Many Vietnamese companies overpay corporate income tax (CIT) not because their costs are too high, but because valid expenses get disallowed for lack of paperwork. A real, business-related cost can be rejected simply because the invoice was wrong or a bank payment was missing. This article explains the three conditions that make an expense deductible, where companies trip up, and how to build documentation that survives a tax inspection.
The Three Conditions for Deductibility
Under Vietnamese CIT rules, most notably Circular 96/2015/TT-BTC and Circular 78/2014/TT-BTC, an expense is deductible when it meets all three of these conditions:
- Related to business. The cost must serve the company’s production or business activity.
- Proper legal invoices and documents. There must be valid invoices and supporting records for the transaction.
- Non-cash payment for invoices from 20 million VND. Any purchase of goods or services with an invoice value of 20 million VND or more must be paid through a bank or other non-cash method to be deductible.
Miss any one condition and the expense is disallowed, even if it is genuine. This is the core mechanic most business owners underestimate.
The 20 Million VND Rule in Practice
This rule catches more companies than any other. The threshold applies per invoice, not per day or per contract. Splitting a large purchase into several invoices under 20 million to pay cash does not work: where multiple purchases from the same supplier on the same day total 20 million or more, the non-cash requirement still applies.
Non-cash means payment from the company’s bank account, not the director’s personal account or cash from petty funds. Paying a supplier in cash to save a bank fee is a false economy: you lose both the CIT deduction and, often, the input VAT credit.
Expenses That Are Commonly Disallowed
| Expense | Why disallowed | Fix |
| Staff welfare above the cap | Exceeds one month average salary per year | Track the annual welfare total against the cap |
| Provisions not per regulation | Booked without meeting conditions | Follow the specific provisioning rules |
| Missing labor documents | Wages without contracts or payroll records | Keep contracts, payroll, and payment proof |
| Depreciation on non-registered assets | Asset not for business or over the cap | Confirm business use and asset ceilings |
| Cash payment over 20 million | Fails non-cash condition | Always pay via bank above the threshold |
A Real Scenario
A manufacturer bought raw materials worth 45 million VND and, because the bank was closed, paid the supplier in cash. The purchase was real, the goods entered inventory, and the invoice was valid. At the tax finalization, the inspector still disallowed the full 45 million as a CIT expense and rejected the input VAT, because the non-cash condition was not met. The company paid additional CIT plus a penalty. Had they waited one day to transfer the money, nothing would have been lost. The lesson: above 20 million, the payment method matters as much as the expense itself.
Common Mistakes and How to Fix Them
- Relying on the invoice alone. An invoice proves a purchase, not that it was for the business. Fix: keep contracts, delivery notes, and acceptance records alongside it.
- Personal costs run through the company. Family travel, personal cars, or private meals. Fix: exclude them; they are not business-related and invite scrutiny of everything else.
- Ignoring specific caps. Welfare, some interest on loans, and certain allowances have limits. Fix: monitor these accounts against their caps during the year, not at finalization.
- Late or missing e-invoices. With mandatory e-invoicing, a missing valid e-invoice means no deduction. Fix: reconcile e-invoices monthly and chase suppliers promptly.
- Assuming accounting expense equals tax expense. A cost booked under VAS is not automatically deductible. Fix: maintain a schedule of non-deductible items and reconcile accounting profit to taxable income.
Action Steps to Protect Your Deductions
- For every purchase from 20 million VND, pay through the company bank account
- File the contract, invoice, and delivery or acceptance record together per transaction
- Reconcile e-invoices to your ledger every month
- Keep a running total for capped expenses like staff welfare
- Maintain a non-deductible expense schedule throughout the year
- Review related-party transactions for arm’s-length pricing
- Reconcile accounting profit to taxable income before filing
Conclusion and Next Step
Deductibility in Vietnam is a documentation discipline more than an accounting one. The costs are usually real; the failures are in payment method and paperwork. Your next step: pull your general ledger, list every single invoice at or above 20 million VND for the year, and confirm each was paid non-cash. That one check protects the largest and most easily lost deductions.
Frequently Asked Questions
Does the 20 million VND threshold include VAT?
The threshold refers to the payment value of the invoice, which is the amount including VAT. Judge the invoice by its total payable, not the pre-tax figure.
Can I deduct expenses paid from the director’s personal account?
Not safely. The non-cash payment must come from the company’s account to clearly link the payment to the business. Personal-account payments risk disallowance and complicate the audit trail.
Are all staff welfare costs deductible?
Only up to a cap, generally one month of the average actual salary paid in the tax year. Amounts above that cap are disallowed, so track welfare spending against the limit through the year.
What if a supplier gives me the wrong invoice?
Ask for a corrected invoice before finalization. An invoice with wrong company details, tax code, or amount can void the deduction, so fix it while the supplier is still cooperative.
Is accounting profit the same as taxable income?
No. You start from accounting profit and adjust for non-deductible expenses and other differences to reach taxable income. Skipping this reconciliation is a frequent source of tax errors.
References
- Circular 96/2015/TT-BTC on corporate income tax
- Circular 78/2014/TT-BTC guiding the Law on Corporate Income Tax
- Law on Corporate Income Tax and its amendments, Ministry of Finance of Vietnam