Treatment of corporate tax on land rent for unused portions
2025/05/28
- Le Ngoc Quoc Bao
Introduction
In investment and business activities in Vietnam, it is common for companies to lease land for the purpose of constructing factories and warehouses or implementing projects. However, there are also numerous cases where companies enter into land lease agreements and pay the rent for the entire lease period in a lump sum, yet some or all of the leased land is not actually used. In such cases, the issue arises as to whether the land lease fees for the unused portion can be recognized as deductible expenses when calculating taxable income for corporate income tax, and in practice, there are many instances where it is difficult to make a judgment.
This article explains the treatment of land lease fees for such unused portions under corporate income tax, including the interpretation of relevant regulations and practical application cases.
1. Requirements for Deducting Expenses from Corporate Tax Based on Legislation
In Circular 96/2015/TT-BTC (amending and supplementing Circular 78/2014/TT-BTC), it is stipulated that for an expense to be recognized as a deductible cost for tax purposes, the following conditions must be met.
a) The expense must actually be incurred in connection with the company’s production or business activities.
b) All proper invoices and supporting documents must be complete.
c) For invoices of 20 million VND or more, all certificates of non-cash payments such as bank transfers must be provided.
In addition, the law also establishes the following provisions.
For land with perpetual usage rights, it is not subject to depreciation and cannot be included as a deductible expense when calculating taxable income for corporate income tax.
For land usage rights with a fixed term, in addition to having gone through the appropriate legal procedures and possessing proper invoices and supporting documents, the land must actually be used for business activities. In this case, it is permitted to allocate expenses based on the usage period stated in the land usage rights certificate and include them as deductible expenses.
Based on the above, regarding the expenditure of rental fees for land on which actual use has not yet started, it is necessary to carefully consider whether the expenditure can be regarded as “being used for business activities” at the time the expenditure occurs.
2. Guidance from the Tax Office
In the official letter No.140/CTTPHCM-TTHT issued by the Tax Office dated March 14, 2025, it is clearly stated that “rental fees paid for land not used for business activities cannot be deducted as a loss when calculating taxable income for corporate income tax.”
In other words, even if a company has properly prepared the land lease agreement, invoice, and other related documents, and has already paid the rent, if the land is not actually used for business purposes, the expenditure will not be recognized as a deductible expense.
3. Practical Points to Note
Based on practical experience supporting tax audits, the following points need to be taken into consideration. Regarding the land lease fees, it is necessary to perform accounting procedures such as cost allocation from the time the said land is actually put to use. Tax audits are usually carried out following the instructions in the official letter issued by the tax office.
Note that even if a company leases land but has not yet started construction and is not actually using the land for business activities, it tends to be judged that the rental fees for that land are not deductible as expenses.
In conclusion
In practice, it is believed that some portions of land often remain unused. If the rent has already been paid, there is no choice; however, if you plan to lease land in the future, it is recommended to establish proper usage plans and schedules in advance to avoid tax risks and to lease the land based on a clear project implementation schedule.
If the project implementation is delayed or if, for objective reasons, the land has not been put to use, it is recommended to inquire with the tax authorities in advance and, if necessary, submit an official letter to confirm the tax-related handling.
Reference
Circular No. 96/2015/TT-BTC dated June 22, 2015
Circular No. 78/2014/TT-BTC dated June 18, 2014
Official Letter No. 140/CTTPHCM-TTHT issued by the Tax Department dated March 14, 2025
*This article was translated by Yarakuzen.
