How is corporate income tax calculated?

What is corporate income tax?

Pursuant to Article 3 of the Law on Corporate Income Tax 2008 (amended by Clause 1, Article 1 of the Law amending Tax Laws 2014), taxable income is stipulated as follows

– Taxable income includes income from production and trading of goods and services and other income specified in Clause 2 of this Article.

– Other income includes: income from capital transfer, transfer of capital contribution rights; income from real estate transfer, investment project transfer, transfer of rights to participate in investment projects, transfer of rights to explore, exploit and process minerals; income from property use rights, property ownership rights, including income from intellectual property rights according to the provisions of law; income from transfer, lease, and liquidation of assets, including valuable papers; income from interest on deposits, loans, foreign currency sales; Revenues from bad debts that were written off are now recoverable; proceeds from liabilities whose owner cannot be identified; omitted business income from previous years and other income.

Vietnamese enterprises investing abroad transfer their income after paying corporate income tax abroad to Vietnam. For countries with which Vietnam has signed an Agreement to avoid double taxation, it shall comply with the provisions of the Agreement; For countries where Vietnam has not signed a Double Taxation Avoidance Agreement, in case the corporate income tax in the country to which the enterprise moves has a lower corporate income tax rate, the difference compared to the corporate income tax amount calculated according to Vietnam’s Corporate Income Tax Law will be collected.

Thus, corporate income tax is a type of tax that the state directly collects into the state budget based on the taxable income of businesses (organizations engaged in production and trading of goods and services).

Who must pay corporate income tax?

Pursuant to Article 2 of the 2008 Corporate Income Tax Law, taxpayers are specified as follows:

– Corporate income tax payers are organizations that produce and trade goods and services with taxable income according to the provisions of this Law (hereinafter referred to as enterprises), including:

+ Enterprises established under the provisions of Vietnamese law;

+ Enterprises established under foreign laws (hereinafter referred to as foreign enterprises) with or without permanent establishments in Vietnam;

+ Organizations established under the Cooperative Law;

+ The public service unit is established according to the provisions of Vietnamese law;

+ Other organizations with production and business activities that generate income.

– Enterprises with taxable income specified in Article 3 of this Law must pay corporate income tax as follows:

+ Enterprises established under the provisions of Vietnamese law pay tax on taxable income arising in Vietnam and taxable income arising outside Vietnam;

+ Foreign enterprises with permanent establishments in Vietnam pay tax on taxable income arising in Vietnam and taxable income arising outside Vietnam related to the operations of that permanent establishment;

+ Foreign enterprises with permanent establishments in Vietnam pay tax on taxable income arising in Vietnam that is not related to the operations of the permanent establishment;

+ Foreign enterprises without permanent establishments in Vietnam pay tax on taxable income arising in Vietnam.

– A permanent establishment of a foreign enterprise is a production and business establishment through which a foreign enterprise conducts part or all of its 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 sites, construction, installation and assembly projects;

+ Service providers, including consulting services through employees or other organizations or individuals;

+ Agent for foreign businesses;

+ Representative in Vietnam in the case of a representative with authority to sign contracts in the name of a foreign enterprise or a representative without authority to sign contracts in the name of a foreign enterprise but who regularly delivers goods or provides services in Vietnam.” (amended and supplemented by Clause 1, Article 1 of the revised Law on Corporate Income Tax 2013)

Thus, assuming your company is established according to the provisions of Vietnamese law, your company is subject to corporate income tax.

How to calculate corporate income tax

Pursuant to Article 6 of Decree 218/2013/ND-CP stipulating the determination of taxable income as follows:

– Taxable income in the tax period is determined as follows:

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

– Taxable income is determined as follows:

Taxable income = Revenue – Deductible expenses + Other income

If an enterprise has many business activities, taxable income from production and business activities is the total income of all business activities. In case there is a loss in business activities, the loss can be offset against the taxable income of business activities with income chosen by the enterprise. The remaining income after offsetting is subject to the corporate income tax rate of the remaining business activities.

Income from real estate transfer activities, transfer of investment projects, transfer of rights to participate in investment projects, transfer of rights to explore, exploit and process minerals must be determined separately for tax declaration and payment. In case of transfer of the right to participate in investment projects, transfer of investment projects (except mineral exploration and exploitation projects), transfer of real estate, if there is a loss, this loss will be offset against profits from production and business activities in the tax period. In case an enterprise goes through dissolution procedures and sells real estate as fixed assets, income from real estate transfer (if any) is offset with income from production and business activities of the enterprise.

Pursuant to Article 10 of the Law on Corporate Income Tax 2008 (amended and supplemented by Clause 6, Article 1 of the Revised Law on Corporate Income Tax 2013), the tax rates are prescribed as follows:

– The corporate income tax rate is 22%, except for the cases specified in Clauses 2 and 3 of this Article and subjects eligible for preferential tax rates specified in Article 13 of this Law.

Cases subject to the 22% tax rate specified in this Clause will switch to the 20% tax rate from January 1, 2016.

– Enterprises with total annual revenue not exceeding twenty billion VND shall apply a tax rate of 20%.

The revenue used to determine whether an enterprise is eligible for the 20% tax rate in this clause is the revenue of the immediately preceding year.

– Corporate income tax rate for search, exploration, and exploitation of oil, gas and other rare resources in Vietnam ranges from 32% to 50%, suitable for each project and each business establishment.

The Government shall detail and guide the implementation of this Article.”

Suppose your company’s taxable income is 5 billion per year minus tax exemptions, losses… Then the tax rate is 20%.

Thus, your company must pay corporate income tax of one billion VND