What Expenses Are Tax Deductible When Doing Business?

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 legal conditions, are considered reasonable expenses, thereby reducing taxable income and the amount of CIT payable.

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

3 mandatory conditions for an expense to be deductible

1. Expenses actually incurred and related to business operations

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

2. Sufficient legal invoices and documents

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

• Electronic invoices
• Contracts
• Acceptance minutes
• Delivery orders
• Salary sheets, attendance sheets
• Tax payment receipts for others

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

For expenses incurred for the purchase of goods and services each time with a value of 20 million VND or more (including VAT), businesses must have non-cash payment documents for the expense to be considered deductible.

Categories of expenses commonly accepted as deductible

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

1. Raw materials, goods, and input services expenses

Includes costs of purchasing raw materials, auxiliary materials, goods for sale, outsourcing processing, packaging, shipping, 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 comparability with norms or operational logic.

2. House, warehouse, and asset rental expenses

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

Control point: Contract and payment documents: There must be a rental contract and payment documents. In cases where the enterprise pays tax on behalf of an individual lessor as agreed, tax payment receipts for others are required.

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

Includes salaries, wages, bonuses, allowances, insurance contributions, and other salary-related expenses.

Control point: Internal regulations and payment documents: The entitlement level and conditions must be stipulated in the labor contract, salary and bonus regulations, collective labor agreement, or financial regulations, accompanied by salary sheets, signed receipts, and payment documents.

4. Employee welfare expenses

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

Control point: Regulations and limits: The documentation must be complete, and the total welfare expense must not exceed the regulatory limit.

5. Fixed asset depreciation expenses

Includes depreciation of tangible and intangible fixed assets used in 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 incurred for business operations, 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: Contract and invoices: There must be electricity, water, and internet invoices. Clearly identify the responsible party according to the lease agreement and have payment documents.

8. Promotional goods and customer gift expenses

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

Control point: Purchase and gifting documents: There must be input invoices, promotional program documentation, inventory outflow documents, and compliance with invoice and tax obligations for gifts and donations.

9. Provision expenses

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

Control point: Supporting documents and provision conditions: There must be reconciliation documents, minutes, provision decisions, and calculation bases in accordance with guidance.

10. Losses due to natural disasters, fires, damaged goods

These are only deductible if they are actual losses and there is documentation clearly identifying the compensated and uncompensated portions.

Control point: Complete loss documentation: Inventory minutes, explanations, insurance or compensation documents, and related receipts.

Read more: How much revenue requires paying taxes?

5 mistakes that lead to "actually incurred but non-deductible" expenses

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

Second: Cash payment for invoices of 20 million VND or more. Missing non-cash payment documents will lead to expense rejection.

Third: Expenses that cannot be proven to be related to business operations. Expenses that are real but whose business purpose cannot be proven may still be rejected.

Fourth: Personnel files lacking regulations or payment documents. No labor contract, salary sheet, bonus regulations, or signed receipts.

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

What to do if expenses are found to be non-compliant?

If the enterprise discovers it before the tax authorities conduct an inspection

Enterprises must proactively review and exclude non-compliant expenses from deductible expenses when preparing tax finalization dossiers.

If the tax authorities determine during an inspection

The expenses will be rejected according to the inspection report, and the enterprise may have to:

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

Read more: Overview of substitute and adjusted invoices

Conclusion

Deductible expenses are not "any expense can be deducted," but rather expenses that are correct, actual, related to business operations, have legal documentation, and are 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 diving deeper into practical content for each model: selling on e-commerce platforms, selling offline, or selling omnichannel.