PROCEDURE FOR DEDUCTIBLE MID-AUTUMN FESTIVAL GIFT EXPENSES

The gloomy Mid-Autumn Festival season is approaching, but that does not mean businesses cannot show appreciation to customers and employees with meaningful gifts. So, what can we do to ensure that the costs of purchasing Mid-Autumn Festival gifts are deductible when calculating corporate income tax (CIT) and can be refunded for value-added tax (VAT)?

1. VAT Calculation for Mid-Autumn Festival Gift Expenses for Employees and Customers

   • Input VAT: Input VAT on mooncakes given as gifts to employees and customers is deductible.

   • Output VAT: The business must declare and calculate output VAT for mooncakes given as gifts to employees and customers. The VAT calculation base is the VAT-inclusive price of similar or equivalent mooncakes at the time of giving them as gifts. Reference: Article 14, Circular 219/2013/TT-BTC

2. CIT Calculation for Mooncake Gift Expenses for Employees and Customers The cost of purchasing mooncakes to be given as gifts to customers is considered a deductible expense for the business.

   • The cost of purchasing mooncakes to give as gifts to employees is considered a reasonable expense. However, the total amount of employee welfare expenses should not exceed one month's average salary paid by the business. Reference: Circular 96/2015/TT-BTC

3. Necessary Documents for VAT Deduction and CIT Deduction for Mooncake Gift Expenses When the business gives mooncakes to employees or customers, a VAT invoice must be issued. Required documents for the business to deduct the cost of mooncake gifts for employees and customers as reasonable expenses:

   • A valid invoice for the purchase of mooncakes;

   • A purchase contract (if any);

   • Payment documents (via cash or bank transfer, which are the safest options);

   • Output VAT invoices (issued by the business);

   • A list of employees or customers receiving the gifts, with signatures confirming receipt.

   Additionally, the following documents should be clearly defined:

   • A decision from the company or the union’s executive committee regarding mooncake gifts for employees (if gifts are for employees);

   • Financial regulations, internal spending regulations, and salary and bonus regulations of the business.

4. Accounting Entries 4.1) When Purchasing Mooncakes and Importing into Inventory: Record the inventory entry: Debit Account 152, 153, 156: Value of materials, goods, etc., purchased for gifts. Debit Account 1331: Input VAT Credit Account 111, 112, 331: Total payment amount When the company releases goods for gifts, based on the output invoice, the accountant records: Debit Account 641 (or 6421 under Circular 133): Expense for goods given as gifts. Credit Account 152, 153, 156: Value of materials, goods, etc., purchased for gifts. Credit Account 3331: Output VAT.

   4.2) When Purchasing and Giving Gifts Directly to Customers or Employees: Debit Account 641 (or 6421 under Circular 133): Expense for purchasing gifts. Debit Account 133: Input VAT (if applicable) Credit Account 111, 112, 331: Amount payable for gift purchase. Credit Account 3331: Output VAT.

   4.3) Goods Given as Gifts to Employees Using the Reward and Welfare Fund:

   • When goods are used for gifts to employees from the company's reward and welfare fund, the accountant records: Debit Account 353: Total payment amount. Credit Account 511: Value of goods given as gifts. Credit Account 33311: Output VAT.

   • The accountant records the cost of goods, as follows: Debit Account 632: Cost of goods given as gifts. Credit Accounts 152, 153, 156, etc.: Cost of goods given as gifts.

5. Accounting for Gifts Received by the Recipient:

   • When the recipient receives the gift, the accountant records: Debit Account 156, 242, etc.: Total value of goods including VAT. Credit Account 711: Total value of goods including VAT.

   Please refer to Official Dispatch No. 633/TCT-CS.

Note:

• Goods used for promotional gifts registered with the Department of Industry and Trade are exempt from VAT (tax base = 0).

• Goods used for gifts not registered with the Department of Industry and Trade will be subject to VAT. The tax base for such goods is the sale price of similar goods at the same time.