Problem:
Is there a limit on interest expense? What are the conditions for interest expense to be considered a deductible expense?
Expenses that are not deductible when calculating corporate income tax.
According to Clause 2, Article 4 of Circular No. 96/2015/TT-BTC, the following expenses are not deductible when calculating corporate income tax:
(1) Part of the cost paid interest on loans Production and business activities of entities other than credit institutions or economic organizations. exceed 150% of the base interest rate as announced by the State Bank of Vietnam at the time of borrowing.
(2) Interest payment Loan amount corresponding to the registered capital (for private enterprises, this refers to registered investment capital) The remaining amount is still outstanding according to the capital contribution schedule. This is recorded in the company's charter, even if the company has already commenced production and business operations. Interest payments on loans during the investment process have been recorded in the value of the assets and the value of the investment project.
If a business has contributed its full charter capital and, during the course of its business, incurs interest payments on loans used to invest in other businesses, these payments are deductible expenses when determining taxable income.
Interest payments on loans corresponding to the remaining capital contribution according to the capital contribution schedule stipulated in the company's charter are not deductible when determining taxable income, as follows:
- If the loan amount is less than or equal to the remaining registered capital deficit, then all interest on the loan is a non-deductible expense.
- In the case where the loan amount exceeds the remaining registered capital according to the capital contribution schedule:
+ If a business incurs multiple loans, the interest payment on those loans cannot be deducted by multiplying the remaining unpaid charter capital by the total loan amount and the total interest paid.
+ If the business only has one loan, the interest payment on the loan cannot be deducted by multiplying the remaining capital contribution by the interest rate of the loan and the remaining capital contribution period.
Reasonable interest expense corresponding to a specific portion of the registered capital is as follows:
If the company has contributed its full charter capital and interest expenses are used for production and business operations, not for capital construction investment, then the entire amount can be accounted for as deductible expenses.
(According to Official Letter No. 73005/CT-TTHT dated November 28, 2016, from the Hanoi City Tax Department)
For example 1Company A has a registered capital of 2 billion VND. Since the founding members have contributed the full registered capital, the company borrowed 600 million VND from a bank at an interest rate of 10% per year to supplement its registered capital. In this case, what is the amount of interest paid on the loan that Company A can deduct as an expense when calculating corporate income tax?
In this case, all interest expenses are reasonable.
For example 2Company A has a registered capital of 2 billion VND. Due to insufficient funds from the founding members, they only contributed 1,5 billion VND. The company then borrowed 600 million VND from the bank at an interest rate of 10% per year to supplement its registered capital. In this case, what is the deductible expense for the interest paid on the loan that Company A can account for when calculating corporate income tax?
>> Interest expense for 1 year: 600.000.000 * 10% = 60.000.000/year
Interest expense is not deductible: 50.000.000 VND/year
(Because according to the above regulation: If the loan amount is equal to or less than the remaining registered capital, then all interest on the loan is a non-deductible expense.)
What conditions must be met for interest expense to be considered reasonable when calculating corporate income tax?
Part of the cost paid interest on loans The production and business activities of entities other than credit institutions or economic organizations shall not exceed 150% of the base interest rate as announced by the State Bank of Vietnam at the time of borrowing.
✓ Contribute the full registered charter capital according to the capital schedule stipulated in the company's charter.
✓ Loan agreement
✓ When borrowing from an organization, non-cash payment documentation is required.
✓ If borrowing from an individual (when repaying a personal loan, 5% must be deducted for personal income tax); If borrowing from a business (not a credit institution), you must request the lending business to issue an invoice.
