My company has signed a contract with a distributor with terms of applying trade discounts over time. I would like to be advised on some of the following issues:
1) Does my company have to register for promotions in accordance with the law when doing trade discounts?
2) Will my company receive a revenue deduction when calculating the Value Added Tax for discounted goods under the Contract?
3) How is the calculation of Enterprise Income Tax when implementing trade discounts?
I would like to be advised soon. Thank you!
Sincerely thank you for your concerning our legal consulting service. We are glad to give you our advice for your question.
Firstly, is it compulsory to register for promotions for trade discounts?
Trade discount means a reduction of the listed price granted by the selling enterprises to the buyers of large volumes of goods. (According to Clause 3 of Standard No. 14 on turnover and other incomes of The system of Vietnamese accounting standards Issued and publicized together with Decision No. 149/2001/QD-BTC dated on December 31, 2001, and Clause 1c Article 81of Circular No. 200/2014/TT-BTC dated on December 22, 2014, on guidelines for accounting policies for enterprises).
According to Official Dispatch No. 1868/CT-TTHT on trade discount and payment discount: “In case the Company conducts trade discounts for customers based on sales volume of a certain month, quarter or year according to the contract signed by the two parties, the discount amount of the goods is adjusted on the last invoice of goods or services sold. In case the discount amount set up at the end of the sale program (period), the invoice shall be adjusted with the list of adjusted invoices, the adjusted amount and tax amount as prescribed above. In case of not signing sale contract, parties shall comply with the trade law on trade discount (Promotion program must be registered with the Department of Industry and Trade of the Ministry of Industry and Trade).”
Thus, in this case, it’s not compulsory to register the trade promotion for trade discount under the sale contract.
Secondly, for calculating the VAT
According to Clause 22 Article 7, Part I, Chapter II of Circular No. 219/2013/TT-BTC dated on December 31, 2013, on guidance on the implementation of Law on VAT:
“If the seller offers a discount, the taxable price is the discounted price. If the discount is offered according to the sales, the discount shall be included in the invoice for the last sale or transferred to the next period. If the discount is offered after the sales promotion is over, an adjustment shall be made, specifying the numbers of the invoices that need adjusting and the adjustments to the payments and tax. According to the adjustment, the buyer and the seller shall adjust their revenues, input and output taxes”.
According to Clause 2.5 Appendix 4 of Circular No. 39/2014/TT-BTC: “Regarding goods/services applying sales discounts for clients, the VAT invoice shall state the trade discount, VAT, VAT-inclusive price.
If the sales discount is offered according to the quantity of revenue of goods/services, the discount amount of the sold goods/services shall be modified in the invoice of the final purchase or subsequent period. If the discount amount is stated upon the closing of the sales discount program (period), a modified invoice together with a list of invoices, amount of money and tax that need to be modified are required. According to the modified invoice, the seller and the buyer shall modify the revenues, input VAT and output VAT.”
Therefore, the Company has made a direct deduction on VAT invoices for commercial discounts (discount, discount based on certain sales volume), the Company is entitled to a deduction of revenue when calculating VAT. The Company must show sufficient invoices and vouchers to prove the reduction of revenue and not to collect actual money for these discounts.
Thirdly, calculation of Enterprise Income Tax
According to Official Dispatch No. 1868/CT-TTHT dated by HCM City Taxation Department on March 04, 2016: “In case the sale contract signed with payment discount for payment in advance, the Company shall base on the sales contract with term of payment discount, payment documents to calculate the deductible expense when calculating Enterprise Incomes Tax”.
According to Official Dispatch No. 1422/CT-TTHT by HCM City Taxation Department on February 13, 2018:
“At Point 2.5, Appendix 4, promulgated with the Circular No. 39/2014 / TT-BTC by Ministry of Finance on March 31, 2014, guiding invoices on goods and service:
“2.5. Goods and services applied trade discount for customers shall be added to the VAT invoice for the trade discounted price for customers, VAT and total VAT-inclusive payment price.
If the trade discount is based on the quantity and turnover of goods or services, the discounted amount of sold goods shall be adjusted on the goods and service sale invoices of the last or subsequent purchase. In case the discount amount is set up at the end of the sale program (period), the invoice shall be adjusted with the list of adjusted invoices, the adjusted amount and tax amount. The seller and the buyer declare to adjust the sales, output and input taxes based on the adjusted invoice.”
Accordance with the above provisions, in case the Company implements a trade discount program for customers (in accordance with commercial law on trade promotion activities), the sales achieved a certain level and the economic contract signed by the two parties, the Company invoices according to the guidance at Point 2.5, Appendix 4 promulgated with Circular No. 39/2014/TT-BTC, the Company declares this trade discount on the tax period corresponding to the date of the discount invoice. Expense accruals shall not be made before determining the income subject to enterprise income tax.”
Above are the advice of FDVN Limited Law Firm base on studying law provisions and theories. We hope that our opinions would be useful.
Legal Expert: Nguyen Thi Suong
FDVN Law Company
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