In case the company founders spent money on purchasing goods and services before establishing the business, can they be deducted when determining corporate income tax?

Legal grounds:

• Circular No. 96/2015/TT-BTC;
• Circular No. 45/2013/TT-BTC.

Before a business is officially granted a Business Registration Certificate in Vietnam, founding members/shareholders can hire consulting services, purchase goods and equipment to prepare for future business operations. These activities are not illegal and are consistent with the actual needs of the business.

So expenses before the business is established can also be deducted when calculating corporate income tax. However, businesses must comply with regulations on invoices, documents, payment methods,…

Specifically, based on Article 4 of Circular No. 96/2015/TT-BTC amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC as follows:

Article 6. Deductible and non-deductible expenses when determining taxable income

1. Except for non-deductible expenses stated in Clause 2 of this Article, enterprises can deduct all expenses if they meet all of the following conditions:
   1. Actual expenses incurred related to business activities of the enterprise.
   2. Expenses have enough legal invoices and documents according to the provisions of law.
   3. Expenditures if there are invoices for each purchase of goods and services with a value of 20 million VND or more (price includes VAT) must have non-cash payment documents when paying.

Pursuant to Clause 3, Article 3 of Circular No. 45/2013/TT-BTC as follows:

Article 3. Standards and identification of fixed assets:

3. Business establishment costs, employee training costs, advertising costs incurred before establishing the business, costs for the research phase, relocation costs, purchasing and using costs of technical documents, patents, technology transfer licenses, trade marks, and business advantages are not intangible fixed assets but are gradually allocated to the enterprise’s business expenses over the period of time. The maximum period must not exceed 3 years according to the provisions of the Law on Corporate Income Tax.

According to the above regulations, in order to deduct expenses incurred (not formed as fixed assets) before establishment when determining corporate income tax in Vietnam, businesses should note:

• Expenses must be actually incurred and used for business activities;
• Must have full legal invoices and documents;
• If each payment is 20 million or more, must use non-cash payment method;
• If expenses need to be allocated, the maximum allocation period is 3 years.