Are expenses made by capital contributors/founding shareholders before establishing the enterprise for business purposes tax deductible?

Legal grounds:

• Circular No. 219/2013/TT-BTC.

Before establishing a business in Vietnam, capital contributing members of a limited liability company and founding shareholders of a joint stock company have the right to hire service providers or purchase goods to prepare for future business.

If these expenses are used for the company’s intended business purposes and have all valid invoices and documents, they can still be considered for value added tax deduction.

Specifically, based on point b, clause 12, Article 14 of Circular No. 219/2013/TT-BTC as follows:

Article 14. Principles of input value added tax deduction

12. Businesses are allowed to declare and deduct VAT on goods and services purchased under authorization for another organization or individual and the invoice with the name of the authorized organization or individual includes the following cases:

b) Before establishing a business, the founders have a written authorization for organizations and individuals to pay for some expenses related to establishing the business, purchasing goods and supplies. Enterprises are allowed to declare and deduct input VAT according to VAT invoices in the name of authorized organizations and individuals and must make payments to authorized organizations and individuals via banks for invoices with value of VND20 million or more.

According to the above regulations, after be established in Vietnam, the enterprise can deduct VAT on expenses arised before establishing the enterprise, but must comply with the following 3 conditions:

• Capital contributing members/founding shareholders must prepare a written authorization for organizations and individuals to make payments on their behalf;
• Have a VAT invoice in the name of the organization or individual authorized to make the payment on their behalf;
• Enterprises must make payments to authorized organizations and individuals that have made payments on their behalf. If the invoice is VND20 million or more, payment must be made via bank.