The use of Credit Cards in Vietnam to pay company expenses has been an area of confusion and frustration until recently. Be it using personal cards for company expenses, or arranging company sponsored credit cards for the right individuals, the interpretations and enforcement of laws have not been easy.
Why does it matter?
Both Corporate Income Tax (“CIT”)1 and Value Added Tax (“VAT”)2 laws require any payments exceeding VND 20 million (inclusive of VAT) to be settled by “non-cash payment”. The question of whether credit cards, and in what circumstances, satisfy these requirements was not specifically addressed in Circulars dictating the non-cash payment requirements.
There is also the further general deductibility issue, of whether payments made by credit cards (personal or corporate) would satisfy other tax deductibility requirements for valid expenditure.
Good News: Tax Authorities have been releasing guidance
Progressive releases from the Tax Authorities (see table over) have now made things clearer, with the Tax Authorities accepting that:
• Personal Credit Cards can be used to pay for company expenditure,and
• Company Credit Cards can be issued to “Senior Staff” (not just the General Director) for paying company expenditure.
Deductibility is, of course, subject to following the prescribed requirements from the authorities.
RECENT OFFICIAL LETTERS CLARIFYING THE TAX AUTHORITY’S REQUIREMENTS FOR CREDIT CARD PAYMENTS AND DEDUCTIBILITY
Tax Authorities have released a number of Official Letters and other guidance detailing their interpretation and enforcement of the requirements regarding the use of Credit Cards for company payments in order to meet deductibility requirements. Significant releases, in chronological order, showing the transition to the current interpretation, along with the conditions required are summarised below:
|Date||Official Letters (OL)||Content||Conditions, Requirements and Supporting Documents||Change to Previous Interpretations|
|September 2014||OL 3819/TCT-CS, OL3997/TCT-DNL||Where employees on foreign business trips settle expenses, including air fares, directly by credit card, such settlement will be considered as valid “non-cash payment”, with expenses eligible for tax deductibility.||(i) Airline ticket i.e. e-ticket; (ii) Boarding pass (including electronic boarding pass); (iii) Assignment Decision on Business Trip; (iv) Policy regulating reimbursement to employee; (v) Payment voucher for employees claims; and (vi) Non-cash payment document of employees||Not previously published|
|June 2016||OL 2543/CT-Htr||Where companies use company-sponsored credit cards in their operations, and guarantee the cards with the issuing bank, then payments made using the cards are considered as “non-cash payments” and expenses are eligible for tax deductibility.||(i) On a monthly basis, the company repays the credit card debt directly from the company’s bank accounts; and (ii) The name stated on the credit card is a Company Director||Not previously published|
|August 2016||OL 3671/TCT-DNL||Where a company delegates an employee to make payments on the company’s behalf, and the company approves the use of the employee’s personal credit card or bank account to make the payment, such payment is considered as a “non-cash payment” and the expenses are eligible for tax deductibility.||(i) Invoices issued under Company’s name and tax code; (ii) Authorisation letter from the Company, permitting the employee to make payment and claim back reimbursement; (iii) Payment voucher form showing payment from the employer’s bank account to the employee’s bank account/credit card for reimbursement; and (iv) Proof of purchase/payment, showing the money transferred from the employee’s card/account to the supplier’s bank account||Previously, the tax authorities only formally recognised the payment of certain business travel expenses through an employee’s personal credit card/bank accounts.|
|October 2016||OL 4807/TCT-KK||Where a company enters into an agreement with their bank to issue company credit cards to chosen “Senior Employees” to use for business expenses, then payments made using those cards are considered as “non-cash payments” and are eligible for tax deductibility.||(i) The company guarantees the repayment of the credit card from its bank accounts; and (ii) The payment method is detailed and permitted within the company’s internal policies and procedures. (Careful attention should be made to who satisfy the “Senior Employees” requirement)||Prior to this, company credit cards were only treated as deductible if issued to Company Directors.|
1 Circular 78/2014, Clause 1, Article 6
2 Circular 219/2013, Clause 2, Article 15
For further information contact:
Matthew Lourey, Partner
Phan Thi Thu Thuy, Manager