Giáo trình Taxation - Chapter 6: Corporate Income Tax (CIT)

industrial zones and difficult socio-economic areas. ▪ Large manufacturing projects (excluding those related to the manufacture of products subject to special sales tax or those exploiting mineral resources) with total capital of VND6,000 billion (VND12,000 billion from 2015) or more, disbursed within 3 years (5 years from 2015) of being licensed can also qualify for CIT incentives if the projects meet either of the following criteria: ➢ minimum revenue of VND10,000 billion/annum by the 4th year of operation at the latest; or ➢ head count of more than 3,000 by the 4th year of operation at the latest. TAX INCENTIVES (CONT.) • ABC ▪ New investment projects engaged in manufacturing industrial products prioritized for development will be entitled to CIT incentives if they meet one of the following conditions: ➢ the products support the high technology sector; or ➢ the products support the garment, textile, footwear, IT, automobile assembly, mechanical sectors are not produced domestically as at 1 January 2015, or if produced domestically, they meet the quality standards of the EU or equivalent. ▪ The two common preferential rates of 10% and 20% are available for 15 years and 10 years respectively, starting from the commencement of operating activities. From 1 January 2015, a preferential rate of 15% will apply in certain cases. Certain socialized sectors (e.g. education, health) enjoy the 10% rate for the life of the project. ▪ Taxpayers may be eligible for tax exemption and reductions. The holidays take the form of a complete exemption from CIT for a certain period beginning immediately after the enterprise first makes profits, followed by a period where tax is charged at 50% of the applicable rate. However, where the enterprise has not derived taxable profits within 3 years of the commencement of operations, the tax holiday/tax reduction will start from the fourth year of operation. ▪ Additional tax reductions may be available for companies engaging in manufacturing, construction and transportation activities which employ many female staff or ethnic minorities. ▪ Tax incentives available for investment in encouraged sectors do not apply to other income (except for income which directly relates to the incentivized activities such as disposal of scrap). INCOMES FROM CAPITAL TRANSFER • ABC▪ An enterprise’s income from capital transfer is income earned from the transfer of part or the whole of the capital amount the enterprise has invested in one or many other organizations or individuals (including sale of the whole enterprise). ▪ Tax bases: CIT payable = Taxed incomes × CIT rate (20%) Taxed incomes = Transfer price - Purchasing price of the transferred capital - Transfer expenses + Transfer price is the total actual value earned by the transferor under the transfer contract excluding installment or deferred payment interests (if any). + Purchasing price of the transferred capital can be the value of the contributed capital amount recorded in accounting books or the value of the capital amount at the time of redemption. + Transfer expenses are actual expenses directly related to the transfer such as expense for carrying out legal procedures necessary for the transfer; charges and fees paid for carrying out transfer procedures; expenses for transaction, negotiation and signing of transfer contracts; and other expenses. LO 6-6: Define incomes from capital transfer, security transfer and real estate transfer. INCOMES FROM SECURITY TRANSFER ▪ An enterprise’s income from securities transfer is income earned from the transfer of its stocks, bonds, fund certificates and securities of other kinds under regulations. ▪ Tax bases: CIT payable = Taxed incomes × CIT rate (20%) Taxed incomes = Securities selling price - Purchasing price of the transferred securities - Transfer expenses + For listed securities, securities selling price shall be the order-matching price or agreed price announced by the stock exchange or securities trading center; For unlisted securities, securities selling price is the transfer price indicated in the transfer contract. + Purchasing price of the transferred securities can be the order-matching price or agreed price, or the price of successful bid issued by the share-auctioning organization or the transfer price indicated in the transfer contract. + Transfer expenses are expenses for carrying out legal procedures necessary for the transfer; charges and fees paid for carrying out transfer procedures, securities depository charge, securities entrustment charge, expenses for transaction, negotiation and signing of transfer contracts; and other expenses. INCOMES FROM REAL ESTATE TRANSFER ▪ Incomes from real estate transfer include: + income from the transfer of land use rights, or land lease right (including also the transfer of projects associated with the transfer of land use rights or land lease right in accordance with law); + income from the sublease of land of real estate enterprises in accordance with the land law regardless of whether there is an infrastructure facility or architectural work attached to land; + income from the transfer of houses or construction works attached to land, including their appurtenances, in case the value of such appurtenances is inseparable upon the transfer, regardless of whether land use rights or land lease right are/is transferred; + and income from the transfer of house ownership or use right. INCOMES FROM REAL ESTATE TRANSFER ▪ Tax bases: CIT payable = Taxed incomes × CIT rate (20%) Taxable incomes = Revenues - Cost of transferred real estate - Deductible expenses Taxed incomes = Taxable incomes - Losses from real estate transfer ▪ Revenues: + Revenues from real estate transfer shall be determined based on the actual transfer price under the real estate transfer or purchase and sale contract in accordance with law (including surcharges and extra fees, if any). + If the transfer price of land use rights is lower than the land price prescribed by the provincial- level People’s Committee, the price prescribed by the People’s Committee at the time of signing the contract shall be applied. + Time of determining revenues is the time sellers hands over the real estate to purchasers. INCOMES FROM REAL ESTATE TRANSFER (CONT.) + Deductible expenses for determining taxable income from real estate transfer in a tax period must correspond to revenues for calculating taxable income and satisfy the conditions for being accounted as deductible expenses or as non-deductible expenses. + Cost of the transferred land, determined according to the land use right origin. + Expense for land damage compensation. + Expense for crop damage compensation. + Compensation, support and resettlement expenses and expenses for organization of compensation, support and resettlement in accordance with law. + Charges and fees related to the grant of land use rights as provided by law. + Expense for soil improvement and ground leveling. + Expense for the construction of infrastructure, such as roads, power lines, water supply and drainage systems, post and telecommunications facilities, etc. + Value of infrastructure facilities and architectural works on land. + Other expenses related to the transferred real estate. ▪ Cost of transferred real estate and deductible expenses TAX DECLARATION AND PAYMENT ▪ Enterprises are required to make quarterly provisional CIT payments based on estimates. If the provisional quarterly CIT payments account for less than 80% of the final CIT liability, any shortfall in excess of 20% is subject to late payment interest (currently as high as 18% per annum), applying from the deadline for payment of the Quarter 4 CIT liability. ▪ Final CIT returns (form 03/TNDN) are filed annually. The annual CIT return must be filed and submitted not later than 90 days from the fiscal year end. The outstanding tax payable must be paid at the same time. ▪ Where a taxpayer has a dependent accounting unit (e.g. branch) in a different province, a single CIT return is required. However, manufacturing companies are required to allocate tax payments to the various provincial tax authorities in the locations where they have dependent manufacturing establishments. The basis for allocation is the proportion of expenditure incurred by each manufacturing establishment over the total expenditure of the company. ▪ The standard tax year is the calendar year. Companies are required to notify the tax authorities in cases where they use a tax year (i.e. fiscal year) other than the calendar year. A BIG EXAMPLE I- SALES 1. Exported 20,000 units B, FOB price at the border gate of Vietnam 52,000 VND/unit. 2. Sold to HHA Company 25,000 units B, selling price excluding VAT of 50,000 VND/unit. 3. Sold to EIC Company 20,000 B, the VAT- exclusive price of 49,000 VND/unit. However, until December 31, EIC Company exported only 18,000 units B. 4. Delivered to its agent 20,000 units B, the agent sells at the fixed prices of 52,000 VND/unit exclusive of VAT; commission for agent is 5% of the selling price exclusive of VAT. II- PURCHASES 5. Direct materials for production: 1,100M. 6. Fixed asset depreciation cost for production of 440M including 40M of financial lease fixed assets and for administration and sales of 90M. 7. Salary expenses for production 480M and administration and sales of 230M. 8. Paid mandatory insurances at 34.5% on the salary of which 24% was ABC expenses. 9. Provisions for major repair of fixed assets used for production at 80M, however, the actual expenses in the year of 78M. Accounting data of ABC Company producing only one product B in 2018 are as follows: A BIG EXAMPLE (CONT.) 10. Paid commission to agents based on the number of products sold. 11. Expenditures to support people in floods of 18M. 12. Selling expenses, license fees and land and housing tax: 24M. 13. Expenditure for construction of the factory 200M. The project was completed at the end of 2018 and put into use in the beginning of 2019. 14. Other reasonable expenses including production: 510M and administration and sales: 260M. Required: Determine CIT payable by ABC in 2018. Additional data: + The company has adequate invoices and vouchers for all expenses. + In 2018 ABC produced 100,000 units B; beginning finished goods: 1.000 units with the cost of 27,500 VND/unit. Product B is not subject to excise tax. + ABC applied FIFO method. + By the end of 31 Dec 2018, the agent sold 90% of the delivered product B and returned the remainder to Company ABC. + Export tax rate of 0%; CIT rate of 20%. + Cost of work in process at the beginning and the end of the year is not significant.