Tax considerations related to conditions of non-cash payment documents
2024/07/16
- Vo Thi Nguyen Linh
Introduction
Non-cash payments are one of the essential requirements for the deduction of Value Added Tax (VAT) and the inclusion of expenses for Corporate Income Tax (CIT) purposes in Vietnam. However, the reality is that many companies do not fully understand the detailed scope of application or the payment methods that meet the conditions.
This article explains the conditions and points to note regarding non-cash payments in order to help companies deepen their understanding when applying them.
1.Conditions for Non-Cash Payment Methods in Various Taxes
1.1Value-Added Tax (VAT)
Non-cash payments are one of the conditions for reporting and applying input VAT deductions.1 When applying a 0% VAT rate to exported goods and services, or deemed exports, bank transfer evidence is also required.2 Therefore, please be aware of the risk that if offset settlement or agency settlement is carried out, the application of the 0% VAT rate may not be permitted.
1.2Corporate Tax (CIT)
Non-cash payments are one of the “three conditions” for expenses that can be deducted when calculating taxable income for CIT.3
The “three conditions” are as follows.
・There must be appropriate supporting documents such as a Red Invoice.
・The expense must be related to the company’s business activities.
・For transactions of 20 million Vietnamese Dong (VND) or more including VAT, payment must be made through non-cash settlement.
2.What is non-cash payment?
Non-cash settlement refers to a payment method using means other than cash, such as assets or certificates of equivalent value.
Currently, many consumers and sellers conduct transactions and payments with each other without using cash through credit institutions (banks).
In addition, non-cash settlement is required for transactions of purchased goods and services (including imported goods) amounting to 20 million VND or more (including VAT).
3.Non-cash Payment Receipt
Non-cash payment receipt includes both bank payment evidence and other types of non-cash payment evidence.4
3.1 Bank settlement voucher
A bank settlement voucher is a document that proves the transfer of funds from the buyer’s account to the seller’s account.
There are the following types of bank payment vouchers.
– Checks, debit slips, debit notifications, deposit slips, deposit notifications, cash cards, credit cards, SIM cards (electronic wallets)
– Transfer certificates to accounts in the name of private business owners
– Transfer certificates from accounts in the name of private business owners
(Note) If the buyer goes directly to the seller’s bank and makes a deposit in cash, the deposit evidence (such as a deposit notification) cannot be recognized as evidence of non-cash settlement, so this should be noted.
3.2 Other Non-Cash Payment Vouchers
In addition to the above-mentioned bank settlement vouchers, if there are appropriate evidences, there may be cases where they are recognized as non-cash settlement methods.The specific evidences are as follows.
●When offsetting settlement between the value of purchased goods and services and the goods and services sold
・Contracts stipulating the method of offset settlement
・Records of mutual data reference and confirmation regarding offset settlement
・In cases of trading through a third party, a three-party offset agreement or similar
●In the case of offset settlement with loans, debts, etc.
・Contract documents specifying the offset settlement method
・Loan (debt) contracts in writing
・In the case of loans (debts) in cash, remittance slips issued when funds are transferred from the lender’s account to the borrower’s account
●In the case of proxy payment by bank transfer through a third party
・Contract specifying the method of proxy payment by a third party
・Remittance slip proving the transfer from the third party’s account to the seller’s account
●When the seller requests the buyer to make a bank transfer payment to a third party specified by the seller.
・A contract specifying the bank transfer payment method to a third party designated by the seller.
・The remittance slip when the buyer’s account is debited and the seller’s specified recipient is paid.
4.Tax considerations regarding non-cash payment conditions
①If goods or services worth more than 20 million VND per transaction are purchased, and part of the payment is made through non-cash methods with the remainder paid in cash, the input VAT cannot be deducted, and for CIT calculation purposes, the expense is not deductible.
②Even if the purchase of goods and services from a supplier is less than 20 million VND per transaction, if multiple purchases are made on the same day amounting to a total of 20 million VND or more, a bank transfer receipt is required for tax-deductible expenses.
③If payment for purchased goods or services is made in installments or deferred payment, and purchase VAT was deducted at the time of purchase but the payment was settled in cash at the time of payment, the previously deducted purchase VAT must be reversed.
④If an invoice amount exceeds 20 million VND per transaction for purchasing goods or services, and the company has not yet made the payment at the time of expense recognition, the expense is allowed to be deducted for CIT calculation purposes if an appropriate invoice has been obtained. However, if the payment is later settled in cash, the expense that was once deducted must be adjusted and disallowed as a deductible expense.
In conclusion
This article explains the conditions related to non-cash payment vouchers.
We hope this article will serve as a guideline for companies to resolve issues related to payment vouchers while complying with accounting standards and tax laws, helping to avoid tax risks.
1 Circular 26/2015/TT-BTC (February 27, 2015) Article 1, Clause 10 and Circular 173/2016/TT-BTC (October 28, 2016)
2 Circular 219/2013/TT-BTC (December 31, 2013) Article 9, Clause 2
3 Circular 96/2015/TT-BTC (June 22, 2015), Article 4
4 Article 10, Clause 1 of Circular No. 26/2015/TT-BTC and Circular No. 173/2016/TT-BTC
This article was translated using Yarakuzen.
