Salient Provisions of Decree 114/2020 on Reduction of Corporate Income Tax in 2020 – A Necessary Measure to Support Corporations in Time of Crisis
On 25 September 2020, the Government has promulgated Decree 114/2020/ND-CP (“Decree 114”) which provides guidelines for the implementation of corporate income tax reduction in 2020. The abovementioned decree is expected to relieve some of the pressure that COVID-19 put on the economy. Key provisions of this decree shall be mentioned hereunder.
Pursuant to Decree 114, various entities are entitled to apply for the corporate income tax reduction in 2020 including: (i) enterprises established in accordance with Vietnam’s law, (ii) organisations established in accordance with the Law on Cooperatives, (iii) public service providers established in accordance with Vietnam’s law and (iv) other organisations established in accordance with Vietnam’s law and earning income from business operation.
Conditions for corporate income tax reduction
Under Decree 114, enterprises with total revenue not exceeding VND 200 billion (approximately USD 8.58 million) in fiscal year 2020 shall enjoy a 30% reduction in corporate income tax. The total revenue of an enterprise shall be determined by various factors including revenue from sales of goods, processing and service provision, subsidies and extra charges to which the enterprise is entitled as prescribed by the Law on Corporate Income Tax and its guiding documents.
In the event that enterprises are newly established or undergo conversion, ownership transfer, consolidation, merger, division, dissolution, bankruptcy in the fiscal year 2020 and have operated for less than 12 months, the total revenue in 2020 will be the total revenue earned in the fiscal year 2020 divided by the number of months of actual business operation multiplied by 12. The month in which the enterprise is established or undergoes conversion, ownership transfer, consolidation, merger, division, dissolution or bankruptcy will also be included in the months of actual business operation.
Declaration for 30% corporate income tax reduction
Enterprises shall calculate the corporate income tax reduction themselves when paying quarterly corporate income tax and making the 2020’s corporate income tax statement. When preparing tax statements, enterprises shall specify the corporate income tax reduction on the set forms.
In case a competent authority, through inspection, discovers that an enterprise is not eligible for corporate income tax reduction under this Decree or the corporate income tax payable of the fiscal year 2020 is greater than the amount paid, the enterprise shall pay the arrears, fines and late payment interest on the period after the tax payment deadline prescribed by the Law on Tax administration and its guiding documents.
This alert is for general information only and is not a substitute for legal advice.