What is a reasonable cost? Reasonable business expenses? Conditions for being considered a reasonable cost? Are reasonable costs deductible when calculating corporate income tax?
Cost is an issue that every business is concerned about, especially the reasonable costs of the business. Because reasonable costs will be deducted before calculating corporate income tax (CIT). Let’s understand right away with Online Accounting!
I. What are reasonable business costs?
Reasonable expenses of an enterprise are necessary expenses in production and business activities such as salary expenses, allowances, fixed asset depreciation expenses, raw material expenses, tools and equipment expenses, etc. and must have full legal invoices and documents. All these expenses are deducted before determining corporate income tax (CIT), these expenses must fully meet the conditions prescribed by the current Law on Corporate Income Tax.
>> See more: Deductible expenses when calculating corporate income tax.
II. Conditions for confirming reasonable business costs
- These actual expenses incurred must be related to the production and business activities of the enterprise;
- These expenses must have full legal documents and invoices according to the Law on Value Added Tax;
- There must be sufficient non-cash payment documents for invoices with a value of VND 20,000,000 or more (including multiple purchases in 1 day, from the same supplier if the total invoice value is VND 20,000,000 or more).
III. Reasonable business expenses
1. Eligible expenses
- Actual expenses related to the production and business activities of the enterprise;
- Invoices, legal documents;
- Cashless payment.
2. Purchase fixed assets for business use
- These expenses must have sufficient invoices and documents;
- Have full documents for non-cash payment.
3. Renting personal property
➤ Renting personal property:
- Property lease contract (lessor’s revenue does not exceed VND 100,000,000/year);
- Payment voucher.
The deductible expense is property rental.
➤ Lease assets where the contract agrees that the business will pay the tax instead:
- Lease agreement;
- Payment voucher;
- Tax payment certificate.
Deductible expenses are property rentals excluding tax payments.
➤ Lease of assets where the contract does not include tax (VAT and CIT):
- Lease agreement;
- Payment documents;
- Tax payment certificate.
Deductible expenses include property rental and tax payments on behalf of others.
>> See more: Tax declaration procedures when renting personal property.
4. Salary, wages, bonuses for employees
➤ Salaries and wages have been included in production and business costs during the period, with full payment documents.
➤ Salaries and bonuses must be stated in the labor contract, collective labor agreement, financial regulations, and bonus regulations of the enterprise.
➤ In case of signing a contract with foreign workers:
- In addition to salary, the tuition fees of employees’ children from kindergarten to high school with sufficient legal documents should be included in expenses;
- Housing rent paid to foreign workers, this payment is in the nature of salary or wages;
- The rent is paid directly by the business to the landlord for foreign workers to stay.
>> See more: Regulations on salary costs.
5. Costume cost
- If the in-kind expenditure has sufficient invoices and payment documents, the entire cost is recorded;
- If the clothing expense is in cash, it must not exceed VND 5,000,000/year/person.
IV. Questions related to reasonable business expenses
1. What are reasonable business costs?
Reasonable expenses are expenses related to production and business activities, serving the enterprise, with full invoices, legal documents and fully meeting the conditions according to the current Law on Corporate Income Tax.
2. What are the conditions for recording reasonable expenses for employee uniforms?
Employee uniform expenses will be recorded if the following conditions are met:
- Cash expenses do not exceed VND 5,000,000/person/year;
- Expenditure in kind is fully recorded, however, there must be sufficient invoices, payment documents… in accordance with the provisions of the current Law on Value Added Tax.
3. What are the conditions for recording reasonable expenses for businesses?
These expenses actually arise to serve the production and business activities of the enterprise; payments are not made in cash and have full legal invoices and documents according to the provisions of law.