Learn: Regulations on loss transfer when calculating corporate income tax. Principles of loss transfer for corporate income tax. How to determine loss and how to transfer loss for corporate income tax (with examples).
I. Legal basis
- Circular No. 96/2015/TT-BTC issued on June 22, 2015;
- Circular No. 78/2014/TT-BTC issued on June 18, 2014;
- Circular No. 123/2012/TT-BTC issued on July 27, 2012.
II. Regulations on transfer of corporate income tax losses
Clause 2, Article 9 of Circular 78/2014/TT-BTC stipulates:
- After tax settlement, if an enterprise incurs a loss, it shall continuously transfer the entire loss to the income of the following years;
- The loss carryforward period is calculated continuously for no more than 5 years, starting from the year following the year in which the loss arose.
Enterprises will determine the amount of loss to be deducted from income according to the above principles. In case there is a further loss during the loss carryover period:
- The amount of such loss (excluding the amount of loss carried forward from the previous period) will be carried forward in full and continuously for no more than 5 years, starting from the year following the year in which the loss arises;
- After 5 years from the year following the year in which the loss occurred, if the loss has not been fully transferred, it will not be transferred to the following year’s income.
III. How to determine losses and transfer corporate income tax losses
1. How to determine carried forward losses
Pursuant to Article 4 of Circular 78/TT-BTC, taxable income arising in the tax period is determined by taxable income minus tax-exempt income and losses carried forward from previous years as prescribed.
| Taxable income | = | Taxable income | – | (Tax-free income + Carry-forward losses) |
| Taxable income | = | Revenue | – | Deductible expenses | + | Other income |
In addition, according to Clause 1, Article 9 of Circular 78/TT-BTC, losses arising during the period are the negative difference in taxable income excluding losses carried forward from previous years:
- If taxable income > 0 ➞ Profit: The company can carry forward losses from the previous period;
- If taxable income < 0 ➞ Loss: Because there is a loss, there is no need to carry the loss over.
See also:
>> How to calculate corporate income tax;
>> Deductible expenses when calculating corporate income tax.
2. Instructions on principles and methods for transferring corporate income tax losses
The principle of transferring corporate income tax losses is stipulated as follows:
- Only transfer losses when there is profit;
- The loss must be carried forward in full and continuously, up to a maximum of the profit of the year carried forward;
- The period of continuous loss carryover shall not exceed 5 years, calculated from the year following the year in which the loss arose.
For example:
Online Accounting Company has the following data: 2017 loss of 6 billion, 2018 loss of 2 billion, 2019 loss of 2 billion, 2020 profit of 2 billion, 2021 loss of 6 billion, 2022 profit of 2 billion, 2023 profit of 11 billion.
| Year | Profit and loss incurred | Losses not transferred due to over 5 years | Loss carried forward to next year |
| 2017 | -6 billion | -6 billion | |
| 2018 | -2 billion | -8 billion | |
| 2019 | -2 billion | -10 billion | |
| 2020 | 2 billion | -8 billion | |
| 2021 | -6 billion | -14 billion | |
| 2022 | 2 billion | -12 billion | |
| 2023 | 11 billion | 2 billion | 1 billion |
➨ Corporate income tax payable in 2023 is 200 million VND.
➨ The company will transfer losses on the loss transfer appendix as follows:
- 2017: First year of establishment, no need to prepare loss transfer appendix;
- 2018:
- 2019:
- 2020:
- 2021:
- 2022:
- 2023:
>> See more: How to transfer corporate income tax losses on Appendix 03/2/TNDN.
IV. Questions related to corporate income tax loss transfer
1. If a business makes a loss, can it carry forward the loss?
No. Only when the enterprise makes a profit can it transfer losses and make appendix 03-2/TNDN, but if the enterprise makes a loss, it cannot transfer losses.
2. In case the tax authority determines that the loss transferred to the enterprise has been over 5 years, how will it be handled?
If the tax authority inspects and discovers that the loss has been over 5 years and the enterprise still carries it forward to the next period, the amount of loss carried forward will be adjusted to increase the income subject to corporate income tax.
3. Can a business transfer losses over a 5-year period but not continuously?
No. The enterprise’s loss transfer period must be continuous and uninterrupted.