Công văn 5032/TCT-CS

In response to Official Dispatch No. 8901/CT-TTHT dated 01/10/2020 from Department of Taxation of Ba Ria – Vung Tau province and Official Dispatch No. 24289/CT-TTHT dated 28/10/2020 from Department of Taxation of Binh Duong province regarding deductible expenses and personal income tax regarding expenditures on quarantining foreign experts serving prevention and control of Covid-19, below are opinions of General Department of Taxation:

1. Article 4 of Circular No. 96/2015/TT-BTC dated 22/6/2015 of the Ministry of Finance amending Article 6 of Circular No. 78/2014/TT-BTC dated 18/6/2014 of the Ministry of Finance on corporate income tax:

“Article 6. Deductible and non-deductible expenses when calculating taxable income

1. Except for the non-deductible expenses prescribed in Clause 2 of this Article, every expense is deductible if all of these following conditions are satisfied:

a) The actual expense incurred is related to the enterprise’s business operation.

b) There are sufficient and valid invoices and proof for the expense under the regulations of the law.

c) There is proof of cashless payment for each invoice for purchase of goods/ services of VND 20 million or over (including VAT).

…

2. The expenses below are not deductible when calculating taxable income:

2.6. Expenditures on wages and bonus for employees in one of the following cases:

…

- In case an employment contract between an enterprise and an employee has a payment for housing of the employee which is part of the wages, does not contravene regulations of law on salaries and wages, and has sufficient proof, such payment will be included in deductible expenses when calculating taxable income.

…

2.9. Expenditure on provision of leave travel allowance for employees on leave against regulations of the Labor Code.

Allowance for employees on business trips, allowance for travelling and accommodation of employees on business trips will be deductible expenses when calculating taxable income if they have adequate invoices. If the enterprise pays for the traveling, accommodation, and allowance of employees on business trips in accordance with its financial regulations or rules, such amounts will be deductible.

In case the enterprise sends an employee on a business trip (whether at home or overseas), every payment that reaches VND 20 million or above and payment for air tickets that are made with individuals’ banking cards will be considered cashless payments  and deductible if all of the conditions below are satisfied:

- - There are valid invoices issued by the goods or service provider.

- - The enterprise has a business trip order.

- - The enterprise’s financial regulations or rules allow its employees to pay the trip expenses, air tickets with their personal banking cards and get reimbursed by the enterprise.

In case the enterprise buys an air ticket on a website for one of its employee to go on a business trip serving its business operation, the proof of deductible expense shall be the electronic ticket, the boarding pass, and proof of cashless payments that bear the name of the traveling employee. If the enterprise fails to collect the boarding pass, the proof of deductible expense shall be the electronic ticket, the business trip order, and the proof of cashless payments.

…

2.30. Expenses that do not correspond with assessable revenues, except for:

…

- Direct expenditures on the employees’ welfare: expenditures on employees’ family occasions; expenditures on holiday allowance or treatment support; expenditures on professional training; expenditures on supporting employees’ families affected by natural disasters, hostilities, accidents, illness; expenditures on rewarding employees’ children for their educational achievements; expenditures on allowances for traveling during holidays of the employees; payment for unemployment insurance, health insurance, and other voluntary insurance for employees (except for life insurance mentioned in Point 2.6, voluntary pension insurance mentioned in Point 2.11 of this Article), and other welfare expenditures. The total expenditures incurred in the tax year must not exceed the practical average 1 month’s salary in the tax year.

…”

2. Clause 2 Article 2 of Circular No. 111/2013/TT-BTC dated 15/8/2013 of the Ministry of Finance elaborating the Law on Personal Income Tax and the Government’s Decree No. 65/2013/NĐ-CP dated 27/6/2013 elaborating the Law on Personal Income Tax and the Law on Amendments to the Law on Personal Income Tax:

“Article 2. Taxable incomes

2. Incomes from wages and remunerations.

Incomes from wages and remunerations (hereinafter referred to as wages) are incomes paid to employees from employers, including:

…

dd.4) Flat expenditures on stationery, business trips, phone calls, costumes, etc. that are in excess of the limits prescribed by the State. Flat expenditures are not included in taxable income in the cases below:

dd.4.1) For the officials and employees in public service agencies, communist party’s agencies, associations: the flat expenditure shall apply guiding documents promulgated by the Ministry of Finance.

dd.4.2) For the employees working in businesses and representative offices: the flat expenditure shall conform to the income that incurs corporate income tax and guiding documents of the Law on Enterprise income tax.

dd.4.3. For the employees in international organizations and representative offices of foreign organizations: the flat expenditure shall comply with regulations of such international organizations and representative offices of foreign organizations.

…

dd.7) Other benefits.

Other benefits paid to employees by the employers such as: payments during leave period or public holidays; payment for counseling, tax statement services for a particular person or group of people; payment for domestic servants such as driver, cook, and other domestic servants that work under contracts, etc.

…”

3. Point a Article 1 of the Government Office’s Official Dispatch No. 7038/VPCP-KTTH dated 24/8/2020 on expenditures on Covid-19 treatment and quarantine:

“a) Concentrated quarantine expenses

- In case of quarantine at military camps and schools: Benefits of quarantined people shall be provided in accordance with the Government’s Resolution No. 37/NQ-CP dated March 29, 2020. The cost shall be covered by state budget and partially covered by funding provided by Central Committee for Vietnamese Fatherland Front from Covid-19 prevention and control donations.

- Inbound passengers that wish to be quarantined at hotels, resorts or other facilities shall pay the costs of meals and lodging at the prices quoted by the hotels, resorts or facilities and the costs of Covid-19 tests performed by medical facilities at applicable medical service prices ...”

Pursuant to the aforementioned regulations:

- Determination of deductible expense when calculating taxable income:

+ The costs of quarantining foreign experts at hotels may be included in deductible expenses if the employment contract between the enterprise and the employee specifies that the cost of the employee’s accommodation will be paid by the enterprise and there are adequate supporting documents and invoices as per regulations.

+ Payments for air tickets of foreign experts may be included in deductible expenses if they are conformable with Point 2.9 Clause 2 Article 6 of Circular No. 78/2014/TT-BTC dated 18/6/2014 of the Ministry of Finance (amended by Article 4 of Circular No. 96/2015/TT-BTC dated 22/6/2015 of the Ministry of Finance) and there are adequate supporting documents and invoices as per regulations.

+ The costs of testing foreign experts for Covid-19 will be considered direct expenditures on employees’ welfare and may be included in deductible expenses if they are conformable with Point 2.30 Clause 2 Article 6 of Circular No. 78/2014/TT-BTC dated 18/6/2014 of the Ministry of Finance (amended by Article 4 of Circular No. 96/2015/TT-BTC dated 22/6/2015 of the Ministry of Finance) and there are adequate supporting documents and invoices as per regulations.

- Determination of income subject to personal income tax (taxable income):

In case foreign employees have the Covid-19 quarantine costs paid by their employer upon their entry into Vietnam, these payments will be their benefits and thus may be included in their taxable income.

For your information and compliance./.