Businesses must participate in mandatory social insurance for their employees, ensuring that the correct individuals and income sources are included in the calculation of social insurance contributions, in order to include salaries as expenses.
According to Clause 1, Article 6, Chapter II of Circular 123/2012/TT-BTC dated July 27, 2012, issued by the Ministry of Finance,Businesses are allowed to deduct all expenses if they meet the following conditions:
- Actual expenses related to the business operations of the enterprise.
- The expenditure is supported by valid invoices and documents as required by law.
Point 2.5, Clause 2, Article 6 of Circular 123/2012/TT-BTC dated July 27, 2012, issued by the Ministry of Finance, stipulates... The following expenses for salaries, wages, and bonuses paid to employees are not deductible when determining taxable income:
"2.5Paying salaries, wages, and bonuses to employees in one of the following cases:
- a) Salaries, wages, and other payments to employees that the enterprise has accounted for as production and business expenses during the period but were not actually paid or lacked supporting documents as required by law.
- b) Bonuses and life insurance payments for employees are not specifically stated with conditions and amounts in any of the following documents: employment contract; collective labor agreement; financial regulations of the Company, Corporation, or Group; bonus regulations stipulated by the Chairman of the Board of Directors, General Director, or Director in accordance with the financial regulations of the Company or Corporation.
...
- c) Salaries, wages, and allowances payable to employees but not disbursed by the deadline for submitting the annual tax return, except in cases where the enterprise has established a reserve fund to supplement the salary fund of the following year to ensure uninterrupted salary payments, and which may not be used for other purposes. The annual reserve amount is determined by the enterprise but shall not exceed 17% of the actual salary fund.
...
- d) Salaries and wages of owners of private enterprises, owners of single-member limited liability companies (owned by an individual); remuneration paid to founders, members of the board of members, and board of directors who do not directly participate in the management of production and business operations.
Salary, wage, and bonus expenses actually paid to employees, directly related to the business operations of the enterprise, supported by legal invoices and documents, and not falling under the provisions of point 2.5, clause 2, Article 6 of Circular 123/2012/TT-BTC dated July 27, 2012 of the Ministry of Finance, are considered deductible expenses when calculating corporate income tax. In cases where enterprises violate regulations on social insurance contributions, they will be penalized according to the provisions of the law on social insurance.
During tax audits related to salary expenses, tax authorities need to specifically examine salary payment documents, payroll records, labor contracts, and the declaration and payment of personal income tax by employees to have sufficient grounds for handling tax matters according to regulations, preventing and addressing cases where businesses intentionally inflate salary expenses to include them as deductible expenses when determining taxable corporate income.
So, If social insurance contributions have not been paid for employees, salary expenses will not be disallowed (provided there are complete invoices and supporting documents as per corporate income tax law), but the Social Insurance Agency will fine and collect the outstanding amount (Currently, the Social Insurance Agency is using data from the Tax Agency to request businesses to explain discrepancies in the number of employees participating in social insurance).
