How to carry forward corporate tax losses in Vietnam

How to carry forward corporate tax losses in Vietnam

Carry forward corporation tax losses in Vietnam means certain losses that a company in Vietnam has not used in any other way can be offset against profits in future tax periods.

The loss of business, even losses for many years, is inevitable, especially for newly established businesses. Vietnamese law allows company to carry forward corporate tax losses to be offset against profits in future tax periods.

1. Loss determination and carry forward tax corporate loss

Article 7 of Decree 218/2013/ND-CP of the Government of Vietnam stipulating loss determination and carry forward loss as follows:

a) Losses incurred in a tax period is the negative (-) difference of taxable income excluding losses carried forward from the previous years shall be 
determined by the formula specified in Clause 2 below.

b) Companies with loss shall carry their losses forward to the subsequent year and are deducted from taxable income. The time permitted for loss transfer is
continuously calculated but not exceeding 5 years from the year after the year with loss incurred.

c) Loss from transfer of real estate, investment projects or right to participate in
investment projects (except for project of mineral exploration and mining) after being offset with the taxable income of these activities or loss offset under  the provisions of Clause 2, Article 6 of Decree No.218/2013/Nd-CP. If losses remain and companies suffer from losses from the transfer of mineral exploration and mining rights, they may carry their losses forward to the subsequent year into the taxable income of those activities. The time permitted for loss transfer is continuously calculated but not exceeding 5 years from the year following the year with loss incurred.

2. Formula for determining tax calculation income:

Pursuant to Clause 1, Article 6 of Decree No. 218/2013/ND-CP, tax calculation income in a tax period is determined as follows:
Tax calculation income = Taxable income - (Exempt income + Carry forward losses as stipulated)

In which:

Taxable income = (Revenue – deductible expenses) + Other income

Therefore:
- If tax calculation income < 0: The company makes a loss and does not have to pay corporate income tax in this tax period.
- If the tax calculation income > 0: The company makes a profit and must pay corporate income tax.

2. Instructions for carry forward corporate tax losses in Vietnam

Pursuant to Article 7 of Decree 218/2013/ND-CP and Article 9 of Circular 78/2014/TT-BTC, the company will carry forward losses as follows:

* Carrying forward losses between quarters

- Companies that have losses between quarters in the same fiscal year may carry forward to be offset the profit in subsequent quarters of that fiscal year.
- When finalizing corporate income tax, the company determines the loss for the whole year and carry forward all and continuously the loss into the tax calculation income of the following years after the year where the loss is incurred according to the above provisions.
- The amount of loss carried forward must not be greater than the profit.

Example 1: In 2022, company A makes a loss and following profits:
- Quarter 1: loss of 30 million dong.
- Quarter 2: profit 20 million dong.
- Quarter 3: profit of 15 million dong.
”

In the first quarter, Company A incurred a loss of 30 million dong, while in the second quarter, it only made a profit of 20 million dong. Therefore, the loss of Quarter 1 carried forward to Quarter 2 is 20 million dong. The remaining loss of Quarter 1 of 10 million dong will be carried forward to the third quarter. Due to the profit of 15 million in Quarter 3, the amount determined as tax calculation income to temporarily calculate quarterly tax payment is only 5 million.

* Carry forward losses between years

- If a company suffers a loss after tax finalization, it shall carry forward all and continuously the loss into tax calculation income of the following years.
- The period of carry forward loss shall not exceed 5 years, from the year in which the loss is incurred. The time limit of 5 years passed from the year of loss, if the loss has not been fully carried forward, it will not be carried forward to the tax calculation income of the following years.
- In case during the loss transfer period, there is a further loss, this incurred loss (not including the loss of the previous period carried forward) will be carried forward with the entire loss and continuously for not more than 5 years to the next year after the year of the loss.
- The amount of loss carried forward must not be greater than the income.

Example 2: Company B incurs a losses and profit as follows:
- In 2019: 15 billion dong loss;
- In 2020: 10 billion dong loss;
- In 2021: 10 billion dong profit;

Thus, company B will carry forward the loss as follows:
- In 2020: Company has a loss, it is not possible to carry forward the loss from 2019.
- In 2021: the loss from 2019 is carried forward to 10 billion dong, the remaining loss of 5 billion dong in 2019 and the loss of 10 billion dong in 2020 will be carried forward to the following years, however, it should be noted that:
+ The remaining loss in 2019 was VND 5 billion, if by 2024 (5 years from the year of the loss was incurred), if it is still not carried forward, it will not be carried forward to 2025.
+ Similar for loss in 2020: It can only be carried forward with a maximum term of 5 years from the year of the loss, ie to 2025.

This text presents the carry forward corporate tax losses in Vietnam, any relevant information, feel free to contact us.

Legal grounds:
- Decree 218/2013/ND-CP of the Government of Vietnam;
- Circular 78/2014/TT-BTC of the Ministry of Finance of Vietnam

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