According to the Law on Corporate Income Tax 2008, amended and supplemented in 2020, effective from July 15, 2020, there are regulations on deductible and non-deductible expenses when determining income subject to corporate income tax (CIT), including sponsorships. Specifically, what are sponsorships tax deductible from CIT, what documents are required and what should businesses pay attention to comply with the law?
First, what is Tax deduction?
The VAT deduction method has been detailed in the Law on Value-Added Tax (2008, amended and supplemented in 2013), and Circular 219/2013/TT-BTC. Accordingly, the VAT deduction method could be understood as determining the amount of VAT payable by subtracting the output VAT amount from the input VAT amount.
To explore more about tax deduction, please refer to: “Understanding the VAT deduction registration for new businesses“
Enterprises should note that only the following financing expenditures will be considered subtracted from income subject to corporate income tax, which includes:
1. Funding for educational activities
- Funding public and private schools under the national education system without the aim of contributing capital or buying shares in schools;
- Funding facilities for teaching, learning, and school activities;
- Sponsoring scholarships for pupils and students of general education institutions, vocational education institutions, and higher education institutions as prescribed in the Law on Education;
- Sponsoring competitions on subjects taught at schools in which the participants are learners;
- Funding the establishment of educational promotion funds.
2. Funding for medical
- Financing medical facilities established in accordance with the law on health but not to contribute capital or buy shares in such hospitals and medical centers;
- Financing of medical equipment, medical instruments, and medicines;
- Supporting the regular operations of hospitals and medical centers;
- Funding in cash for the patients through an agency or organization that has the function of mobilizing funding in accordance with the law.
3. Funding for disaster recovery
- Funding in cash or other methods to overcome direct disaster consequences for organizations established and operating in accordance with law;
- Funding in cash or other methods to overcome direct disaster consequences for individuals suffering from natural disasters through an agency or organization that has the function of mobilizing funding as prescribed by law.
4. Funding for the construction of houses of gratitude for the poor
It means: Spending in money or in kind to build houses of charity for the poor is regulated by the Prime Minister.
The identification of the sponsor in accordance with the provisions of the law is only a necessary condition. In order for the above expenses to be truly deducted from the taxable income of the enterprise, there must be an additional sufficient condition, which is a document proving the existence of a sponsorship, including:
- A written certification of the grant signed by the representative of the business establishment that is the donor, and the signature of the representative of the sponsor (or the agency or organization with the function of raising funding);
- Invoices, vouchers for the purchase of goods (if sponsored in kind), or vouchers for payment (if sponsored in cash).
In the event that the enterprises do the financing but do not satisfy one of the mentioned conditions, these expenses will not be considered “sponsorship tax deductible” expenses when calculating CIT, and the enterprises must pay CIT for the amount calculated on the portion of misuse in the tax period in which the misuse arises.
5. Conclusion
Sponsorship expenses can potentially be considered for tax deductions. However, for these expenses to be eligible, certain conditions outlined by tax regulations must be met.
If an enterprise provides financing through sponsorship but fails to meet one of these essential conditions, the expenditure incurred will not qualify as “sponsorship tax deductible” for Corporate Income Tax (CIT) purposes. Consequently, the enterprise will be required to pay CIT on the amount that is determined based on the portion of the expenditure deemed non-compliant or misused.
This taxation would apply within the tax period during which the non-compliant expenditure or misuse occurred. This ensures that only sponsorships that align with tax-deductible criteria contribute to a reduction in the taxable income of a business, thereby emphasizing the importance of adherence to tax laws and regulations when claiming such deductions.
In the event that the enterprises do the financing but do not satisfy one of the mentioned conditions, these expenses will not be considered “sponsorship tax deductible” expenses when calculating CIT, and the enterprises must pay CIT for the amount calculated on the portion of misuse in the tax period in which the misuse arises.
For example, an enterprise A sponsors study for students who are studying at a university established by enterprise A itself. This expense is also known as a funding expenditure but will not be included in the deductible sponsorships tax deductible as required by law.
Through this article, we hope that enterprises can determine which expenses are sponsorships tax deductible and which are not deductible when determining taxable income so that they can calculate CIT accurately. Furthermore, enterprises should pay attention to the conditions to ensure compliance with the requirements of the law on deductible expenses when calculating CIT for sponsorship expenses.
