Principles for determining deductible expenses when calculating corporate income tax (CIT).

What are deductible expenses?

Deductible expenses when determining taxable corporate income are those expenses that, if they meet the legal requirements, are considered reasonable expenses, thereby reducing taxable income and the amount of corporate income tax payable.

According to Clause 1, Article 4 of Circular 96/2015/TT-BTC , an expense is deductible when it simultaneously meets all of the following conditions.

3 mandatory conditions for an expense to be deductible.

1. Actual costs incurred and related to business operations.

Expenditures must directly or indirectly serve revenue-generating activities and have a clear business purpose.

2. There are sufficient legal invoices and documents.

Expenses must be supported by invoices and documents in accordance with legal regulations ; depending on the type of expense, this may include:

• Electronic invoices
• Contract
• Acceptance Report
• Warehouse release form
• Payroll, attendance records
• Tax payment receipt

3. Invoices of 20 million VND or more must be paid using non-cash methods.

For purchases of goods and services with a value of 20 million VND or more (including VAT), businesses are required to have non-cash payment documentation in order for the expense to be considered deductible.

These expense categories are commonly accepted as deductible expenses.

Below are common expense categories in practice, along with key control points . Whether or not they are deductible depends on the specific supporting documentation of each business.

1. Costs of raw materials, goods, and input services

This includes expenses for purchasing raw materials, auxiliary materials, goods for sale, processing, packaging, transportation, loading and unloading, storage, and other costs directly related to the purchase of goods.

Points to control: Relevance and reasonableness: Is there a basis for use in business operations, are there supporting import/export documents, and can it be compared with established norms or operational logic?

2. Costs of renting houses, warehouses, and other assets.

This includes expenses for renting business premises, warehouses, workshops, vehicles, and machinery.

Points to check: Contracts and payment documents: There must be a lease contract and payment documents. If the business pays taxes on behalf of the individual lessor as agreed, proof of tax payment is required.

3. Labor costs: salaries, bonuses, allowances, insurance

This includes salaries, wages, bonuses, allowances, insurance contributions, and other payments of a salary nature.

Points to control: Internal regulations and payment documents: The entitlement levels and conditions must be stipulated in the labor contract, salary and bonus regulations, collective labor agreement, or financial regulations, accompanied by payroll records, signatures, and payment documents.

4. Employee welfare costs

This includes expenses such as weddings, funerals, holidays, vacations, health check-ups, educational support, and hardship assistance.

Points to control: Regulations and limits are in place: Documentation must be complete and the total amount spent on benefits must not exceed the prescribed limit .

5. Depreciation expense of fixed assets

This includes depreciation of tangible and intangible fixed assets used in business operations.

Points to control: Legitimate assets, used for business purposes, depreciation according to regulations: Asset records, handover minutes, registration, tracking, and depreciation are calculated according to the prescribed framework, methods, and timeframe.

6. Interest expense

Interest expenses incurred for business operations, supported by valid loan agreements and payment documents.

Points to monitor: Loan documents and payment records: Loan agreements and interest payment receipts are required. In cases of loans from individuals or organizations other than credit institutions, particular caution is needed regarding documentation and related tax obligations.

7. Costs for electricity, water, internet, and venue operation.

This includes utility costs for the business location.

Points to monitor: Contracts and invoices: Have electricity, water, and internet bills. Clearly identify the party responsible for payment according to the lease agreement and have proof of payment.

8. Costs of promotional items and customer gifts.

This includes expenses for samples, gifts, promotional items, and customer service to support business operations.

Points to control: Purchase and gift documents: Ensure there are input invoices, promotional program records, warehouse release documents, and that invoicing and tax obligations for gifted goods are properly fulfilled.

9. Provision for contingency costs

Some provisions are set aside according to the guidelines of the Ministry of Finance, such as provisions for inventory devaluation, doubtful receivables, and product warranties.

Points to control: Supporting documents and conditions for allocation: There must be supporting documents, minutes, allocation decisions, and calculation bases that comply with the guidelines.

10. Costs incurred due to natural disasters, fires, and damaged goods.

Compensation is only granted if the loss is actual and documented, clearly identifying the portions that are eligible and ineligible.

Points to control: Complete loss documentation: Inventory report, explanation, insurance or compensation records, and related documents.

Read more: How much revenue requires tax payment?

5 mistakes that cause expenses to be "actually spent but not deductible"

First: Lack of legitimate invoices or supporting documents. This is the most common reason for disqualification.

Secondly: Cash payment is required for invoices of 20 million VND or more. Lack of non-cash payment documentation will result in the expense being disallowed.

Thirdly: Expenses that cannot be substantiated as being related to business operations. Even if the expense exists, if its business purpose cannot be proven, it may still be disqualified.

Fourth: Personnel files lack regulations or supporting documents. There are no employment contracts, payrolls, bonus regulations, or signatures.

Fifth: Incorrect recording of the period or missing acceptance documents. This is especially true for service costs, construction projects, outsourcing, or processing.

What happens if an expense is found to be ineligible?

This applies when businesses discover the issue themselves before a tax audit.

Businesses need to proactively review and exclude ineligible expenses from deductible costs when preparing tax return documents.

Cases identified by the tax authorities during an audit.

The expenditure will be disallowed based on the audit report, and the business may have to:

• Adjusting taxable income upwards
• Pay additional tax
• Late payment penalties and related charges may apply as per regulations.

Read more: Overview of replacement invoices and adjustment invoices

Conclude

Deductible expenses are not simply "anything can be deducted," but rather expenses that are legitimate, genuine, related to business operations, have legal documentation, and are paid in accordance with regulations.

If you're building a series of "Tax Guides for New Sellers," this article should be presented as a foundational chapter outlining principles, before delving deeper into practical content tailored to each model: selling on e-commerce platforms, selling offline, or selling across multiple channels.