Corporate Income Tax (CIT) is one of the key financial obligations that businesses must fulfill during their operations. Understanding CIT regulations not only ensures legal compliance but also allows businesses to take advantage of tax incentives, optimize costs, and maximize profits.
Below are detailed insights into corporate income tax, including its definition, tax rates, conditions for incentives, and cases of tax exemptions and reductions, as provided by DNP Viet Nam Law Firm.
1. Definition of CIT for FDI Enterprises
Corporate Income Tax (CIT) is a direct tax imposed on the taxable income of enterprises, applicable to production, business activities, and other income sources as regulated. It serves as an essential fiscal tool, both as a source of budget revenue and as a factor influencing the financial and investment strategies of businesses.
2. Entities Required to Pay Corporate Income Tax
According to Article 2 of the 2008 Corporate Income Tax Law, as amended and supplemented in 2013, entities subject to CIT include:
2.1. Enterprises Established Under Vietnamese Law, including:
Limited liability companies, joint-stock companies, partnerships, and private enterprises;
Other organizations engaged in production and business activities as prescribed by law.
2.2. Foreign Enterprises, including:
Enterprises with a permanent establishment in Vietnam;
Enterprises without a permanent establishment in Vietnam but generating taxable income in Vietnam.
2.3. Other Organizations Engaged in Business Activities and Generating Taxable Income, including:
Cooperatives established under the Cooperative Law;
Public service units engaged in production and business activities;
Other organizations generating taxable income as prescribed by law.
Scope of Corporate Income Tax Obligations
Based on the location of establishment and business operations, the CIT obligations are determined as follows:
2.4. Enterprises Established Under Vietnamese Law
Subject to CIT on all taxable income, including income earned both inside and outside Vietnam.
2.5. Foreign Enterprises with a Permanent Establishment in Vietnam
Subject to CIT on income generated in Vietnam;
Subject to CIT on income generated outside Vietnam, but related to the activities of the permanent establishment in Vietnam.
2.6. Foreign Enterprises Without a Permanent Establishment in Vietnam
Subject to CIT only on income generated in Vietnam.
Definition of Permanent Establishment: A permanent establishment of a foreign enterprise refers to a business or production facility through which the foreign enterprise conducts part or all of its production and business activities in Vietnam.
Image is designed by DNP Viet Nam Law Firm
3. Basis for Calculating Corporate Income Tax
3.1. Determination of Corporate Income Tax
As stipulated in Article 6 of the 2008 Corporate Income Tax Law, corporate income tax (CIT) is determined based on taxable income and the applicable tax rate, using the following formula:
Corporate income tax = Taxable income in the period x Tax rate
3.2. Determination of Taxable Income
According to Article 6 of Decree 218/2013/ND-CP, taxable income is calculated as follows:
Taxable income = Taxable income – Tax-exempt income + Losses carried forward as prescribed
In which: Taxable income for corporate income tax is calculated as follows:
Taxable Revenue is determined as:
Taxable income = Revenue – Deductible expenses + Other income
Total Revenue includes all proceeds from the sale of goods, provision of services, processing fees, subsidies, surcharges, and additional charges.
Deductible Expenses are determined in accordance with Article 4 of Circular 96/2015/TT-BTC.
3.3. Corporate Income Tax Rates
According to Articles 10, 13, and 14 of the 2008 Corporate Income Tax Law (as amended in 2013) and Article 10 of Decree 218/2013/ND-CP, the standard CIT rate is 20%.
However, different rates may apply depending on the industry:
Higher CIT Rates: Applied to enterprises engaged in oil and gas exploration, mining, and exploitation of rare and valuable natural resources in Vietnam.
Preferential CIT Rates: Applied to eligible enterprises in sectors encouraged for investment, such as high-tech companies or businesses in strategic investment fields. These enterprises may benefit from reduced tax rates to support economic growth and technological innovation.
The specific tax rate applicable to each enterprise depends on the tax incentive policies and business activities in each period.
The above article is provided by DNP Vietnam Law Firm for reference purposes. Partners/Clients are kindly requested to contact us at the information below for detailed consultation.
————————————————
DNP VIET NAM LAW FIRM Contact: 🏢 Address: 5th Floor, 52 Nguyen Thi Nhung Street, Van Phuc estate, Hiep Binh Phuoc, Thu Duc City, Ho Chi Minh City, Viet Nam. 📩 Email: info@dnp-law.com. 📞 Hotline: 0987 290 273 (Dinh Tuan Lawyer). Website: https://www.dnp-law.com/
