Tax authorities identify violations as a company splits payroll payments to evade non-cash payment rules, triggering potential tax reassessment under new regulations

Tax authorities have warned that companies may be required to reassess corporate income tax if they structure payments in a way that does not reflect the true substance of the transaction. In a recent response to a company’s non-cash payment documentation for payroll costs, the Khánh Hòa Provincial Tax Department stated that the company’s approach effectively sought to avoid the non-cash payment requirement.

Official response and legal basis

The Khánh Hòa Provincial Tax Department issued Official Letter No. /KHH-QLDN2 regarding the company’s documentation for payroll payments made to workers who are ethnic minorities. The tax authority noted the company’s stated difficulties in implementing non-cash payroll payments. However, it emphasized that the relevant legal framework—Enterprise Income Tax Law No. 67/2025/QH15, Decree No. 320/2025/NĐ-CP, and Circular No. 20/2026/TTBTC—does not include provisions that would enforce the non-cash documentation requirement for certain one-off purchases of goods, services, and other payments of 5 million VND or more to take effect from December 31, 2026.

According to the tax authority’s interpretation, the company must apply the regulation from December 15, 2025. It also clarified that single payments under 5 million VND do not require non-cash payment documents to be deductible for Corporate Income Tax.

Conditions for deducting payroll expenses

Under the regulations cited by the tax authority, payroll expenses must meet the deduction conditions. Specifically, payroll payments must be:

• Clearly agreed in the labor contract;
• Paid to the correct recipients; and
• Supported by payment documents in accordance with applicable rules.

The tax authority further stated that, under the rules on deductibility, companies may deduct expenses for tax purposes only if the payment form satisfies all conditions. It noted that every single payment of 5 million VND or more—not only for goods or services but also for other payments—must have non-cash payment documents in accordance with VAT law requirements. The tax authority identified this as the legal basis for applying the rule to salaries and wages.

What qualifies as non-cash payment

The tax authority described non-cash payment as payment through lawful methods such as bank transfers from the company to the employee, using banks or legitimate payment intermediaries, and payment methods that meet VAT law requirements. It stated that paying salaries in cash, in kind, or via direct payment not through banking will not meet deduction conditions when the amount per payment is 5 million VND or more.

Audit findings: payment splitting

After examination, the tax authority concluded that the company deliberately split payment transactions to avoid the non-cash payment requirement. Based on this finding, the tax authority stated it has the right to reassess the company’s tax obligations based on the true nature of the transactions.

Practical compliance guidance

The Khánh Hòa Provincial Tax Department recommended that the company review its actual situation and study the relevant legal texts to ensure compliance. It also highlighted that, from the 2025 corporate income tax period, companies paying salaries of 5 million VND per payment or more must use non-cash methods for the expenses to be deductible for Corporate Income Tax.

In practice, tax authorities advised standardizing salary payments via bank accounts, requiring employees to provide valid personal accounts, ensuring payroll records and labor contracts align with transfer documents, and avoiding splitting payments in a way that exceeds the 5 million VND threshold.

Potential reassessment during audits

Authorities emphasized that deliberate splitting of payments that does not reflect the true transaction may be challenged and reassessed during audits.