VAT on gifts and presents: Corporate tax treatment
2024/05/15
- Le Ngoc Quoc Bao
Introduction
In the course of production and sales activities, enterprises may implement preferential treatment related to sales policies, promotion policies, etc. in order to expand sales and markets and maintain relationships with customers. One tactic that companies often use is to give products or services to customers for free. According to current tax law, companies must issue a VAT invoice if they give customers gifts or provide free services, except in cases where the gift is based on legal provisions regarding sales promotion activities. In addition, output VAT must be recorded and treated as an expense.
This article explains the corporate tax treatment of output VAT on gifts and presents.
Tax regulations regarding gifts and presents
1. Invoice and VAT regulations for gifts
VAT invoices must be issued when providing goods or services for the following purposes (Article 4 of Decree No. 123/2020/ND-CP):
-Products and services provided for the purposes of sales promotion, advertising, and sample distribution
– Gifts to employees, payment of salaries to employees, goods for internal use (excluding those used for production purposes)
– Products provided for rental or lending purposes
The taxable price of the above goods and services, whether purchased from outside or produced in-house, shall be the price of the same type of goods or services at the time of the gift, etc. (Article 7 of Circular No. 219/2013/TT-BTC).
Therefore, if a company gives goods or provides services free of charge to customers outside the scope of current promotional activities laws, the company must issue a VAT invoice and calculate and declare VAT.
2. Corporate tax regulations regarding gifts
Under current corporate tax regulations, expenses that meet all of the following conditions are eligible for deduction when calculating corporate tax:
– Expenses related to the company’s business activities
– Ability to submit necessary supporting documents such as VAT invoices and contracts as stipulated by law (Article 6 of Circular 78/2014/TT-BTC amended from Article 4 of Circular 96/2015/TT-BTC)
– For payments of 20 million VND or more, the payment must be made in a manner other than cash and proof of payment must be available.
Regarding gifts and presents, there are no clear rules, but it is believed that they can be deducted as expenses if the following conditions are met:
– Gifts given for the purpose of expanding sales or markets, or maintaining relationships with customers (these are considered expenses related to the company’s business activities).
– In cases where gifts or presents are procured from outside, if the necessary documentation (VAT invoices, contracts, etc.) stipulated by current laws and regulations has been properly obtained
– If a VAT invoice is issued properly when giving a gift
The above points were also agreed with by the Directorate General of Taxation. However, according to Official Letter No. 1585/TCT-CS issued by the General Department of Taxation on 16 May 2022, it is unclear whether the VAT amount on the VAT invoice issued when providing gifts or presents can be treated as a deductible expense under current laws and regulations, even though it is not actually received. Based on the contents of this official letter, there have been cases where VAT on gifts and presents has actually been found not to be deductible during tax audits.
Conclusion
There are various tax aspects regarding the output VAT treatment on gifts and presents. Tax audits are usually conducted based on the contents of official letters issued by the General Department of Taxation, etc., but there is a certain risk that expenses will not be deductible due to unclear rules. To avoid future tax risks, enterprises are advised to submit official letters of inquiry to the General Department of Taxation to verify if they frequently provide gifts or presents of significant monetary value.
Reference
Decree No. 123/2020/ND-CP dated October 19, 2020
Circular 219/2013/TT-BTC dated December 31, 2013
Circular 78/2014/TT-BTC dated June 18, 2014
Circular 96/2015/TT-BTC dated June 22, 2015
Official Letter No. 1585/TCT-CS dated May 16, 2022
*This article was translated by Yarakuzen.
