DRAFT CIRCULAR REPLACING CIRCULAR 48/2019 ON THE MAKING OF PROVISIONS AT ENTERPRISES

The Ministry of Finance is currently seeking comments on a new draft Circular guiding the making and treatment of provisions at enterprises. This document is expected to replace Circular 48/2019/TT-BTC in its entirety and will directly affect deductible expenses upon corporate income tax (“CIT”) finalization.

Notable points of the draft Circular are as follows:

Key change: addition of a fifth category of provision

Instead of only 4 categories of provision as previously provided under Circular 48/2019/TT-BTC, the new draft formally increases the total number of categories to 5 categories of provision treated as deductible expenses:

• Newly added provision: Provision for impairment of biological assets (consistent with new accounting regulations such as Circular 99/2025/TT-BTC).
• The 4 traditional categories of provision remain unchanged: decline in the value of inventories; impairment of investments; doubtful debts; and warranty of products, goods, services and construction works.

Clarification of the timing of making and reversing provisions: Provisions are made and reversed upon preparation of the annual financial statements; warranty provisions, however, are made concurrently with the time of revenue recognition.

Increased responsibility of enterprises: Enterprises may proactively develop management regulations and determine the level of provisions, but are responsible for the accuracy and reasonableness of the figures and for providing explanations upon inspection by the tax authorities.

⇒ Enterprises should review and update their management regulations on inventories, investments, receivables and warranties, and should prepare the database and supporting documents substantiating the level of provisions, particularly in respect of biological assets, in order to mitigate the risk of provision expenses being disallowed upon CIT finalization.