Q&A RELATED TO WHETHER ACCRUED EXPENSES ARE COUNTED AS DEDUCTIBLE EXPENSES WHEN FINALIZING CIT

Question regarding corporate income tax expenses.

Our unit is a consulting and investigation service unit in a number of provinces upon request. To perform these tasks, our unit has incurred a number of expenses such as hiring supervisors, hiring transportation, … These tasks actually occurred during the year but there were no invoices and no payment vouchers, so the unit had pre-deducted expenses to be in line with accounting standards. These deductions were then paid in full in the first quarter of the following year. So we want to ask:
– Are these prepaid expenses included in CIT calculation? – Are VAT invoices (invoice date is next year) declared and deducted?

Answer for reference only

– Pursuant to Clause 8, Article 14 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance guiding the implementation of the Law on Value-Added Tax and Decree No. 209/2013/ND-CP dated December 18, 2013 of the Government detailing and guiding the implementation of a number of articles of the Law on Value-Added Tax, stipulating the rules of deduction of input VAT.

“Article 14. Rules for deducting input VAT.
8. VAT shall be declared and deducted in the period during which it is incurred, whether the products are used or still in storage.
If the taxpayer finds that the input VAT is incorrectly declared, an adjustment may be made before the tax authority or a competent authority announces the decision on tax inspection at the taxpayer’s premises”.

– Pursuant to Clause 2.20, Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance guiding on corporate income tax:

“Article 4. Article 6 of Circular No. 78/2014/TT-BTC (amended in Clause 2 Article 6 of Circular No. 119/2014/TT-BTC and Article 1 of Circular No. 151/2014/TT-BTC) is amended as follows:
“Article 6. Deductible and non-deductible expenses when calculating taxable income
2. The expenses below are not deductible when calculating taxable income:
2.20. Periodic accrued expense that is not used up at the end of the period.
Accrued expenses include: expenditures on periodic major repairs of fixed assets, expenditures on fulfillment of contractual obligations to the services for which revenue has been collected (including payments for leases of assets and provision of services that have been collected in advanced for many years and included in revenue of the year in which they are collected), and other accrued expenses.
If an enterprise has recorded revenue for calculation of CIT without incurring all of expenses, accrued expenses may be included in deductible expenses in proportion to the revenue earned when calculating taxable income. When the contract is finalized, the enterprise must calculate the exact expense according to legitimate invoices and receipts in order to increase the expense (if actual expense is higher than accrued expense) or decrease the expense (if actual expense is lower the accrued expense) of the tax period during which the contract is finalized.
…”

Pursuant to the above provisions, in case your company provides consulting services to customers, revenue has been generated during the year but there is no invoice and payment voucher. The company has accrued expenses for hiring labor, hiring transportation, etc. to be in line with accounting standards, then these deductions are fully paid in the first quarter of the following year:

– Regarding tax declaration and deduction: For invoices with input VAT arising in any period, deductions shall be made when determining the payable tax amount of that period (the company may declare and deduct in the first quarter of the following year) according the guidance in Clause 8, Article 14 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance.

– Regarding the accrued expenses: If the Company has recorded revenue for calculation of CIT without incurring all of expenses, accrued expenses may be included in deductible expenses in proportion to the revenue earned when calculating taxable income. When the contract is finalized, the enterprise must calculate the exact expense according to legitimate invoices and receipts in order to increase the expense or decrease the expense of the tax period during which the contract is finalized according to the provisions of Clause 2.20, Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance.