What are hospitality costs? Regulations on hospitality costs, standards for hospitality costs, conditions for reasonable hospitality costs, and how to account for hospitality costs.
Reception expenses are spent when meeting and discussing work directly to improve work efficiency and the bond between the business and its partners. However, not all reception expenses are considered reasonable expenses when calculating corporate income tax (CIT). So what are the conditions and regulations on reception expenses? Let’s find out more with fdiinvietnam.com in this article!
I. What are the hospitality costs?
When a business operates, production and business often arise a number of relationships that the business needs to care about, maintain and preserve. In particular, receiving guests is considered a communication activity with customers for the purpose of exchanging information, signing contracts to develop relationships with customers, so the costs used for the purpose of receiving guests are determined to be reasonable costs according to the provisions of law.
II. Is there a limit on hospitality costs? Hospitality cost norms
According to Clause 2.21, Article 6 of Circular 78/2014/TT-BTC, non-deductible expenses are limited to the amount of entertainment expenses not exceeding 15% of the total deductible expenses, including:
- Hospitality costs;
- Advertising costs;
- Marketing costs;
- Promotions, brokerage commissions;
- Cost of giving away goods to customers.
However, from November 24, 2014, when the National Assembly passed Law No. 71/2014/QH13 amending and supplementing tax laws, from January 1, 2015, Point m, Clause 2, Article 9 of Law No. 32/2013/QH13 was abolished, “Removing the ceiling of 15% on marketing and advertising costs, promotional commissions, receptions, conferences, celebrations, and supporting costs directly related to production and business for enterprises”.
Therefore, currently, entertainment expenses are no longer restricted and are considered reasonable expenses when calculating corporate income tax if the following two conditions are met:
- This hospitality cost serves the production and business activities of the enterprise;
- Have a reasonable set of documents as a basis to prove that the purpose of using the entertainment expenses is valid.
>> See more: Non-deductible expenses and deductible expenses when calculating corporate income tax.
III. Conditions for reasonable entertainment costs
According to Article 6 of Circular 96/2015/TT-BTC, entertainment expenses are included in reasonable expenses when calculating corporate income tax if they meet the following conditions:
- Actual expenses incurred in entertaining guests are related to the production activities of the enterprise;
- The cost of hospitality has an electronic invoice (according to Decree No. 123/2020/ND-CP) clearly stating the details of the items, the accompanying bill and valid payment documents;
- Entertainment expenses with a value of VND 20 million or more (including VAT) must have non-cash payment documents;
- In case the enterprise contracts an amount of money to support the employee in receiving guests, it is added directly to the employee’s monthly salary, this amount is considered a taxable income of the employee.
>> See more: Reasonable expenses that do not require invoices for businesses.
IV. Regulations on vouchers for hospitality expenses – Reasonable hospitality expense records
A reasonable set of hospitality expense documents includes the following papers and documents:
- Service contract and contract liquidation minutes (if any);
- Value added tax invoice or sales invoice (valid);
- Payment voucher, bill (for catering expenses);
- Payment documents (valid);
- Payment request for guest reception and advance payment (if any);
- The company’s financial regulations clearly stipulate the cost of entertaining guests.
FREE SAMPLE DOWNLOAD:
>> Payment request;
>> Advance payment request.
V. Instructions on how to account for costs of hospitality and food
1. How are hospitality costs accounted for?
Reception costs are included in the business management costs of the enterprise, however, reception costs of each department are accounted for in accordance with the department using that reception cost.
➨ According to Circular 200/2014/TT-BTC, guest reception costs are accounted for as follows:
Debit account 641, 642: Business management expenses;
Debit account 1331: Deductible VAT;
Credit account 111 and 112, 141, 331: Total payment amount.
➨ According to Circular 133/2016/TT-BTC, hospitality costs are accounted for as follows:
Debit account 6421, 6422: Business management expenses;
Debit account 1331: Deductible VAT;
Credit account 111, 112, 141, 331: Total payment amount.
2. Some notes to avoid mistakes when calculating entertainment costs
- The guest invoice is an electronic invoice that must fully comply with the regulations under Circular 78/2021/TT-BTC, the invoice must fully show the details of the item, quantity, unit price and total amount;
- For paper invoices according to Circular 39/2014/TT-BTC and electronic invoices according to Circular 32/2011/TT-BTC, the name of the goods must not be general, the name of the food item or service must be clearly stated with a list and have an attached list or payment invoice;
- Currently, some restaurants use invoices generated from cash registers, payment invoices are also considered valid VAT invoices with tax authority codes generated from cash registers.
VI. Questions related to accounting for hospitality costs
1. If the staff who receives guests bring back a bill stating “Food and beverage services” and a payment slip, is this considered a reasonable cost for receiving guests?
In order for the guest receipt to be considered a reasonable expense, the company must ensure that the guest receipt is related to the production and business activities such as which guests, how many people, when, and ensure that the content on the receipt is in accordance with the law.
- If the invoice is paper, the content on the invoice and the attached list must comply with the provisions of Circular 39/2014/TT-BTC;
- If the invoice is electronic, the content on the invoice must comply with the provisions of Article 10 of Decree 123/ND-CP and Circular 78/2021/TT-BTC.
>> Reference: Conditions for reasonable entertainment costs;
2. The company invites customers to eat and drink after signing the contract, the restaurant sends a payment receipt with a tax authority code, so is this entertainment cost tax deductible?
Currently, the implementation of invoices generated from cash registers according to Circular 78/2021/TT-BTC for restaurants, hotels, and food and beverage establishments, payment vouchers generated from cash registers are coded by tax authorities, and have sufficient content according to Clause 3, Article 8 of Circular 78/2021/TT-BTC, input VAT can still be deducted and included in reasonable expenses when calculating corporate income tax.
>> Reference: Conditions for reasonable entertainment costs.