Is the cost of vacation for employees deductible?

1. Corporate Income Tax (CIT)

   • Article 6 of Circular 119/2014/TT-BTC effective from September 1, 2014.

   • Article 1 of Chapter I of Circular 151/2014/TT-BTC effective from November 15, 2014.

   • Article 4 of Circular 96/2015/TT-BTC effective from August 6, 2015.

   “Expenses for welfare directly for employees such as: funeral and wedding expenses for the employee and their family; vacation expenses, medical treatment support; tuition fees for educational support at training institutions; support for employees’ families affected by natural disasters, accidents, illness; rewards for employees' children with excellent academic results; travel support for employees during holidays; accident insurance, health insurance, and other voluntary insurance for employees (excluding life insurance for employees under point 2.6 and voluntary pension insurance for employees under point 2.11 of this Article) and other welfare-related expenses. The total welfare expenses mentioned above must not exceed 01 month's average actual salary in the tax year of the enterprise.”

   • The 01 month's average salary in the tax year is calculated by dividing the total wage fund by 12 months. If the enterprise operates for less than 12 months, then the average salary for the year is calculated by dividing the wage fund by the actual months of operation.

   • The wage fund is the total amount of wages actually paid in the settlement year until the deadline for submitting the final settlement.

   • Special expenses for each sector as guided by the Ministry of Finance.

   Based on the regulations above, vacation expenses are deductible, and the total welfare expenses for employees cannot exceed one month’s average salary for the enterprise’s tax year. This applies from the 2014 CIT tax period onward. These expenses must be supported by full invoices and documents as required by law.

2. Value-Added Tax (VAT)

   According to Official Letter 4005/TCT-CS dated September 29, 2015, from the General Department of Taxation to the Dong Nai Tax Department:

   “According to the above instructions, if an enterprise has welfare expenses that directly benefit the employees, these expenses are deductible when determining taxable income, provided they are supported by proper invoices and the total amount does not exceed one month's average salary in the tax year. The enterprise can also claim VAT deductions for welfare-related expenses corresponding to the deductible amount, provided that all VAT deduction conditions are met.”

   Thus, the expenses for the company organizing employee vacation travel are deductible for CIT and VAT can also be claimed. The accounting department needs to ensure that all supporting documents are in place.

3. Personal Income Tax (PIT)

   According to Circular 111/2013/TT-BTC, Article 2, Clause 2, Point (d) on taxable income:

   “Other service expenses for individuals in healthcare, recreation, or aesthetic activities... if the payment clearly states the name of the individual benefiting. If the service payment does not specify the individual’s name but is for the collective of employees, then it is not taxable income.”

   Based on the above regulations, in the case of the company organizing a vacation or travel for its employees:

   • If the payment specifies the individual’s name or is made in cash to the individual, it will be considered taxable income for that individual.

   • If the vacation expenses are paid collectively for employees without specifying names, it will not be considered taxable income.

In summary, vacation expenses for employees are typically deductible for CIT purposes, and VAT can be claimed on these expenses. However, if the company compensates an employee for not participating in the trip in cash, it may be subject to PIT. Additionally, the VAT deduction conditions apply to travel expenses over 20 million VND paid by personal accounts or in cash.

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