On 18 June 2014 the Ministry of Finance promulgated Circular No. 78/2014/TT-BTC (“Circular 78”) guiding the detailed implementation of Decree No. 218/2013/ND-CP, dated 26 December 2013, on corporate income tax (“CIT”).

Below are some notable changes and supplements under Circular 78 with respect to CIT.

CIT rate

The standard CIT rate of 22% will be applicable as of 1 January 2014 and will drop to 20% as of 1 January 2016.

However, from 2014, an enterprise duly established and operating under the laws of Vietnam having a total annual revenue less than VND20billion may apply a CIT rate of 20%, and the CIT rate applied to activities of prospecting, exploration, and mining petroleum are from 32% to 50%.

CIT calculation method

Circular 78 has supplemented 2 subjects:

  1. non-enterprise organizations established and operating under Vietnamese law; and
  2. enterprises paying value-added tax by the direct method.

both of which are entitled to declare and pay CIT at the percentage rate for revenue from the sales of goods or services and make taxable income but cannot specify expenses and income other than by revenue.

Prior to Circular 78 only non-business units were entitled to apply such provision.

Revenue recognition

Circular 78 also states that services for which payments are made in advance for a number of years can be either recognized in full upon the receipt of payment or ammortized. If an enterprise is in the CIT incentive period, the determination of the preferential tax amount must be based on the total ammortized tax amount divided by the number of years the amount is ammortized.

Income from transferring real estate

In a tax period, if an enterprise engaging in the transfer of real estate, investment projects or the right to participate in investment projects (excluding mineral exploration and exploitation projects) (“Transfer Activities”) suffers a loss, it may offset this loss against the profit from its manufacturing and business activities.

An enterprise must forward losses from the Transfer Activities of 2013 and previous years which are still in the loss-carry forward duration to income of the Transfer Activities; if such losses cannot be fully forwarded, they may be forwarded to income of manufacturing and business activities (including also other income) of 2014 and subsequent years.

For a real estate enterprise which collects advance payments from customers according to a schedule and declares and temporarily pays tax according to the percentage of its turnover, all expenses for advertising, marketing, discount and brokerage commissions will not be recorded in the year when such costs were incurred. Instead, these will be considered as deductible expenses at the limitation level in the first year when the real estate is handed over and the taxable revenue is generated.

Circular 78 took effect on 2 August 2014 and replaced Circular No. 123/2012/TT-BTC, dated 27 July 2012, of the Ministry of Finance.