Expenses that are not deductible when calculating corporate income tax are one of the common reasons why businesses face tax arrears, late payment penalties, and increased risks during tax audits. Many expenses, even those fully accounted for in the books, may still be disallowed by the tax authorities if they do not meet the requirements regarding invoices, supporting documents, payment, or relevance to business operations. Understanding the true nature of these expenses, grasping the legal basis, and proactively controlling them from the outset will help accountants and business owners minimize errors, optimize tax obligations, and protect the legal safety of their financial operations in 2026.
What expenses are not deductible when calculating corporate income tax?
According to Article 6 of Circular 78/2014/TT-BTC, as amended and supplemented by Circular 96/2015/TT-BTCExpenses that are deductible when determining taxable income must fully meet the legally stipulated conditions. Conversely, expenses that do not meet the conditions will be disallowed when calculating corporate income tax, even if the business has recorded them in its accounting books.
In other words, these are expenses that have actually been incurred but lack sufficient legal basis or are not in accordance with tax regulations to reduce the taxable income of the business.
In fact, many businesses confuse accounting expenses with tax-deductible expenses. Financial accounting reflects the nature of the transactions, while corporate income tax requires additional conditions regarding documentation, purpose of use, and payment method.
Conditions for the expenditure to be accepted
According to Circular 96/2015/TT-BTC, businesses need to simultaneously meet the following conditions:
Expenses incurred and related to business operations.
Expenses must directly serve the production and business activities of the enterprise. Personal expenses, internal consumption unrelated to revenue, or outside the scope of registered business activities are usually disallowed.
For example:
- The expenses were for purchasing goods for the director's family.
- Costs for repairing personal property.
- Travel expenses are not related to business trips or programs aimed at supporting business activities.
We have all the necessary legal invoices and documents.
Businesses must keep complete records of:
- Valid electronic invoice
- Economic contract
- Receipt and delivery record
- Receipt and payment voucher
- Service acceptance records
- Bank documents
According to Decree 123/2020/ND-CP and Circular 78/2021/TT-BTCElectronic invoices must ensure that they contain all mandatory information, are issued at the correct time, and include accurate buyer information.
Cashless payment for bills of 20 million VND or more.
For purchases of goods and services with a value of 20 million VND or more (including VAT), non-cash payment documentation is required.
Legal basis:
- Article 6 of Circular 78/2014/TT-BTC
- Clause 10, Article 1 of Circular 26/2015/TT-BTC
Valid payment methods include:
- Bank transfer
- Payment authorization
- Electronic payment
- Payment via business account
If payment is made in cash, the expense risks being disallowed entirely, even if the goods or services were actually rendered.
Expenses with supporting invoices and receipts are often disallowed.
Invoices and supporting documents are the most important legal basis for tax authorities to consider whether an expense is acceptable. Even a single error in elements such as the purpose of use, the validity of the supplier, the information on the invoice, or the payment method can result in the entire expense being disallowed, even if the transaction actually occurred. Below are some of the most common cases that accountants need to pay special attention to.
Invoices not related to business operations.
Tax authorities typically examine the relationship between an expense and the business's industry. Expenses that cannot be substantiated for business purposes will be disallowed.
For example:
- The construction company incurred expenses for cosmetics and jewelry.
- Food purchases not intended for production activities.
Using invoices from businesses with tax risks.
Invoices from businesses that have abandoned their business address, ceased operations, show signs of invoice trading, or are subject to invoice enforcement are usually scrutinized very carefully.
If the actual transaction cannot be proven, the business may:
- Expenses excluded
- Input VAT deduction is excluded.
- Administrative penalties imposed for invoice-related issues.
Invoice information errors
Common mistakes include:
- Incorrect tax identification number
- Incorrect business name
- Incorrect address
- Incorrect invoice issuance time
If an adjustment or replacement invoice is not issued in accordance with Decree 123/2020/ND-CP, the expenditure may not be accepted.
Depreciation expenses for fixed assets are easily disallowed.
Depreciation of fixed assets is a group of expenses that are often subject to adjustment during tax audits.
According to Circular 45/2013/TT-BTC, businesses should note the following:
Depreciation of assets not used in business operations.
Assets that are not used in production or business operations will not be eligible for depreciation.
For example:
- The business owner's personal residence
- Vehicle for private purposes
- Assets not yet in use.
Depreciation exceeding the prescribed limit.
Businesses are not allowed to arbitrarily shorten the depreciation period beyond the prescribed limit without a valid reason. Tax authorities often conduct inspections:
- Property registration file
- Handover record
- Decision to put into use
- Depreciation method
Depreciation of passenger cars exceeds 1.6 billion VND.
According to corporate income tax regulations, the portion of the original cost exceeding VND 1.6 billion for passenger cars with fewer than 9 seats is not deductible as an expense (except for businesses in the transportation, tourism, and hotel industries).
For example: The company purchased a vehicle worth 2.5 billion VND. The excess amount of 900 million VND will be excluded when calculating depreciation expense and tax.
Salaries, bonuses, and benefits require special attention.
Salaries, bonuses, and benefits are always among the items that tax authorities scrutinize very carefully during corporate income tax settlement, because these are expenses prone to errors in internal records, payment vouchers, and legal basis. Even if a business has actually paid its employees, if there is a lack of clear regulations or if the conditions are not met according to regulations, that expense may still be disallowed as a deductible expense. Below are some points that businesses need to pay special attention to.
Salaries and bonuses lack clear regulations.
Bonuses must be specifically defined at:
- Employment contract
- Labor agreement
- Financial regulations
- Salary and bonus regulations
If a business only records expenses without clear internal justification, the tax authorities may assess that there is insufficient basis for calculating the expenses.
Salary expenses have been accounted for but not yet paid.
According to Circular 96/2015/TT-BTC, unpaid salaries by the deadline for submitting annual tax returns will not be included in deductible expenses.
Business owner's salary
The following items are not deductible:
- Salaries of private business owners
- Remuneration of the owner of a single-member limited liability company owned by an individual.
The reason is that these amounts are considered income for the owner, not business expenses.
Welfare expenses exceed the prescribed limit.
Legal basis: Clause 4, Article 1 of Circular 96/2015/TT-BTC stipulates that expenses of a welfare nature for employees can be deducted up to a maximum of one month's average actual salary in the year. This includes:
- Vacation
- filial piety and joy
- Birthday
- Assistance for those in need.
- Physical examination.
Any excess amount will be disallowed during the final settlement.
Interest expense and related-party transactions
Interest expense is one of the expense categories that tax authorities scrutinize very closely, especially for businesses with large borrowings or related-party transactions. If a business has not contributed its full charter capital, borrows from related parties, or has total interest expense exceeding the prescribed limit, the corresponding interest expense may be disallowed when determining taxable income. Therefore, accountants need to separately track each loan, capital contribution record, and interest expense limit to avoid the risk of disallowance during corporate income tax settlement.
Interest accrued on the remaining unpaid registered capital.
According to the current Enterprise Law and tax regulations, enterprises that have not contributed the full amount of their charter capital as committed will not be allowed to deduct interest expenses corresponding to the remaining capital shortfall.
This is a common mistake among newly established businesses or those raising capital but not yet contributing the full amount.
Control interest expense based on EBITDA
According to Decree 132/2020/ND-CP, The total net interest expense of a business with related-party transactions is capped at 30% EBITDA.
Excess:
- Not deductible in the current period.
- Can be transferred for up to 5 years thereafter.
Businesses need to track this difference separately to avoid losing tax benefits in subsequent years.
See details: How to calculate interest expense according to Decree 132.
Particularly for FDI enterprises with complex related-party transactions, depreciation of fixed assets, or cross-border advertising expenses, the hire chief accountant This will help control tax risks at a strategic level, build a sound financial system, and optimize tax obligations legally and sustainably.
Marketing and Multimedia Communication Costs
Advertising expenses on foreign platforms include:
- Facebook Ads
- Google Ads
- TikTok Ads
- LinkedIn Ads.
These items are usually subject to very close scrutiny by the tax authorities.
To have expenses approved, businesses need to:
- There is appropriate payment documentation.
- There is a contract or service document.
- Declare and pay foreign contractor tax if applicable.
A common risk is when employees use personal credit cards to pay for advertising, and then the company reimburses them. This can easily lead to the company being judged as not meeting its cashless payment requirements.
How to handle the process when preparing the corporate income tax return.
When expenses arise that do not meet tax requirements, accountants must still record them fully in the accounting books to accurately reflect the nature of the transaction.
However, when preparing the tax return form 03/TNDN, businesses need to:
Step 1: Compile a list of disallowed expenses.
Review all records:
- Bill
- Payment voucher
- Internal regulations
- Labor records
- Fixed asset records.
Step 2: Adjust spending B4
Non-deductible amounts will be entered into item B4 on the corporate income tax return to adjust taxable income upwards.
Step 3: Monitor the difference
Not all disallowed expenses are treated the same when settling corporate income tax. In practice, accountants need to clearly distinguish between permanent and temporary differences to determine the correct adjustments on Form 03/TNDN and to monitor the possibility of deductions in subsequent periods. Accurate classification not only helps businesses declare correctly but also minimizes the risk of overlooking legitimate tax rights. The table below shows common cases encountered in tax settlement practice.
| Expenditure | Classification of differences | How to handle it |
| Administrative fines | forever | All types |
| Interest expense exceeds 30% EBITDA | Temporary | Track and transfer periods. Note that it should not exceed 5 consecutive years. |
| Vehicle depreciation exceeds 1.6 billion. | forever | Type of excess |
| Overspending on welfare benefits | forever | Adjusting taxable income upwards |
Proper classification helps businesses better control their data and avoid missing out on expense carry-forward rights in subsequent periods.
Common mistakes businesses make when settling taxes.
Based on our review of business records, the following errors are very common:
Pay cash for large bills.
This is the error with the highest rejection rate during tax audits.
Insufficient bank payment records.
Many businesses make bank transfers but don't record them:
- Debit notice
- Payment authorization
- Bank statement.
This makes it difficult to prove the actual transaction.
Lack of documentation for foreign advertising.
Businesses often only have Visa card statements and not:
- Contractor tax certificate
- Service documentation
- Contract or terms of transaction.
Salary and bonus records lack legal validity.
Not issued:
- Salary and bonus regulations
- Financial regulations
- KPI policy.
Therefore, this led the tax authorities to question the legitimacy of the expenditure.
For businesses that are entering their annual reporting period or need to process data for corporate income tax settlement, the following is necessary. hire an accountant to prepare financial statements. Consulting with specialized, reputable, and experienced units like MAN – Master Accountant Network is an effective solution to ensure the accuracy of data and to detect non-deductible expenses early before submitting tax returns to the tax authorities.
What can businesses do to mitigate risk?
To reduce the risk of expenses being disallowed during tax settlement, businesses should:
- Establish a document control process right from the start.
- Issue complete internal regulations.
- Verify the validity of invoices before processing them.
- Make payments according to regulations.
- Regularly review expenses with high tax risk.
- Keep track of temporary discrepancies separately to avoid losing tax benefits.
With tax authorities increasingly strengthening the verification of electronic invoices and bank transactions, proactively checking records before tax settlement is no longer an option but a mandatory requirement for all businesses.
Conclude
Accurately identifying non-deductible expenses when calculating corporate income tax not only helps businesses mitigate the risk of tax arrears, penalties, and late payment fees, but also forms the crucial foundation for building a transparent and sustainable financial management system. In the context of tax authorities increasingly strengthening the verification of electronic invoices, bank transactions, and tax settlement documents, proactively reviewing documents, implementing internal controls, and staying updated on new tax policies are mandatory for all businesses.
For businesses without a sufficiently strong internal accounting department, controlling expenses and handling tax settlements often carries significant risks if there is a lack of in-depth review. Consider your options. full accounting service This will help businesses standardize documentation, control costs from the outset, and minimize the risk of being disallowed during tax audits.
If your business needs tax record review, deductible expense verification, or advice on corporate income tax settlement in accordance with regulations for 2026, MAN – Master Accountant Network will be a reliable partner, helping to optimize legal tax obligations and protect your business from future tax audit risks.
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder and CEO of MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Frequently Asked Questions about Non-Deductible Expenses When Calculating Corporate Income Tax
Generally, expenses without legal invoices or supporting documents are not eligible for deduction when determining corporate income tax. However, in some specific cases, such as purchasing agricultural products directly from producers or purchasing services from non-business individuals, a list of expenses as prescribed in Circular 78/2014/TT-BTC and accompanying supporting documents may be used as a basis for accounting.
If a business has already paid an invoice of 20 million VND or more in cash, this expense will not meet the non-cash payment requirements for tax deduction. Subsequent bank transfers are not always accepted by the tax authorities, especially when the actual cash flow and the nature of the transaction cannot be clearly demonstrated.
Yes, if the business has established comprehensive regulations on salaries and bonuses, labor contracts, or collective bargaining agreements that clearly specify the conditions for receiving bonuses, the amount of bonuses, and the actual payments made to employees. If only internal accounting is used without legal basis or if the bonuses have not been actually paid, these bonuses may be disallowed during tax settlement.
No. Interest expense is only acceptable when it serves business operations and complies with legal regulations. If the enterprise has not contributed its full charter capital, has related-party transactions, or the total interest expense exceeds the 30% EBITDA limit as stipulated in Decree 132/2020/ND-CP, the corresponding interest expense may be disallowed or carried over to the next period. Are expenses without invoices considered deductible?
Can invoices over 20 million VND paid in cash be supplemented by a bank transfer later to be considered valid?
Are year-end bonuses for employees considered a deductible expense?
Is interest on bank loans always a deductible expense?
