Vietnam

Depreciation and amortisation

Tax depreciation may differ from accounting depreciation. Depreciation in excess of the rates specified in the regulations on tax depreciation is not deductible.

Start-up expenses

Pre-establishment expenses (i.e. expenses for setting up a company) and certain expenses (i.e. training, advertising before establishment, costs for the research stage, relocation cost) can be amortised over a period of up to three years from the commencement of operations. In order for pre-establishment and pre-operating expenses to be deductible for CIT purposes, supporting documents to substantiate the fact that these pre-operating expenses were necessarily and legitimately incurred for the establishment of the company should be available.

Interest expenses

Interest expenses are generally deductible, except for certain cases.

Tax deductibility of interest on loans is capped at 30% of earnings before interest, taxes, depreciation, and amortisation (EBITDA) when a taxpayer has related-party transactions (see Transfer pricing in the Group taxation section).

Bad debt

Provisions for bad debts are deductible if the provision is made in accordance with the guidance by the MoF. Certain conditions must be satisfied in order to set up a provision for bad debts. In the absence of satisfying the necessary conditions, the provision for bad debts will generally not be deductible.

Fines and penalties

Administrative penalties and fines are specifically considered non-deductible.

Taxes

Creditable input VAT, CIT, and other fees/charges are not deductible for CIT purposes.

Other significant items

There is a prescribed list of expenditures that are specifically stated to be non-deductible in the CIT regulations, such as:

• Employee remuneration expenses that are not actually paid or are not stated in a labour contract, collective labour agreement, or the financial regulations of the company.
• Staff welfare (including certain benefits provided to family members of staff) exceeding a cap of one month’s average salary.
• Provisions for severance allowance (except for companies not subject to mandatory unemployment insurance contributions) and payments of severance allowance in excess of the prescribed amount per the Labour Code.
• Services fees paid to related parties that do not meet certain conditions.
• etc

For certain businesses (e.g. insurance companies, securities trading, lotteries), the MoF provides specific guidance on deductible expenses for CIT purposes.

Net operating losses

Losses may be carried forward fully and consecutively for a maximum of five years. Carryback of losses is not permitted.

Payments to foreign affiliates

There are no special restrictions on the deductibility of royalties, loan interest, and service fees paid to foreign affiliates (except for those paid by branches). However, the payment must be defendable on an arm’s-length basis as required by transfer pricing regulations and substantiated by sufficient supporting documents for CIT deduction purposes (see Transfer pricing in the Group taxation section). Certain contracts for the transfer of technology and foreign loans must be registered with the competent authorities.