Is support for meals included in expenses deductible from corporate income tax?

1. Who is npaying corporate income tax?

According to Article 2 of Circular 78/2014/TT-BTC the following subjects will pay corporate income tax:

(1) Corporate income taxpayers are organizations that produce and trade goods and services with taxable income (hereinafter referred to as enterprises), including:

– Enterprises established and operating under the provisions of the Enterprise Law, Investment Law, Credit Institutions Law, Insurance Business Law, Securities Law, Petroleum Law, Commercial Law and other legal documents in the following forms: Joint stock company; Limited liability company; Partnership company; Private enterprise; Law Office, Private Notary Office; The parties in the business cooperation contract; Parties in the petroleum product division contract, Petroleum joint venture enterprise, Joint operating company.

– Public and non-public public service units that produce and trade goods and services with taxable income in all fields.

– Organizations established and operating under the Cooperative Law.

– Enterprises established under provisions of foreign law (hereinafter referred to as foreign enterprises) that have a permanent establishment 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, and means of transportation transportation, mine, oil, gas field or other natural resource exploitation site in Vietnam;

+ Construction sites, construction, installation, assembly works;

+ Service provision establishments, including consulting services through employees or other organizations and individuals;

+ Agents for foreign enterprises;

+ 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.

In case the Double Taxation Avoidance Agreement signed by the Socialist Republic of Vietnam has different provisions on permanent establishments, it shall comply with provisions of that Agreement.

– Organizations other than the organizations mentioned in Points a, b, c and d, Clause 1 of this Article that have production and business activities of goods or services and have taxable income.

(2) Foreign organizations that produce and do business in Vietnam not under the Investment Law, Enterprise Law or have income arising in Vietnam pay corporate income tax according to the Ministry’s separate instructions Finance. If these organizations have capital transfer activities, they must pay corporate income tax according to the instructions in Article 14 Chapter IV of this Circular.

2. What does the taxable income of a domestic enterprise include?

The taxable income of an enterprise is specifically stipulated in Article 3 of Decree 218/2013/ND-CP (amended by Clause 1, Article 1 of Decree 12/2015/ND-CP; Clause 1, Article 1 of Decree 91/2014/ND-CP) as following:

(1) Taxable income includes income from production and trading of goods and services and other income specified in Clause 2 of this Article. For businesses that register for business and have income specified in Clause 2 of this Article, this income is determined to be income from production and business activities of the establishment.

(2) Other income includes:

– Income from capital transfer includes income from the transfer of part or all of the capital invested in an enterprise, including cases of selling a business, transferring securities, transferring the right to contribute capital and other forms of capital transfer according to the provisions of law;

– Income from transferring investment projects, income from transferring the right to participate in investment projects, income Import from transfer of rights to explore, exploit and process minerals according to the provisions of law; income from real estate transfer as prescribed in Articles 13 and 14 of this Decree;

– Income from use rights, property ownership rights, including income from intellectual property rights, income from technology transfer according to the provisions of law;

– Income from transfer, lease, and liquidation of assets (except real estate), including other valuable papers;

– Income from deposit interest, capital loan interest, foreign currency sales includes: Deposit interest at credit institutions, capital loan interest in all forms as prescribed by law including late payment interest, installment interest, credit guarantee fee and other fees in capital loan contracts; income from foreign currency sales; exchange rate differences due to reassessment of debts payable in foreign currency at the end of the fiscal year; Exchange rate differences arising during the period (except exchange rate differences arising during the capital construction investment process to form fixed assets of newly established enterprises that have not yet been put into production and business activities shall be implemented according to the guidance of the Ministry of Finance). For receivables and loans originating in foreign currency arising during the period, the exchange rate difference of these receivables and loans is the difference between the exchange rate at the time of debt collection and the exchange rate at the time of recording the receivable debt or the initial loan;

– Amounts deducted in advance as expenses but not used or not fully used according to the appropriation term but the enterprise does not account for adjusting and reducing expenses;

– Bad debts that have been written off can now be recovered;

– Debts payable whose creditors cannot be identified;

– The amount of business income from previous years that was overlooked was discovered;

– The difference between the collection of fines and compensation due to violation of economic contracts or bonuses due to good performance of contractual commitments (excluding fines and compensation recorded as a decrease in the value of the project during the investment period) minus (-) the amount of fines and compensation due to breach of contract according to the provisions of law;

– Donations in cash or in kind received;

– Differences due to reassessment of assets according to the provisions of law for capital contribution, transfer when dividing, separating, merging, consolidating, converting the type of enterprise, except in cases of equitization, arrangement, innovation of enterprises with 100% charter capital held by the state. Enterprises receiving assets are accounted for at reassessed prices when determining deductible expenses specified in Article 9 of this Decree;

– Income received from production and business activities outside Vietnam;

– Other incomes including tax-exempt income specified in Clauses 6 and 7, Article 4 of the Decree this.

(3) Taxable income arising in Vietnam of foreign enterprises specified in Points c and d Clause 2 Article 2 of the Law on Corporate Income Tax 2008 is income received originating in Vietnam from activities of providing services, supplying and distributing goods, lending capital, royalties to Vietnamese organizations and individuals or to foreign organizations and individuals doing business in Vietnam or from capital transfer, investment projects, capital contribution rights, and rights to participate in investment projects, rights to explore, exploit, and process mineral resources in Vietnam, regardless of the location of business.

Taxable income specified in this Clause does not include income from services performed outside the territory of Vietnam such as: Repair of vehicles, machinery, and equipment abroad; advertising, marketing, investment promotion and trade promotion abroad; Brokerage for selling goods, brokerage for selling services abroad; training abroad; divide international postal and telecommunications service charges for foreign parties.

In addition, the Ministry of Finance provides specific instructions on taxable income specified in this Clause.

3. Is the cost of food support a reasonable cost when deducting corporate income tax?

Pursuant to Article 4 of Circular 96/2015/TT-BTC (amended by Clause 2, Article 3 of Circular 25/2018/TT-BTC) regulations on deductible and non-deductible expenses when determining taxable income tax

– Except for non-deductible expenses mentioned in Clause 2 of this Article, enterprises can deduct all expenses if they meet all the following conditions:

+ Actual expenses incurred related to production and business activities of the enterprise.

+ Expenses that have enough legal invoices and documents according to the provisions of law.

+ Expenses that have invoices for each purchase of goods and services with a value of 20 million VND or more (price includes VAT) must have non-cash payment documents when paying.

+ Non-cash payment documents must comply with regulations provisions of legal documents on value-added tax.

….

– Expenses that are not deductible when determining taxable income include:

+ Expenditure on salaries, wages and other payables to employees of the enterprise that have been accounted for as production and business expenses in the period but are not actually paid or do not have payment documents according to the provisions of law law.

+ Salaries and bonuses for employees whose conditions and benefits are not specifically recorded in one of the following documents: Labor contract; Collective labor agreement; Financial regulations of Companies, Corporations, and Groups; Bonus regulations are prescribed by the Chairman of the Board of Directors, General Director, Director according to the financial regulations of the Company and Corporation.

– Expenses that do not correspond to taxable revenue, except for the following expenses:

+ Welfare expenses paid directly to employees such as: funeral and wedding expenses for the employee and his/her family; vacation expenses, treatment support expenses; Expenses to support additional learning knowledge at training establishments; Expenses to support families of workers affected by natural disasters, enemy sabotage, accidents, and illnesses; Expenses for rewarding employees’ children with good academic achievements; Support for travel expenses on holidays and New Year for employees; expenses for accident insurance, health insurance, and other voluntary insurance for employees (except expenses for purchasing life insurance for employees and voluntary retirement insurance for employees guided at Point 2.11 of this Article) and other welfare expenses. The total amount of welfare expenses mentioned above must not exceed 01 month’s average salary actually made in the enterprise’s tax year.

The determination of 01 actual average monthly salary made in the tax year of the enterprise is determined by the salary fund made in the year divided by (:) 12 months. In case the enterprise operates for less than 12 months, then: Determination of 01 month’s actual average salary made in the tax year is determined by the salary fund made in the year divided by (:) the number of actual months of operation in the year.

The actual salary fund is the total amount of actual salary paid of that settlement year up to the deadline for submitting the settlement dossier according to regulations (excluding the amount set aside for the year’s salary reserve fund before spending in the tax finalization year).

– Other expenses of a specific nature, suitable for each industry and field according to the guiding documents of the Ministry of Finance.

Accordingly, if the food expenses are agreed upon in the labor contract; Collective labor agreement; or it is regulated by the company’s financial regulations and bonus regulations and has complete payment documents, then the company can include reasonable expenses according to the instructions in Clause 2.4 above. Or, the company includes this expense as a welfare expense according to Clause 2.30, meeting the conditions in Clause 2.30, then this is a reasonable expense when calculating corporate income tax.