2. Key Features of CIT

Grasping the features of CIT enables businesses to comply with legal requirements while optimizing their tax obligations.

2.1. CIT as a Direct Tax

CIT is a direct tax, meaning it is levied directly on the income or profit of a business. Unlike indirect taxes such as VAT (Value Added Tax), which is passed on to consumers, CIT is paid directly by the company to the government.

Governments often use CIT to regulate economic activity, providing tax relief or incentives to encourage investment and growth in certain sectors. For instance, tax deductions or exemptions may be offered for businesses involved in renewable energy or research and development.

2.2. Entities Liable for CIT

According to the General Department of Taxation under the Ministry of Finance, the following entities are liable for CIT:

• Companies established under Vietnamese law.

• Cooperatives and professional organizations.

• Foreign enterprises with or without permanent establishments in Vietnam are generating income from Vietnam.

• Other economic organizations conduct business and earn income.

This broad scope ensures that all types of local or foreign businesses contribute to the national economy through tax payments.

2.3. Types of Income Subject to CIT

Businesses are required to pay CIT on various forms of income, including but not limited to:

• Income from capital transfers (e.g., selling shares or assets).

• Income from production and trade of goods and services.

• Interest income, income from loans, and profits from foreign currency trading.

Example: If a company earns interest from a bank deposit or a loan, that interest income is subject to CIT, even if it’s not directly related to the company’s core operations.

3. Challenges in Managing CIT

Managing CIT effectively can be challenging due to the complexity of tax regulations and the diversity of income sources. Furthermore, many companies attempt to evade or minimize taxes, making it difficult for tax authorities to regulate and enforce compliance effectively.

3.1. Challenges for Multinational Corporations

Multinational corporations (MNCs) often use transfer pricing—the practice of setting prices for transactions between affiliated companies in different countries—to shift profits to lower-tax jurisdictions. This practice complicates tax management for authorities and increases the risk of tax evasion.

3.2. Digitalization of Tax Administration

Many governments, including Vietnam, are adopting digital tax systems to improve CIT management. These systems help automate tax filing, enhance transparency, and allow for better tracking of corporate income. As a result, businesses are encouraged to maintain accurate records and comply with tax regulations more easily.

4. Why Should Businesses Pay CIT?

CIT is more than just a legal requirement; it plays a fundamental role in supporting social services, public infrastructure, and economic stability. Here’s why businesses should prioritize CIT compliance:

4.1. Contributing to the National Budget

Revenue from CIT contributes directly to public services such as healthcare, education, defense, and social welfare programs. By paying CIT, businesses help fund essential services that benefit society.

4.2. Encouraging Business Growth

Complying with CIT regulations builds trust and credibility with the government, clients, and partners. Companies that consistently meet their tax obligations often receive preferential treatment, such as tax incentives or subsidies, which can help further their business development.

4.3. Market Regulation and Fair Competition

Through CIT, governments can regulate market activities and ensure fair competition. By taxing profitable companies, the state can redistribute wealth and invest in infrastructure, research, and development, promoting a more balanced and sustainable economy.