Corporate Income Tax Overview

Corporate income tax is the most important direct tax that directly affects the after-tax profit of enterprises, determines dividends, development funds and enterprise valuation. According to the report of Ministry of Finance, the total state budget revenue in 2024 will reach about 1,997.3 trillion VND, exceeding the estimate by 17.41% compared to the estimate. However, there is no specific information on the contribution ratio of corporate income tax to the total state budget revenue in 2024. 

Incorrect declarations, invalid expense exclusions or omissions of taxable income may result in the risk of collection and Penalty up to 20% of tax arrearsUnderstanding the nature and calculation of corporate income tax helps businesses optimize tax obligations, plan finances effectively and minimize legal risks.

Concept and nature of Corporate Income Tax

Corporate income tax (CIT) plays a key role in the Vietnamese tax system, both as a tool to regulate budget revenue and as a reflection of the actual business results of enterprises. Understanding the concept and nature of CIT is an important foundation for enterprises to manage their finances transparently, optimize costs and limit legal risks.

What is corporate income tax?

Corporate income tax (CIT) is the tax that organizations and enterprises must pay to the state on taxable income after deducting reasonable and valid expenses arising in the production and business process.

The nature of corporate income tax

Corporate income tax is an important tax in the Vietnamese tax system, which plays a role in directly reflecting the efficiency of production and business activities of enterprises. In essence, corporate income tax has the following outstanding characteristics:

• Direct tax: The taxpayer and the tax bearer are the same entity – the enterprise.
• Based on actual business results: Tax only arises when the business has profit after deducting reasonable and valid expenses.
• Related to financial management: Closely linked to cost management, profit allocation and building effective tax strategies.

Current legal documents system related to corporate income tax

Correct application of corporate income tax regulations is the basis for enterprises to fulfill their tax obligations in a reasonable manner, avoiding the risk of violations. Below are the main legal documents in effect as of 2025:

• Law No. 14/2008/QH12: Is the original document regulating taxpayers, taxable income, tax rates and principles for determining taxable income.
• Decree 218/2013/ND-CP: Detailed guidance on the implementation of the Law on Corporate Income Tax, especially on tax incentives and tax bases.
• Circular 78/2014/TT-BTC:Specific guidance on contents related to reasonable expenses, revenue, other income and loss transfer regulations.
• Circular 96/2015/TT-BTC: Supplement and adjust some contents of Circular 78, focusing on non-deductible expenses when determining taxable income.

As of 2025, there have been no major changes in corporate income tax policy. Enterprises still apply the above document system in annual tax declaration and settlement.

Subjects subject to corporate income tax

Corporate income tax subjects including: organizations that produce and trade goods and services that generate taxable income. This concept is stipulated in Article 2 of the Law on Corporate Income Tax No. 14/2008/QH12 (amended and supplemented by Law No. 32/2013/QH13 and Law No. 71/2014/QH13). Depending on whether the enterprise is established domestically or abroad, and whether or not it has a permanent establishment in Vietnam, the scope of taxable income will be different. Specifically:

Summary table of corporate income tax subjects

Subjects subject to corporate income tax	Taxable income range	Note
Vietnamese enterprises (enterprises, cooperatives, public service units, other organizations conducting business activities)	All income arising within and outside Vietnam	Is the direct taxpayer
Foreign enterprises with permanent establishments in Vietnam	Income arising in Vietnam and related to the activities of permanent establishments abroad	A permanent establishment may be a branch, office, factory, construction site, mine, means of transport, service establishment, agent or representative regularly signing contracts in Vietnam.
Foreign enterprises without permanent establishments in Vietnam	Only income generated in Vietnam	Usually transactions, contracts to provide services or sell goods to Vietnam

Basis for calculating corporate income tax: Understand correctly to optimize tax obligations

Determining the exact amount of corporate income tax payable is not simply a technical accounting operation, but also an important step in financial management, cash flow planning and ensuring legal compliance. To do that, businesses need to master the four key elements that make up taxable income, including:

Taxable Revenue: The Foundation of Tax Liability

Taxable revenue is the total actual revenue arising from sales and service provision, regardless of whether the money has been collected or not, excluding VAT. This is a decisive indicator in the income structure, because inaccuracies in recording can distort the entire tax base.

Businesses need to pay special attention to unbilled revenue, revenue received in advance, or revenue adjustments after the end of the accounting period – all of which need to be identified and classified in a timely manner.

Deductible Expenses: The Line Between Reasonable and Risky

Deductible expenses are amounts that are allowed to be deducted from revenue to determine taxable income, but only if they satisfy all the conditions in Article 6 of Circular 78/2014/TT-BTC. Specifically:

• Expenses for legal production and business activities

• Have full valid invoices and documents

• If the value is 20 million VND or more, there must be a non-cash payment document.

Expenses that are easily excluded in tax settlement: entertainment expenses exceeding 15% of total deductible expenses, administrative fines, interest expenses from personal loans exceeding the ceiling, depreciation expenses of unregistered assets, expenses without invoices...

Good control of cost validity not only helps reduce tax payable but also acts as a barrier to prevent risks during tax inspections.

Other Income: The Easily Overlooked Items

Other income is income that arises outside of normal business operations, but must still be added to calculate taxable income. Includes:

• Interest on deposits and loans

• Exchange rate interest

• Income from liquidation and sale of assets

• Income from provision reversal

• Income shared from joint ventures and associates

Businesses often miss or record these items at the wrong time, especially when there is no actual cash flow received during the period.

Carryback Losses: Benefits Not to Be Missed

According to the provisions of the Law on Corporate Income Tax, if an enterprise incurs a loss during a period, it is entitled to carry back that loss to the taxable income of the following years, for a maximum period of 05 consecutive years.

However, to be able to transfer losses, businesses must:

• Have a timely settlement declaration

• Confirmation from tax authorities (if audited or inspected)

• Do not miss declarations in subsequent years

Proactively planning to transfer losses and accurately recording them helps businesses take advantage of legitimate tax benefits and avoid being disqualified during final settlement.

How to Calculate Corporate Income Tax: Formula, Tax Rates and Illustrative Examples

To determine the amount of corporate income tax payable, enterprises need to base on the results of business operations, then apply the tax calculation formula according to regulations. Tax calculation is not only based on accounting profit, but must be adjusted according to valid expenses, taxable income and incentives enjoyed.

Corporate income tax calculation formula

After fully determining the elements that make up taxable income (revenue, deductible expenses, other income, and carried-back losses), the enterprise will calculate the amount of corporate income tax payable based on the standard formula prescribed by the Law on Corporate Income Tax.

Corporate income tax payable = [(Revenue – Deductible expenses) + Other income – Losses carried forward] × Tax rate

This formula reflects the direct relationship between business performance and tax liability. One dollar of improperly deducted expense or one other income item that is omitted can result in a significant deviation in the amount of tax payable.

Applicable corporate income tax rate

Tax rate is the last important factor in the corporate income tax calculation formula, currently commonly regulated at 20%. However, this tax rate is not always fixed. Depending on the field of operation, project scale or investment incentive policy, enterprises can enjoy a lower preferential tax rate, or even be exempted or reduced tax for a certain period of time.

The legal basis for the provisions on tax rates is recorded in Article 11 of the Law on Corporate Income Tax and is guided in detail in Decree 218/2013/ND-CP of the Government.

Example illustrating how to calculate corporate income tax

Suppose Company ABC has the following financial figures for fiscal year 2024:

In this case, taxable income is determined by the formula: 

Taxable income = Revenue – Expenses + Other income – Losses carried back, i.e. 10 billion – 7 billion + 500 million – 200 million = 3.3 billion VND Corporate income tax payable = 3.3 billion × 20% = 660 million VND

If the enterprise is eligible for the preferential tax rate 10%, the tax payable will be only 330 million VND, which means reducing the tax liability by half - this is the motivation for enterprises to consider investment conditions in preferential fields/locations.

Corporate income tax accounting: Correct recording to preserve business results

In the corporate accounting system, corporate income tax is a mandatory expense but is often recorded at the wrong time, in the wrong account or with the wrong nature of the transaction. This leads to accounting profit deviation, affecting the transparency and reliability of financial reporting.

User account

To record and process corporate income tax in accordance with regulations, enterprises need to apply the following accounting accounts:

• Account 8211 – Current corporate income tax expense: Record expenses incurred during the tax period.

• Account 3334 – Corporate income tax payable: Monitor obligations to the state budget.

• Account 911 – Determine business results: Transfer tax expenses to operating results.

In case there is a difference between accounting income and taxable income (due to different timing of revenue/expense recognition), the enterprise needs to record deferred income tax according to the instructions in Accounting Standard No. 17 – Corporate income tax.

This is especially important for businesses with transactions such as:

• Depreciation of fixed assets with different periods according to tax and accounting.

• Provision for doubtful debts is recognized in accounting but is not deducted as a reasonable expense when calculating taxes.

Failure to properly recognize deferred taxes can result in fictitious accounting profits, distort financial metrics, and influence decision-making by managers, investors, or credit institutions.

Common mistakes businesses easily make related to corporate income tax

In the process of fulfilling corporate income tax obligations, many businesses often make common mistakes, leading to financial risks and the risk of being penalized by tax authorities. Including:

Recording expenses incorrectly

One of the typical mistakes is using illegal invoices and documents or lacking necessary documents. In addition, many businesses still pay in cash for expenses exceeding the allowed threshold. These expenses, although reasonable in the nature of business, do not meet legal standards and are easily eliminated in their entirety when settling corporate income tax.

Omission or incorrect declaration of carry-back losses

Many businesses have not accurately tracked losses from previous years or have forgotten to declare losses carried forward in their final financial statements. This error causes businesses to lose their legal deduction rights and have to pay more corporate income tax than they actually should.

Confusing taxable income and tax-free income

Another common mistake is confusing taxable income with exempt income. Inaccurate determination causes businesses to miscalculate their obligations, which in turn results in the tax authority re-determining the amount of corporate income tax payable.

Errors in depreciation of fixed assets

Some businesses do not clearly understand the regulations on the time of use as well as the valid depreciation method. As a result, depreciation expenses are excluded during the settlement process, increasing the amount of corporate income tax payable.

Administrative violations in declaration

There are many cases where businesses are late in submitting their quarterly provisional tax returns or using the wrong forms. Although these are just administrative errors, these errors can still lead to penalties and corporate income tax arrears.

Summary of common errors in corporate income tax

Error	Content	Consequence
Recording expenses incorrectly	Using illegal invoices and documents; missing documents; paying in cash exceeding the threshold	Expenses are completely eliminated when settling corporate income tax
Omission or incorrect declaration of carry-back losses	Not tracking losses incurred in previous years; forgetting to declare in the final settlement declaration	Loss of deduction rights, having to pay more corporate income tax
Confusing taxable income and tax-free income	Failure to differentiate income accurately	Tax authorities re-determine corporate income tax due to miscalculation of obligations
Errors in depreciation of fixed assets	Failure to apply correct period of use and depreciation method	Invalid depreciation expense, increase corporate income tax payable
Administrative violations in declaration	Late submission of provisional tax return; incorrect use of form	Administrative penalties and corporate income tax arrears

Advice for businesses on corporate income tax in 2025

To effectively manage corporate income tax (CIT) in 2025, businesses not only need to comply with legal regulations but also proactively develop appropriate financial strategies. The following advice will help businesses optimize tax obligations, minimize risks and enhance financial reputation:

Summary of 4 tips for businesses

Recommendations	Benefits
Standardize accounting and tax processes	Ensure transparency, clear books, easy to check when settling corporate income tax
Proactive tax planning	Take advantage of loss carryforward rights, tax incentives and reasonable cost allocation to reduce corporate income tax burden
Use professional services	Minimize errors, optimize tax payable, and effectively utilize preferential policies
Update legal documents	Timely adjust according to new regulations, avoid the risk of being charged or penalized for corporate income tax

Conclude

Corporate income tax is not only a mandatory legal obligation but also an important part of a business's financial management strategy. Understanding the nature of corporate income tax, mastering the calculation formula, complying with the legal basis and accounting correctly will help businesses not only optimize profits, but also minimize legal risks, be more proactive in financial planning and protect sustainable business results.

If your business is looking for a comprehensive solution for tax planning, cost-effectiveness or financial statement auditing, the team of experts at MAN – Master Accountant Network Always ready to accompany, bring peace of mind and efficiency in every financial decision.

Contact information for corporate income tax services at MAN – Master Accountant Network

• Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
• Mobile/Zalo: 0903 963 163 – 0903 428 622
• E-mail: man@man.net.vn