Two enterprises with the same revenue and the same actual expenditure can end up with two different CIT liabilities, simply because one of them lacks valid documentation for part of its expenses. Deductible expenses are a concept specific to tax law and are not the same as accounting expenses — understanding this distinction correctly helps an enterprise both lawfully optimise the tax it pays and avoid an arrears assessment at finalisation. This article sets out the principles, the list of items, and the common errors relating to deductible expenses under current regulations.
Principles of deductible expenses
Under the Law on Corporate Income Tax No. 67/2025/QH15 and its implementing Decree 320/2025/ND-CP (applicable from the 2025 tax period, carrying forward the principles of the earlier Circulars 96/2015/TT-BTC and 78/2014/TT-BTC), an expense is deductible for CIT purposes if it simultaneously satisfies three conditions:
- The expense is actually incurred and relates to the enterprise's production or business activities.
- The expense is supported by full lawful invoices and documents as required by law.
- Where the invoice for a single purchase of goods or services is at or above the prescribed value, the expense must be supported by non-cash payment evidence, except in cases where such evidence is not required by law.
These three conditions apply simultaneously — if one is missing, the entire expense is disallowed when calculating taxable income, even if it has been properly recorded under accounting standards. This is the core difference between an accounting expense and a tax-deductible expense.
Tax law does not provide a closed list of deductible expenses; instead, it works by exclusion: any expense that does not fall within the list of non-deductible items and that satisfies the three conditions above is deductible. For this reason, knowing the list of non-deductible items in the section below is just as important as knowing the list of deductible items.
Common categories of deductible expenses
Several common categories of expense in production and business activities are typically deductible if they meet the invoice and documentation conditions:
- The cost of raw materials, goods and services purchased for direct use in production or business activities.
- Salaries, wages, allowances and compulsory insurance paid to employees under employment contracts and the enterprise's internal regulations, supported by full payment documents.
- Depreciation of fixed assets used in production or business activities, calculated under the prescribed method and time frame.
- Asset lease costs, including premises, office space and equipment, supported by a valid contract and invoice, or documents evidencing tax paid on behalf of the lessor where the lessor is an individual.
- Interest expense incurred for production or business purposes, within the interest rate cap under the Civil Code (a maximum of 20% per annum — Article 468 of the 2015 Civil Code) for loans from parties other than credit institutions or economic organisations (under Clause 10, Article 10 of Decree 320/2025/ND-CP, replacing the previous method of determining "150% of the State Bank's base interest rate"), and the separate 30%-of-EBITDA cap for enterprises with related-party transactions under Decree 132/2020/ND-CP (as amended by Decree 20/2025/ND-CP).
- Advertising, marketing, promotion and brokerage commission expenses incurred for business purposes, supported by a valid contract and documents.
- Provisions made in accordance with the Ministry of Finance's guidance, such as inventory write-down provisions and bad debt provisions.
- Vocational training expenses, scientific research expenses, and sponsorship of education, healthcare or natural disaster relief, provided to the correct beneficiaries and supported by the required dossier.
Non-deductible items
Decree 320/2025/ND-CP (carrying forward and replacing Circular 96/2015/TT-BTC) sets out in detail the expenses that are non-deductible for CIT purposes, the most common of which are:
- Depreciation of fixed assets that does not comply with regulations: assets that are already fully depreciated, assets not used for production or business, or depreciation exceeding the prescribed rate.
- Interest expense exceeding the prescribed cap for loans from parties other than credit institutions, or the portion of interest corresponding to charter capital not yet fully contributed.
- Administrative penalties for violations relating to tax, traffic or the environment that the enterprise is required to pay.
- Contributions or sponsorship made to the wrong beneficiary or without the required dossier, for example charitable sponsorship lacking a valid confirmation dossier.
- Expenses without a lawful invoice or documents, or with invalid documents: invoices from an enterprise that has absconded, fraudulent invoices, or invoices with incorrect mandatory information.
- The portion of expenditure exceeding the enterprise's own material and fuel consumption norms, where those norms lack a reasonable basis or were not notified to the tax authority as required.
- Contributions to reserve funds or science and technology research funds that exceed the prescribed level, or that are made to the wrong beneficiary or without the required dossier.
Enterprises should check this list at the point of recording each expense, rather than only at year-end finalisation — correcting the accounting entries early is far easier than explaining them to the tax authority after the return has already been filed.
Invoice and documentation conditions
An invoice is a necessary but not sufficient condition; it must be lawful and consistent with the actual substance of the transaction. Enterprises need to control several points closely:
- E-invoices must be issued, digitally signed and transmitted to the tax authority in accordance with current e-invoicing regulations.
- The information on the invoice — name, tax code, address, item, unit price, tax rate — must match the contract and the actual transaction; a discrepancy in mandatory information can render the invoice invalid.
- For invoices of VND 5 million or more (including VAT, effective from 15 December 2025 under Decree 320/2025/ND-CP), non-cash payment evidence is mandatory; offsetting of debts or payment authorised through a third party requires a complete supporting dossier to be accepted.
- Purchases from individuals or household businesses without an invoice: the enterprise prepares a purchase schedule on the prescribed form together with a contract and payment documents, applicable to items eligible for such a schedule, such as agricultural, forestry and aquatic products purchased directly from producers.
Practical examples
A trading enterprise purchases a consignment of goods worth VND 150 million and pays in cash at the counterparty's request. The invoice is complete, the transaction is genuine, and the goods have been received into stock and sold as normal. But because the transaction value exceeds the mandatory non-cash payment threshold and the enterprise paid in cash, the entire expense is disallowed when calculating CIT, even though the transaction shows no sign of fraud — payment evidence matters just as much as the invoice condition.
Conversely, a manufacturing enterprise pays a VND 80 million administrative penalty for an environmental violation, with full valid documentation of the payment, but this remains a non-deductible expense regardless of how complete the documentation is, because the nature of the expense is excluded at the level of principle.
The two examples show that an enterprise needs to check expenses along two axes: whether the nature of the expense falls within the excluded list, and whether the supporting documentation satisfies all three general conditions.
Frequently asked questions
Is an expense without an invoice, but with a contract and a bank transfer record, deductible? In principle, a lawful invoice remains a mandatory condition, except in specific cases where the law allows a purchase schedule to substitute for an invoice, such as purchases of agricultural, forestry or aquatic products directly from producers, or purchases from individuals not engaged in business. In all other cases, a contract and payment evidence are supplementary and cannot replace the invoice.
Is employee welfare expenditure deductible in full? It is deductible if paid to the correct beneficiaries, supported by documentation and a clear internal policy, and within the prescribed cap, which is typically expressed as a number of months of the average actual salary paid during the year; any excess or expenditure paid to the wrong beneficiary is disallowed.
Is interest expense on a loan from an individual or a shareholder deductible? It is deductible within the interest rate cap under the Civil Code (Article 468 of the 2015 Civil Code — a maximum of 20% per annum, under Clause 10, Article 10 of Decree 320/2025/ND-CP), provided there is a loan agreement, valid interest payment documents, and the charter capital has been fully contributed as committed; the portion of interest corresponding to charter capital not yet fully contributed is non-deductible.
If an enterprise sets its own material consumption norms, is the related expense disallowed? It is not disallowed if the norms are reasonably set, supported by a basis, and fully retained to substantiate the position if the tax authority requests it; the norms are only treated as unreasonable, and the excess disallowed, where there is no persuasive basis or an unusual variance from actual industry practice.
Book a consultation with TLA Consulting to review your list of deductible expenses before finalisation, avoiding disallowed costs when the tax authority conducts an inspection.
