Legal News

[Tax and Labor] Tax Treatment of Losses and Donations Due to Natural Disasters and Tax and Labor Law Provisions for Employee Assistance

2024/09/12

Many businesses have suffered damage to their buildings and products as a result of Typhoon Yagi, which hit northern Vietnam. In addition, many companies not affected by the typhoon are considering providing recovery assistance to individuals, organizations, and communities affected by the disaster. This newsletter discusses the tax treatment of losses and donations resulting from natural disasters and the tax and labor law provisions for employee assistance programs.

1. Tax treatment of losses due to natural disasters

According to the Disaster Prevention Law of 2013, Typhoon Goat is considered a “natural disaster”.

In accordance with Article 2.2.1 of Circular 96/2015/TT-BTC (“Circular 96”), if an enterprise incurs losses due to natural disasters, such losses shall be deductible for CIT purposes in accordance with the following principles
・The enterprise calculates the amount of loss due to natural disasters, epidemics, fires, and other force majeure.
・The deductible amount is the total loss minus the amount of compensation received by the company from insurance companies or other organizations/individuals.
The required documentation is as follows
・An inventory of damaged assets or goods prepared by the enterprise. The specifics are as follows: + The value of the damaged assets or goods.
+ Value of damaged assets and goods, cause of loss, and responsibility for loss.
+ Type, quantity, and value of recoverable assets and goods (if any)
+ Inventory of damaged goods signed by a representative of the company

・Documentation of claim for indemnification, if any, if coverage is granted by the insurance company.
・Documents relating to the entity/individual responsible for the indemnification (if any)
・Other documents required by the tax authorities (purchase price of the asset, depreciation calculation sheet, camera footage showing the cause of the loss, etc.)

Tax Treatment of Disaster Recovery Assistance

The following disaster recovery aid and supplies are allowed as deductible expenses for corporate tax purposes.
・In accordance with Article 2.24 of Circular 96, companies donate cash or goods to organizations legally established for disaster recovery.
・In case of donation to individuals through institutions or organizations (e.g. Central Committee of the Fatherland Front of Vietnam) providing assistance for disaster recovery in accordance with the provisions of Article 2 of Decree No. 93/2021/ND-CP.

The required documents are as follows
・A letter confirming the donation (signed by both the legal representative of the company making the donation and the representative of the affected person or the institution or organization receiving the donation. (Based on form 05/TNDN of Circular 78/2014/TT-BTC).
・In the case of donation of goods, proof of payment method (VND20 million or more and payment voucher by bank transfer or other means other than cash); in the case of cash donation, proof of payment. (Circular 219/2013/TT-BTC)

※The Tax Department may request confirmation from the local government where the affected person is located regarding the actual damage caused by the disaster.

3. assistance to employees

When a company assists its employees affected by Typhoon Goat, the company may consider several ways of assistance, including

(1) Assistance from trade unions
According to the regulations of the Vietnam General Confederation of Labour, if the company has a trade union, the trade union shall provide allowances to its members and employees whose health and property have been damaged by the natural disaster.
and employees who have suffered damage to health or property as a result of natural disasters. These payments are regulated in the trade union’s internal disbursement regulations and other relevant documents (if any). The maximum amount of allowance is VND3 million per person per time. The company’s labor union should confirm with the district’s labor union, which is the superior organization, the method of payment and the specific amount to be paid to each eligible employee.

(2) Support from the company
For the purpose of recovery from natural disasters, a temporary disaster allowance is provided to the affected employees. This allowance is not necessarily paid by the company under the labor law, but is determined on a voluntary basis. In order for this disaster allowance to be considered a deductible expense for corporate tax purposes, the labor contract, collective bargaining agreement, or company financial regulations must state the eligibility, conditions for payment, and specific amount to be paid.

 

References:
Circular 96/2015/TT-BTC dated June 22, 2015
Decree 93/2021/ND-CP dated October 27, 2021
Circular 219/2013/TT-BTC
Notice 78/2014/TT-BTC of March 1, 2022
Decision 4290/QD-TLD of March 1, 2022
Decision 4291/QD-TLD of March 1, 2022