1. Incurred losses

Concept: Incurred losses is the negative difference between taxable income and reasonable deductible expenses as permitted by the Corporate Income Tax Law.

Causes of Incurred Losses:

• The business’s revenue is lower than its costs.
• The business invests in new projects that have not yet generated profits.
• The business faces external factors such as natural disasters, pandemics, etc.

Impact of Incurred Losses:

• Reduce the business’s ability to pay.
• Create difficulties in raising capital for the business.
• Affect the business’s reputation.

2. Handling of incurred losses

a) Loss Carryforward

Concept: Carry forward tax losses incurred in the tax period to the taxable income of subsequent years.

Advantages:

• Reduce corporate income tax obligations for businesses in subsequent years.
• Help businesses have more time to overcome difficulties and stabilize business operations.

Disadvantages:

• Businesses need to closely monitor and manage the carryforward losses to ensure compliance with legal regulations.
• Carryforward losses can only be used to offset taxable income in subsequent years, not to offset taxes already paid in the past.

Conditions of application:

• Businesses must incur losses during the tax period.
• Businesses must fully comply with all regulations on documentation, procedures for transferring losses as prescribed by law.

Procedure for implementation:

• Businesses need to prepare a corporate income tax return for the year in which losses occurred and submit it to the tax authorities as required.
• In the tax return, businesses need to declare the amount of incurred losses and the amount of carried forward losses.
• The tax authorities will inspect and confirm the amount of carried forward losses of the businesses.
• Businesses can use the amount of carried forward losses to offset against taxable income of subsequent years after being confirmed by the tax authorities.

b) Loss Offset

Concept: Using the number of loss occurrences in the tax period to offset corporate income taxes previously paid.

Advantages:

• Helps businesses recover corporate income taxes previously paid.
• Reduces financial burden for businesses.

Disadvantages:

• Businesses can only offset losses against corporate income taxes previously paid within 5 years from the year the loss occurred.
• Businesses need to closely monitor and manage the number of losses to ensure compliance with legal regulations.

Conditions of application:

• Businesses must have incurred losses in the tax period.
• Businesses must have paid corporate income taxes in advance within the last 5 years from the year of incurring the loss.
• Businesses must fully comply with the regulations on loss offset files and procedures as prescribed by law.

Procedure for implementation:

• Businesses need to prepare a loss offset return and submit it to the tax authorities as required.
• In the loss offset return, businesses need to declare the amount of incurred losses, the amount of corporate income tax paid, and the amount of offset losses.
• The tax authority will inspect and confirm the businesses’ offset amount.
• Businesses can use the offset amount to pay corporate income tax or to settle other taxes.

c) Deducting Losses from Current Taxable Income

Concept: Directly deducting current losses from taxable income in the current year.

Advantages:

• Help businesses reduce their corporate income tax obligations for the current year.
• Help businesses have more resources to invest, develop business activities.

Disadvantages:

• Businesses may not benefit from carrying losses forward to future years.
• Businesses need to closely monitor and manage the amount of losses to ensure compliance with legal regulations.

Conditions of application:

• Businesses must have incurred losses during the tax period.
• Businesses must fully comply with regulations on documentation, procedures for deducting losses from taxable income as prescribed by law.

Procedure for implementation:

• Businesses need to prepare a corporate income tax return for the year in which losses occurred and submit it to the tax authorities as required.
• In the tax return, businesses need to declare the amount of losses incurred and the amount deducted from the taxable income.
• The tax authorities will inspect and confirm the amount deducted from the taxable income of the business.
• Businesses may pay less corporate income tax than the amount calculated based on the applicable corporate income tax rate for the business.