Which Expenses Are Tax-Deductible for Businesses?

Principles for Determining Deductible Expenses for Corporate Income Tax (CIT)

What are Deductible Expenses?

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

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

3 Mandatory Conditions for an Expenditure to be Deductible

1. Actual Expenses Incurred and Related to Business Production Activities

The expenditure must serve directly or indirectly for revenue-generating activities, with a clear business purpose.

2. Possess Sufficient Legal Invoices and Documents

The expenditure must be evidenced by invoices and documents in accordance with legal regulations, which, depending on the type of expense, may include:

• Electronic invoices
• Contracts
• Acceptance reports
• Warehouse dispatch notes
• Payroll sheets, attendance sheets
• Tax payment documents on behalf of others

3. Invoices of VND 20 Million or More Must Be Paid Non-Cash

For expenditures on purchasing goods and services for each transaction, with a value of VND 20 million or more (including VAT), businesses must have non-cash payment documents to be considered deductible expenses.

Groups of Expenses Commonly Accepted as Deductible

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

1. Expenses for Raw Materials, Goods, and Input Services

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

Control Point: Relevance and Reasonableness: There must be a basis for use in business operations, with input-output documents, and it should be reconcilable with established norms or operational logic.

2. Expenses for Renting Houses, Warehouses, and Assets

Includes costs for renting business premises, warehouses, workshops, vehicles, and machinery.

Control Point: Contracts and Payment Documents: There must be a lease contract and payment documents. In cases where the business pays tax on behalf of individuals who rent according to the agreement, documents for paying tax on behalf of others are required.

3. Labor Costs: Salaries, Bonuses, Allowances, Insurance

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

Control Point: Internal Regulations and Disbursement Documents: The level and conditions for receiving benefits must be stipulated in employment contracts, salary and bonus regulations, collective labor agreements, or financial regulations, accompanied by payroll sheets, receipts, and disbursement documents.

4. Employee Welfare Expenses

Includes expenses such as for weddings and funerals, holidays, annual leave, health check-ups, educational support, and hardship assistance.

Control Point: Regulations and Limits: Documentation must be complete, and the total welfare expenses must not exceed the legally stipulated limits.

5. Fixed Asset Depreciation Expenses

Includes depreciation of tangible and intangible fixed assets used for business operations.

Control Point: Legal Assets, Used for Business, Depreciated According to Regulations: There must be asset documentation, handover minutes, registration, tracking, and depreciation calculated according to the prescribed framework, method, and period.

6. Interest Expenses

Interest expenses for business production activities, with a loan agreement and valid payment documents.

Control Point: Loan Documentation and Payment Documents: There must be a loan agreement and interest payment documents. In cases of loans from individuals or organizations other than credit institutions, particular caution is required regarding documentation and related tax obligations.

7. Electricity, Water, Internet, and Location Operating Expenses

Includes utility expenses for the business location.

Control Point: Contracts and Invoices: There must be electricity, water, and internet invoices. Clearly identify the party responsible for payment according to the lease agreement and have payment documents.

8. Expenses for Promotional Goods and Customer Gifts

Includes costs for samples, gifts, promotional items, and customer care activities for business purposes.

Control Point: Purchase Documents and Gift Disbursement Documents: There must be input invoices, promotional program documentation, warehouse dispatch documents, and compliance with invoicing and tax obligations for gifted items.

9. Provision Expenses

Certain provisions are made according to the guidance of the Ministry of Finance, such as provisions for declining inventory value, bad debts, and product warranties.

Control Point: Supporting Documentation and Provision Conditions: There must be reconciliation documents, minutes, provision decisions, and calculation bases in accordance with guidance.

10. Loss Expenses Due to Natural Disasters, Fires, or Damaged Goods

Can only be deducted if it is an actual loss and there is documentation clearly identifying the compensated and non-compensated portions.

Control Point: Complete Loss Documentation: Inventory minutes, explanations, insurance or compensation documents, and related evidence.

Read more: How Much Revenue Do You Need to Pay Taxes?

5 Mistakes That Lead to "Actually Spent but Not Deductible" Expenses

First: Lack of legal invoices and documents. This is the most common reason for rejection.

Second: Cash payment for invoices of VND 20 million or more. Missing non-cash payment documents will result in the expense being disallowed.

Third: Expenses that cannot be proven to be related to business activities. Even if the expense is real, if its business purpose cannot be proven, it may still be rejected.

Fourth: Insufficient HR documentation regarding regulations or disbursement documents. Lack of employment contracts, payrolls, bonus regulations, or receipts.

Fifth: Incorrect period recording or missing acceptance documents. Especially for service fees, construction costs, outsourcing, or processing.

What to Do if Expenses Are Found to Be Non-Compliant?

If the business discovers non-compliance before tax authorities inspect

Businesses should proactively review and exclude non-compliant expenses from deductible expenses when preparing tax settlement documents.

If identified by tax authorities during an inspection

The expenditure will be disallowed according to the inspection report, and the business may have to:

• Adjust taxable income upwards
• Pay additional taxes
• Incur late payment interest and related charges as per regulations

Read more: An Overview of Replacement and Adjustment Invoices

Conclusion

Deductible expenses are not "any expense is deductible," but rather expenses that are correct, real, related to business activities, supported by legal documentation, and paid according to regulations.

If you are building a "Tax Handbook for New Sellers" series, this article should be placed as a foundational principles chapter, before delving deeper into practical content for specific models: e-commerce platform sales, offline sales, or multi-channel sales.