The condition for borrowing costs is reasonable

Problem: Are loan interest rates restricted? What is a condition for an interest expense to be reasonable?

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Expenses not deductible when calculating corporate income tax

According to Clause 2 Article 4 Circular No. 96 / 2015 / TT-BTC, stipulating Expenses that cannot be deducted when calculating CIT:

(1) Part of the payment loan interest production and business activities of entities other than credit institutions or economic organizations exceed 150% basic interest rate published by the State Bank of Vietnam at the time of the loan.

(2) Interest payment The loan is equivalent to the charter capital (for private enterprises is registered capital) insufficient according to the capital contribution schedule specify in the charter of the enterprise, even if it has entered production and business activities. Payment of loan interests during the investment process has been recorded in the value of assets and value of investment projects.

In case the enterprise has contributed sufficient charter capital, in the course of business, there is a loan interest payment to invest in another enterprise, this expense will be included in deductible expenses when determining taxable income.

Payment of loan interests corresponding to the deficit of charter capital according to the capital contribution schedule stated in the charter of the enterprise must not be deducted when determining taxable income is determined as follows:

  • In case the loan amount is less than or equal to the insufficient charter capital, the whole loan interest is a non-deductible expense.
  • In case the loan amount is larger than the deficit of charter capital according to the capital contribution schedule:

+ If the enterprise incurs a lot of loans, the loan interest payment cannot be deducted by the ratio (%) of the missing charter capital to the total loan amount multiplied by the total loan interest.

+ If the enterprise incurs a single loan, the interest payment is not deducted by the amount of missing charter capital multiplied by (x) the interest rate of the loan multiplied by the period of missing charter capital contribution.

Reasonable interest expenses corresponding to the specific charter capital are as follows

If the company has contributed sufficient charter capital and interest expenses are for production and business activities, not for capital construction investment activities, they shall be fully accounted as reasonable expenses.

(According to Official Letter No. 73005 / CT-TTHT dated 28 / 11 / 2016 of Hanoi Tax Department)

For example 1: Company A has a charter capital of VND billion. Because the founding members have fully contributed the charter capital, the Company has borrowed from the bank VNDUMXX million with an interest rate of 2% / year to supplement the charter capital to fully registered charter capital. In this case, during the year does Company A record the deductible expenses when calculating the taxable income of the loan interest payment?

>> In this case, all interest expenses are reasonable

For example 2: Company A has a charter capital of VND billion. Because the founding members did not have enough money, they could only contribute VNDUMXX billion to the loan, the Company borrowed VNDUMUMX million from the bank with an interest rate of 2% per year to supplement the charter capital to the full of the registered charter capital. sign. In this case, during the year does Company A record the deductible expenses when calculating the taxable income of the loan interest payment?

>> Annual interest of 1 loan: 600.000.000 * 10% = 60.000.000 / year

Interest expense cannot be deducted: 50.000.000 / year

(Because according to the above provisions: The loan amount is equal to the amount of charter capital missing or smaller, the whole loan interest is a non-deductible expense)

What is the reasonable interest expense when calculating CIT?

Part of the cost paid loan interest production and business activities of entities other than credit institutions or economic organizations must not exceed 150% basic interest rate published by the State Bank of Vietnam at the time of the loan.

✓ Contributing sufficiently the registered charter capital according to the capital schedule stated in the charter of the enterprise

✓ Loan agreement

✓ When borrowing from an organization, there must be a voucher of non-cash payment.

✓ If you borrow from an individual (When paying an individual loan, you must deduct 5% to pay PIT); If borrowing from businesses (not credit institutions), they must ask the lending enterprises to issue invoices.



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