i. What is a Tax Deductible Expense?
Normally, a Tax Deductible Expense is an expense that is considered ordinary, necessary, and reasonable which will be deducted from the company’s income before taxation.
In Vietnam, in order to be considered as a Tax Deductible Expense, such expense must meet some conditions as stipulated by laws. Such conditions will be clarified in Item 2 below. Satisfying such conditions, an enterprise will have deductible expenses – expenses which are eligible for tax deductions.
It’s important for all businesses to carefully keep track of their deductible expenses for tax purposes, as this will help to save costs and maximize profits. This is even more critical for small businesses.
ii. Conditions for be deducted
Expenses must meet the following 3 conditions in order to be deductible for tax purposes.
– Actual expenses related to business activities
– Expenses evidenced with VAT invoice and other supporting documents
– Expenses with an evidence of payment for payments over 20 million VND (payments over 20 million VND need to be made via non-cash payment method, such as bank transfer.)
It means that enterprises are deducted all expenses if such expenses are actual expenses related to production and business activities supported by adequate lawful invoices and documents.
So, enterprises, especially foreign invested enterprises should obtain and keep VAT invoice, payment evidence, and other supporting documents such as contracts.
iii. Evidence of non-cash payments
Non-cash payment vouchers shall comply with the provisions of legal documents, in particular:
– If buying goods or services each time with value> 20 million but by the time of cost recognition, the enterprise has not paid, it will be included in deductible expenses when determining taxable income.
If no non-cash payment documents are made when making a payment, the cost of goods or services must be declared and adjusted to reduce the cost of the value of goods and services without proof of non-cash payment in the tax period incurred. the payment in cash (even in cases where the tax authority and the authorities have issued a decision to inspect and examine the tax period in which this expense arises).
– If the enterprise buys goods or services related to the business and production activities of the enterprise and has an invoice printed directly from the cash register according to the provisions of the law on invoices, specifically as follows:
+ If this invoice has a value of > 20 million VND, the enterprise will base on this invoice and non-cash payment vouchers to include deductible expenses when determining taxable income.
+ If this invoice has a value of <20 million dong and has been paid in cash, the enterprise will base on this invoice and vouchers of cash payment to include deductible expenses when determining taxable income.
Besides, enterprises, especially foreign invested enterprises should also be noted of non-deductible expenses. We will discuss about non-deductible expenses on the Article “Non-Deductible Expenses In Vietnam”.