A business is fined for violating the progress of the construction contract, can the fine paid to the investor be included in the deductible expenses?

This article was consulted by Lawyer Nguyen Quang Trung

Legal ground:

• Circular No. 96/2015/TT-BTC.

We have received the following question:

Hello TLT Legal, I work as an accountant for a construction company, my company has been fined by the main contractor for delaying the construction progress of the contract. They deducted the fine from the contract payment. So when my company finalizes the corporate income tax in 2024, can this fine be deducted?

Determining whether an expense is deductible when determining corporate income tax obligations is applied according to the instructions in Article 6 of Circular No. 78/2014/TT-BTC, amended and supplemented by Circular No. 96/2015/TT-BTC.

Specifically as follows:

2. Expenses that are not deductible when determining taxable income include:

2.36. Fines for administrative violations include: traffic violations, violations of business registration regimes, violations of accounting and statistics regimes, violations of tax laws including late tax payment fees as prescribed by the Law on Tax Administration and other administrative fines as prescribed by law.

According to the above provisions, enterprises need to pay attention to fines. Fines for administrative violations are not deductible when determining corporate income tax. As for fines for violations of civil obligations under commercial contracts, enterprises are still allowed to include them in reasonable and valid expenses that are deductible when determining corporate income tax.

However, businesses must ensure that:

• The fine payment is actually incurred and related to production and business activities
• There must be full legal invoices and documents
• If there is an invoice with a payment value of VND 20 million or more, non-cash payment must be made