How to Calculate Corporate Income Tax & CIT Accounting

Corporate Income Tax (CIT) is an essential part of financial management for every business. Understanding how to calculate and account for CIT not only helps businesses meet legal requirements but also optimizes finances and minimizes risks. PDP Tax will guide you step-by-step on how to calculate CIT, provide answers to common questions, and support businesses in complying with legal regulations more easily.

1. What is Corporate Income Tax?

Corporate income tax is a direct tax calculated on the taxable income of an enterprise after deducting valid expenses. This is a mandatory tax that any business organization in Vietnam must pay, including state-owned enterprises, private enterprises, FDI enterprises, and cooperatives.

Managing and paying CIT is not only a legal responsibility but also helps businesses build a transparent and professional image in the eyes of partners and customers.

2. How to Calculate Corporate Income Tax

To calculate CIT, you need to follow these steps:

Determine taxable income

Taxable income is the remaining income after the enterprise has deducted deductible expenses and offset losses (if any). The basic formula is as follows:

Taxable income = Total revenue – Deductible expenses + Other incomes – Losses carried forward from previous years

• Total revenue: Includes all revenue from main business activities, auxiliary activities, and income from investment activities, sale of assets, etc.

• Deductible expenses: Reasonable expenses serving production and business activities with valid invoices and documents. Examples: staff salaries, office rental costs, advertising costs, depreciation of fixed assets.

• Other incomes: Includes deposit interest, financial investment interest, income from liquidation of fixed assets, etc.

• Losses carried forward: Losses from business activities in previous years can be carried forward to subsequent years, for a maximum of 5 years.

Apply CIT rate

The current CIT rate in Vietnam is 20% for most enterprises. Some specific enterprises or those in preferential sectors may apply lower tax rates such as 10% or be tax-exempt in certain cases.

Formula for CIT payable: CIT payable = Taxable income x Tax rate

Example: A business has a taxable income of 1 billion VND in 2024. The applicable CIT rate is 20%. The CIT payable will be:
1 billion x 20% = 200 million VND.

3. Corporate Income Tax Accounting

CIT accounting helps businesses fully record tax obligations, ensuring transparency in financial statements. The accounting process includes:

Recording provisional CIT quarterly

Every quarter, businesses need to determine the provisional taxable income and record:

• Debit Acc 8211 (Current CIT expense)

• Credit Acc 3334 (CIT payable)

When paying CIT

When the business makes the tax payment, the accountant records:

• Debit Acc 3334

• Credit Acc 111/112 (Cash/Bank deposit)

Year-end adjustment

At the end of the financial year, when determining the actual CIT, the accountant needs to adjust:

• If additional tax must be paid:

  • Debit Acc 8211

  • Credit Acc 3334

• If tax was overpaid:

  • Debit Acc 3334

  • Credit Acc 8211

4. Notes When Calculating and Accounting for CIT

1. Understand reasonable and valid expenses:
   Not all expenses are deductible. Expenses that do not directly serve business activities or lack sufficient documentation will be excluded from deductible expenses.

2. Carry forward losses correctly:
   Businesses are allowed to carry forward losses for no more than 5 years. This must be recorded in tax reports to avoid legal risks.

3. Monitor regulatory updates:
   CIT regulations change frequently. Businesses need to closely follow notifications from the General Department of Taxation or use consulting services to ensure compliance.

5. CIT Support Services at PDP Tax

If you find calculating and accounting for CIT too complex, let PDP Tax support you. We provide comprehensive services, from legal consulting and financial statement preparation support to resolving issues during tax settlement.

Benefits of using PDP Tax services:

• Minimize errors in tax calculation.

• Save time and effort for the business.

• Ensure compliance with legal regulations, avoiding administrative penalties.

• Support businesses in optimizing legal tax costs.

6. Frequently Asked Questions About CIT

Are small businesses required to pay CIT?

• Yes. Any business that generates taxable income must pay CIT, regardless of size.

How to reduce CIT payable?

• Optimize reasonable and valid expenses.

• Take advantage of tax incentive policies if eligible.

Does a business need to pay CIT in a year without profit?

• If the business has no taxable income (loss), it does not have to pay CIT but must still file tax reports as required.