Looking back on 2020, the COVID-19 pandemic has been strongly impacting the world economy, breaking the global supply chain, businesses becoming on the threshold of bankruptcy, only very few businesses have positive growth indicators. Facing these challenges, to support businesses, the National Assembly of Vietnam has issued Resolution No. 116/2020/QH14 on tax reduction for businesses, once again showing that Vietnam is committed to working with investors and businesses to overcome difficulties during the COVID-19 pandemic. Here are 6 notes that foreign enterprises need to know to get a corporate income tax reduction in 2020.
1. Subjects of application
According to Article 1, Resolution No. 116/2020/QH14, the subjects of application are corporate income taxpayer who are organizations producing and trading in goods and services with taxable incomes in accordance with the Law on Corporate Income Tax (here below referred to as “Enterprises”), including:
- Enterprises established in accordance with the provisions of Vietnamese law;
- Organizations established under the Law on Cooperatives;
- Business units established in accordance with the provisions of Vietnamese law;
- Other organizations established in accordance with the provisions of Vietnamese law have income-earning production and business activities.
2. Conditions of application
If the Enterprises fall under one of the following two conditions, it may be considered for reduction of corporate income tax (here below referred to as “CIT”).
- The 2020 tax period is determined according to the calendar year, in case the Enterprises apply a fiscal year different from the calendar year, the CIT period shall be determined according to the fiscal year applicable to the Law on CIT and guiding document.
- The Enterprises with total revenue in 2020 not exceeding VND 200 billion.
3. Tax rate
A 30% reduction of the payable CIT amount of the 2020 CIT period for the Enterprises with total revenue in 2020 must not exceed VND 200 billion.
4. Specify how to determine total revenue in 2020
The way to determine the total revenue for reduction of CIT in 2020 is based on Article 2 of Decree No. 114/2020/QH14: Newly established enterprises, enterprises transforming the type of enterprises, transforming the form of ownership, merger, merger, division, separation, dissolution, bankruptcy in the 2020 CIT period operating not enough 12 months, the total revenue in 2020 is determined by: Total revenue in 2020 = (Total actual revenue: Actual number of months of operation in 2020) x 12 months.
5. Guiding enterprises to declare tax reduction.
The Enterprises declare tax reduction according to Clauses 1 and 2, Article 3 of Decree No. 114/2020/QH14: The Enterprises shall determine by themselves the reduced CIT amounts upon quarterly payment and when declaring the payable CIT in the 2020 corporate income tax period; When making final settlement of CIT , in case the Enterprises underpay the quarterly payable tax amount, the Enterprises shall pay additional the missing tax amount and calculate the late payment in accordance with the Law on Tax Administration and guiding documents. In case the Enterprises have paid more tax than the payable tax amount of the 2020 CIT period, it shall handle the overspending tax amount in accordance with the Law on Tax Administration and guiding documents.
6. Handling cases where enterprises are not subject to tax reduction
The Enterprises have self-declared, but then discovered that enterprises are not subject to tax reduction as prescribed by Decree 114/2020/QH14 or the payable tax amount of the CIT period in 2020 is larger than the tax paid as prescribed, divided into 2 cases:
- The Enterprises that make additional declarations of CIT declarations of the 2020 tax period or implement decisions after inspection and examination by competent agencies increase the payable CIT amounts, the increased tax amounts shall be reduced by 30% under the provisions of this Decree;
- The Enterprises that make additional declarations of CIT in the 2020 tax period or implement decisions after inspection and examination by competent agencies to reduce the payable CIT amounts shall handle over-paid tax amounts (if any) in accordance with the Law on Tax Administration and guiding documents.
With the need to attract foreign investment, as well as support foreign enterprises to operate best in Vietnam, tax policies will always be adjusted to suit during the COVID-19 19 pandemic, creating favorable conditions for foreign investors and the Enterprises to do business in Vietnam. However, administrative procedures in Vietnam have not been completed, so it can confuse foreign enterprises in the process of identifying and declaring corporate income tax reduction. Therefore, if you have difficulties at any stage, please contact us for advice and support.
