Can Prepaid Expenses Be Deducted for Corporate Income Tax (CIT) Reporting? 

Question: Regarding prepaid expenses, our bank would like to inquire about the following: Every year, we allocate prepaid expenses for business management (BOM) from the parent bank to our branch (which is a permanent establishment in Vietnam). The amount of prepaid expenses and the actual expenses are recorded in USD (we have been approved to use the US dollar as our accounting currency). According to the provisions of Article 2.20, Article 4 of Circular No. 96/2015/TT-BTC, which provides guidance on CIT reporting for prepaid expenses, the bank has calculated and determined the actual expenses incurred and adjusted the CIT reporting accordingly in the year when the actual expenses occurred. According to Circular No. 200/2014/TT-BTC, which provides guidance on Enterprise Accounting Regimes, at the time of prepayment (end of the financial year) and when this prepaid amount is actually paid (in the following financial year) after having complete payment vouchers and the actual payment amount, the bank converts it to Vietnamese Dong (VND) using the actual exchange rate at two corresponding points in time. As the prepayment period and the actual expense occurrence period fall in different financial years, there is a difference in the exchange rate at the time of conversion to VND for BOM expenses between the two points in time. So, can this exchange rate difference for BOM expenses between the two points in time (the time recorded in the financial statements for prepaid expenses and the time when the actual expenses occur) be considered as deductible expenses for CIT reporting purposes?Answer:Based on Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014, issued by the Ministry of Finance (as amended and supplemented in Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015, also issued by the Ministry of Finance), which specifies deductible and nondeductible items when determining CIT.In accordance with the above regulations, in principle, prepaid expenses within the term or cycle that have not been fully spent by the end of the term or cycle should not be counted as deductible expenses when determining CIT. If the bank has not yet incurred the business management expenses for the parent company abroad during the year, the bank is not allowed to prepay and count it as deductible expenses when determining CIT.