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Loss-making businesses must pay personal income tax
Personal income tax takes an important role as the main turnover of the state budget and social justice. However, there are unreasonable cases; loss-making business households or business individuals must pay personal income tax.
Clause 2, Article 4, Circular No. 40/2021/TT-BTC prescribes the calculation principles as follows:
“2. Business households and business individuals that generate a turnover of up to VND 100 million from production and business activities in a calendar year will be exempt from VAT and PIT in accordance with the laws on VAT and PIT. Business households and business individuals shall make accurate, truthful and adequate tax declarations and submit their tax dossiers within a law-specified time limit, and take responsibility before law for the accuracy, truthfulness and adequacy of their tax dossiers under regulations.
Accordingly, the base of personal income tax is for business households and business individuals that generate a turnover of up to VND 100 million from production and business activities in a calendar year.
It is important to note that a great amount does mean a profitable turnover. Even in many cases, the revenue is over 100 million VND/year but still lost; In this case, business households and individuals still have to pay personal income tax and value-added tax in accordance with the provisions of the law.
Note: For business households and business individuals that carry out business activities in groups, the turnover level of up to VND 100 million per year for identifying an individual exempt from VAT and PIT shall be determined for the sole (1) representative of the group of individuals or households in the tax year (Clause 3, Article 4, Circular No. 40/2021/TT-BTC).
The calculation of personal income tax for business households and business individuals
Although the calculation of personal income tax and value-added tax is different, the payable VAT amount and PIT amount is defined as follows:
Pursuant to Article 3, Article 10, Circular No. 40/2021/TT-BTC, the payable VAT amount is defined as follows:
Payable VAT amount = VAT-liable turnover amount x VAT rate
Payable PIT amount = PIT-liable turnover amount x PIT rate
Within that:
Turnover amounts liable to VAT and those liable to PIT for business households and business individuals are tax-inclusive turnover amounts (in case such amounts are liable to taxes) generated in a tax period, including sales turnover, processing remuneration, commissions, and charges for service provision from goods production and service provision activities:
+ Bonuses and support amounts for the achievement of sales turnover targets, sales promotion, commercial discounts, payment discounts, and support in cash or in kind;
+ Price subsidies, surcharges, extra charges, and additional levies generated by such households and individuals under regulations;
+ Compensations for contract breaches and other compensations (only included in PIT-liable turnover amounts);
+ Other turnover amounts generated by such business households and individuals, regardless of whether such amounts have been collected or not.
- Tax rates calculated on turnover amounts include VAT rates and PIT rates applicable to different fields, sectors, and trades as specified in Appendix I to Circular No. 40/2021/TT-BTC.
In case a business household or business individual is engaged in different fields, sectors, or trades, it/he/she shall declare and calculate taxes at rates calculated on turnover amounts applicable to such fields, sectors, or trades.
In case a business household or business individual cannot determine the taxable turnover amount in each field, sector, or trade or has determined such amount not in conformity with the practical business activities, a tax office shall assess the taxable turnover amount of each field, sector or trade in accordance with the law on tax administration.
Here are the regulations which clarify statements that loss-making business households and business individuals generate a turnover of up to VND 100 million from production and business activities in a calendar year.
