such as printed adverts and the cost of building a website;
- Expenses to purchase items that served as temporary goods such as raw materials or merchandise;
ASL LAW is the top-tier Vietnam law firm for tax law consulting service. If you need any advice, please contact us for further information or collaboration.
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