1. What is corporate income tax?

Corporate income tax (CIT) is a type of tax directly collected, levied directly on taxable corporate income. CIT includes incomes of enterprises from the production and trading of goods and services and other incomes as prescribed by law.

CIT is calculated on the taxable income of the enterprise after deducting reasonable expenses.

2. Corporate income tax payers

−     CIT taxpayers are organizations engaged in the production and trading of goods and services with taxable income under the provisions of the Law on Enterprise Income Tax (hereinafter collectively referred to as enterprises), including:

• The enterprise is established in accordance with the provisions of Vietnamese law.
• Enterprises established under the provisions of foreign law (hereinafter referred to as foreign enterprises) with or without permanent establishments in Vietnam.
• The organization is established under the Law on Cooperatives.
• Non-business units are established in accordance with the provisions of Vietnamese law.
• Other organizations engaged in production and business activities earning income.

−     Enterprises with taxable income must pay CIT as follows:

• Enterprises established in accordance with the provisions of Vietnamese law shall pay tax on taxable incomes arising in Vietnam and taxable incomes arising outside Vietnam.
• Foreign enterprises with permanent establishments in Vietnam shall pay tax on taxable incomes arising in Vietnam and taxable incomes arising outside Vietnam related to the operation of such permanent establishments.
• Foreign enterprises with permanent establishments in Vietnam shall pay tax on taxable incomes arising in Vietnam that are not related to the operation of permanent establishments.
• Foreign enterprises without permanent establishments in Vietnam shall pay tax on taxable incomes arising in Vietnam.

−     Permanent establishments of foreign enterprises are production and business establishments through which foreign enterprises conduct part or all of their production and business activities in Vietnam, including:

• Branches, executive offices, factories, workshops, means of transport, oil fields, gas fields, mines or other natural resource exploitation locations in Vietnam;
• Construction location, construction works, installation and assembly;
• Establishments providing services, including consultancy services through employees or other organizations and individuals;
• Agents for foreign enterprises;
• Representatives in Vietnam in case they are representatives competent to sign contracts in the name of foreign enterprises or representatives who are not competent to sign contracts in the name of foreign enterprises but regularly deliver goods or provide services in Vietnam.

3. How to calculate corporate income tax

Pursuant to Article 6 of the Law on Corporate Income Tax 2008, Article 5 of Decree 218/2013/ND-CP, CIT is calculated as follows:

CIT = Taxable income in the period x Tax rate [1]

Thus, in order to calculate the payable tax amount, it is necessary to know the taxable income and tax rate, specifically:

(1) Taxable income

Taxable income = Taxable income – Tax-exempt income + Losses carried forward according to regulations [2]

In particular, CIT taxable income is determined as follows:

Taxable income = Revenue – Deductible expenses + Other income [3]

(2) CIT rate

Pursuant to Articles 10, 13 and 14 of the Law on Corporate Income Tax 2008 amended and supplemented in 2013 and Article 10 of Decree 218/2013/ND-CP, the CIT rate is 20%.

In addition, there are many cases of applying higher tax rates such as enterprises engaged in the search, exploration and exploitation of oil, gas and other rare and precious resources in Vietnam or applying preferential tax rates such as high-tech enterprises, so the payment rate is lower.

4. Corporate income tax rates

According to the provisions of Clause 1, Article 11 of the Law on Enterprise Income Tax 2008, the payable enterprise income tax amount in the tax period is calculated by multiplying the taxable income by the tax rate; in case the enterprise has paid income tax outside Vietnam, the paid income tax amount shall be deducted but not exceeding the payable enterprise income tax amount according to the provisions of the Law on Enterprise Income Tax 2008.

Thus, the corporate income tax rate is one of the bases used to calculate corporate income tax. Currently, the applicable corporate income tax rate includes 02 levels:

Tax rate of 20%

Pursuant to Clause 6, Article 1 of the Law on Corporate Income Tax amended 2013, the tax rate applicable to all enterprises is 20%, except for the case of applying the tax rate of 32% to 50% in Section 1.2 below or the case where the enterprise is eligible for preferential tax rates.

Tax rate from 32% to 50%

According to the provisions of Clause 3, Article 10 of Decree No. 218/2013/ND-CP, the tax rate from 32% to 50% applies to the prospection, exploration and exploitation of oil, gas and other precious and rare resources in Vietnam in accordance with each project and each business establishment, specifically: For enterprises engaged in oil and gas prospection, exploration and exploitation, based on the location, conditions and field reserves, the Prime Minister shall decide on specific tax rates suitable to each project and each business establishment at the request of the Minister of Finance.

Tax rate 40%

Applicable to rare and precious natural resource mines with 70% or more of the assigned area in areas with extremely difficult socio-economic conditions on the List of areas eligible for enterprise income tax incentives promulgated together with Decree No. 218/2013/ND-CP.

Tax rate 50%

Applicable to the search, exploration and exploitation of rare and precious resource deposits such as platinum, gold, silver, tin, wolfram, antimoan, precious stones, rare earths except oil and gas (Clause 3, Article 11 of Circular 78/2014/TT-BTC).

5. Time limit for declaration and payment of enterprise income tax

Pursuant to Article 44 of the Law on Tax Administration 2019, the deadline for declaration, payment and finalization of CIT is as follows:

– Deadline for paying CIT temporarily calculated quarterly: No later than the last day of the first month of the quarter following the quarter in which the tax obligation arises.

– Deadline for submission of annual tax finalization: No later than the last day of the 3rd month from the end of the calendar year or fiscal year.

Above is the content of KALF’s advice on Corporate Income Tax and related issues. All of our above advice is based on applicable legal regulations. If you have any questions or requests about legal issues, please contact us for timely answers.