Question:
1. Our company has a contract with an employee that is indefinite in duration. However, due to practical needs, both parties agree to terminate the employment contract earlier than planned (with a termination agreement in place). When the termination occurs, the company provides financial assistance to the employee, referred to as “compensation for early termination of the employment contract,” which amounts to two months’ salary for the employee. Can the amount of financial assistance provided by the company be considered a legitimate expense deductible from salary or wages? Is it subject to Personal Income Tax (PIT)? If it’s subject to PIT, should it be calculated using a progressive tax rate or a 10% withholding on the total payment?
2. The company has signed an electronic contract (digitally signed using a digital signature provided by a foreign supplier, not located in Vietnam) with a foreign supplier. Are these electronically signed contracts considered valid and legitimate documents for tax inspections by the tax authorities?
Answer:
Based on Circular No. 103/2014/TT-BTC dated August 6, 2014, of the Ministry of Finance, providing guidance on foreign contractor tax.
Based on Circular No. 111/2013/TT-BTC dated August 15, 2013, of the Ministry of Finance, providing guidance on Personal Income Tax (PIT).
Based on Circular No. 96/2015/TT-BTC dated June 22, 2015, of the Ministry of Finance, amending and supplementing certain provisions in Circular No. 78/2014/TT-BTC dated June 18, 2014, of the Ministry of Finance, which provides guidance on Corporate Income Tax (CIT).
1. In the case where the company and the employee agree to terminate the employment contract, and the company provides compensation equal to two months’ salary when terminating the contract, this compensation should be treated as a reasonable expense deductible when determining the taxable income for CIT purposes. If this compensation is in line with the provisions of the Labor Law regarding compensation for termination of employment, it is not subject to PIT. However, if the compensation exceeds the legal limit, the excess amount is not considered a deductible expense and should be subject to PIT at a progressive tax rate. If the employee receives this income after leaving the job, the company is required to withhold PIT at a rate of 10%. At the end of the year, the individual must settle the PIT with the tax authority as per regulations.
2. In the case where the company signs electronic contracts with foreign suppliers, these electronically signed contracts are considered valid and legitimate documents for tax inspections by the tax authorities.
Question:
Our company’s main business activity is investing in and leasing real estate. We constructed a commercial center in District 7 to provide rental services to tenants. In 2015, our company made a commitment to support the initial decoration expenses for tenants. We signed contracts, made payments, and completed all related invoices for this economic transaction. We recorded this support expense as a prepaid expense and allocated it periodically as a monthly expense over the entire lease term (8 years) with the tenants. However, due to ineffective business operations, the tenants requested to terminate the lease contract prematurely, and the remaining portion of the support expenses, which had not been allocated, was recognized as an expense in the same year when the lease contract with the tenants ended prematurely. Based on Article 2.20, Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014, and its amendments and supplements, we would like to inquire if this advanced provision of expenses in 2019 can be considered a deductible expense when calculating corporate income tax for the year 2019? Answer:
Based on Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015, which amends and supplements Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014, of the Ministry of Finance, providing guidance on CIT, it stipulates the types of expenses that can be deducted or not deducted when determining taxable income for CIT purposes.
In accordance with the above regulation, in the case where the company provides advanced support for the initial decoration expenses for tenants, the entire amount of support expenses must meet the conditions specified in Article 1 of Circular No. 96/2015/TT-BTC and should be deducted entirely in the tax year when these support expenses are incurred. The company should not allocate these expenses over the tenant’s lease period.”
Please note that tax regulations can change over time, so it’s essential to consult with a tax professional or authority to ensure compliance with the latest tax laws and regulations.
