What is profit after tax (net profit)? Formula, how to calculate profit after corporate income tax; Regulations on principles for distributing profit after tax.
I. What is profit after tax?
1. Concept of profit after tax
Profit after tax, also known as net profit, is the final profit remaining of a business after deducting all expenses and income taxes payable during the year according to regulations.
2. Reasons for calculating profit after corporate income tax
Some reasons why businesses have to calculate after-tax profits include:
- To evaluate whether a business’s operations are truly effective, profitable, loss-making or break-even by looking at after-tax profits;
- To assess the actual business situation, from which there will be reasonable strategic directions, bringing the best results for business operations;
- An important factor determining the results of investment capital, nowadays there are more and more newly established businesses, profit after tax will be the measure for investors to consider before investing.
II. How to calculate profit after corporate income tax, net profit
The formula for calculating profit after corporate income tax is as follows:
| Profit after tax = Total revenue – Total expenses – Corporate income tax |
In there:
- Total revenue: Is the total amount of money a business earns from its main business revenue (sales or service provision), financial revenue and other revenue. This is one of the important indicators in corporate finance and is often used to evaluate the size and financial performance of a business;
- Total costs: Are the costs of production and business activities including fixed costs and non-fixed costs (variable costs). Total costs are an important factor in calculating profits and are often compared with total revenue to evaluate the profitability of the business;
- Corporate income tax: Is a type of tax that businesses must pay based on the profits and income of the business, applied to profits and income from the business activities of the business after deducting expenses;
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Pursuant to Article 10 of the Law on Corporate Income Tax, the corporate income tax rate is usually 20% (except for some cases with preferential tax rates according to regulations). In addition, for activities of searching, exploring, and exploiting oil, gas, and other rare resources in Vietnam, the corporate income tax rate is from 32% – 50%, suitable for each project and each business establishment.
See related articles:
>> How to calculate corporate income tax;
>> Corporate income tax incentives.
III. Principles of profit distribution after tax
The process of distributing after-tax profits is usually considered and applied in the context after taxes have been deducted from the total profits of the enterprise. Below are some important principles related to the distribution of after-tax profits:
➤ Compliance with tax laws: Enterprises need to ensure that the distribution of after-tax profits fully complies with the tax regulations and tax laws of the country or region where the enterprise operates. This helps avoid legal risks and protect the reputation of the enterprise.
➤ Fairness and balance: The principles of fairness and balance remain important in the distribution of after-tax profits. Fairness ensures that all stakeholders receive their fair share and balances between reinvestment in the business and dividends to shareholders.
➤ Reinvestment in the business: A portion of after-tax profits is often used to reinvest in the business, helping the business grow, expand and stay competitive. This may include improving technology, expanding markets or training staff.
➤ Paying dividends to shareholders: Another part of the after-tax profit is often divided up to pay dividends to shareholders. Dividends are a way to share profits with those who have invested in the business through buying shares.
>> Learn more: How to pay dividends to shareholders in a joint stock company.
➤ Financial reserve fund: A small portion of the after-tax profit can be set aside to create reserves and emergency funds to face unexpected financial challenges or to invest in opportunities that arise.
➤ Deducting bonus and welfare funds for employees: Some businesses may choose to use a small portion of after-tax profits to reward employees, increase work motivation and retain talent.
➤ Social responsibility: Accumulating a portion of after-tax profits to support social activities, protect the environment or contribute to the community is also an important aspect of the profit distribution principle.
These principles help shape how businesses handle their after-tax profits, while ensuring sustainability and balance in their financial management.
IV. Frequently asked questions about profit after corporate income tax
1. Can charter capital be increased from after-tax profit?
Yes. According to the provisions of Point g, Clause 3, Article 2 of Circular 111/2013/TT-BTC, it can be understood that undistributed profit after tax that is transferred to contributed capital is considered income from interest and recorded as an increase in capital.
2. When dividing after-tax profits, do I have to pay personal income tax?
Yes. Pursuant to Clause 3, Article 3 of Circular 111/2013/TT-BTC and Clause 6, Article 11 of Circular 92/2015/TT/BTC, income from dividends and profits from distributed after-tax profits are income from capital investment and subject to personal income tax (except for private enterprises and LLCs owned by individuals).