Tax department provides guidance on determining land rental expenses for CIT calculation

On March 14, 2015, the Tax Department – Ministry of Finance issued an official letter addressing inquiries related to deductible expenses for corporate income tax (CIT) purposes. Specifically, the guidance pertains to the treatment of one-time lump-sum land rental payments and management fees for leased land that has not yet been utilized for production and business activities. The issue raised was whether land rental expenses for leased land that has not yet been put into use for business operations could be considered deductible when determining taxable income for CIT purposes.

According to the Tax Department, under current regulations, a business expense is deductible when calculating taxable income if it meets the following conditions: Firstly, the expense is actually incurred and relates to the company’s production and business activities; Secondly, the expense is supported by legitimate invoices and documentation as required by law; Thirdly, for expenses where an invoice is issued for a single purchase of goods or services valued at VND 20 million or more (including VAT), non-cash payment proof is required.

Based on this interpretation, the Tax Department holds that land rental expenses for leased land that has not yet been used for business activities do not satisfy the first condition above. Consequently, such expenses cannot be considered deductible at the time the leased land remains unused for production and business purposes. In other words, only when the leased land is put into use for business activities can the company recognize land rental expenses as deductible when calculating taxable income.

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