Accounting for hospitality expenses is the recording of expenses for welcoming and meeting customers and partners such as: food, gifts, travel, etc. in the accounting books. These expenses are often of the type cost of sales or business management costs, depending on the purpose of the occurrence.
The following article by Bizzi will provide detailed instructions on how to account for hospitality costs as well as suggest ways to manage hospitality costs appropriately.
What is the cost of hospitality?
Hospitality costs are expenses incurred during the process of businesses conducting activities to communicate and welcome customers, partners or authorities to maintain and develop business relationships. This is one of the important expenses for businesses to strengthen and expand relationships, thereby contributing to stable development and long-term success. Therefore, it is necessary to accurately account for hospitality costs to easily control cash flow.
Hospitality expenses may include the cost of food, gifts, flowers, movie tickets, tickets to performing events, accommodation, transportation, etc. These expenses are considered reasonable and necessary according to the law.
Regulations on reasonable entertainment expenses when calculating corporate income tax
Regulations on reasonable hospitality expenses when calculating corporate income tax (CIT) are clearly stated in Circular 78/2014/TT-BTC (and amended and supplemented by Circular 96/2015/TT-BTC).
Legal basis
Guidance on hospitality costs, including catering services involving alcohol, is provided in accordance with Official dispatch 1300/CTKGI-TTHT year 2024 of Kien Giang Provincial Tax DepartmentThis document is based on Article 4 Circular 96/2015/TT-BTC guidance on corporate income tax and regulations at Clause 1, Article 9 of the Law on Corporate Income Tax 2008 (amended and supplemented).
Conditions for deductible entertainment expenses
In order for entertainment expenses to be deducted when determining taxable income for corporate income tax (CIT), businesses must fully meet the following conditions:
- Actual expenses incurred directly related to the production and business activities of the enterprise
Expenses must be related to the production and business activities of the enterprise [3, 5a, 6, 45a, 69, 101, 116, 126]. This is a prerequisite for the expense to be considered reasonable. The expense must have sufficient legal invoices and documents according to the provisions of law.
- Expenditures must have sufficient legal invoices and documents [3, 5b, 6, 45b, 69, 101, 116, 127].
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- For paper invoices: Must fully comply with the regulations in Circular 39/2014/TT-BTC. Require suppliers to issue detailed invoices for dishes or attach a detailed list.
- For Electronic invoice: Must comply with the provisions of Decree No. 123/2020/ND-CP and Circular 78/2021/TT-BTC. Invoices must have full information on the specific list of goods and services, quantity, unit price and total amount.
- Expenses if there is an invoice for purchasing goods or services each time with a value of 20 million VND or more (price includes VAT) when paying must have a non-cash payment document.
Expenditures of VND 20 million or more (including VAT) must have non-cash payment documents (payment via bank) [3, 5b, 7, 33, 45c, 70, 101, 116, 127].
- Note on employee overhead costs
In case the enterprise provides an amount of money to the employee to support the reception of guests, this amount will be added directly to the employee's monthly salary and considered as their personal income tax (PIT). On the enterprise's side, the actual expense for reception of guests in the form of a lump sum in the employee's salary is still considered a reasonable expense if it has been actually paid to the employee and legal documents are provided.
Hospitality cost norms: No longer controlled 15%
Previously, the cost of entertainment was limited to not exceeding 10% of total deductible expenses (according to Circular 123/2012/TT-BTC), then 15% (according to Circular 78/2014/TT-BTC). However, from January 1, 2015, Point m Clause 2 Article 9 of the Law on Corporate Income Tax has been abolished by Law No. 71/2014/QH13. This means, Nowadays, the cost of hospitality is no longer limited by the norm. and will be considered reasonable expenses when calculating corporate income tax if they meet all conditions regarding invoices, documents and purpose of use.
Documents and certificates required for reasonable accounting of guest reception expenses
For the cost of hospitality to be considered reasonable, the set of supporting documents must include:
Bill
- VAT invoice or sales invoice.
- Electronic bill must have full information according to Decree No. 123/2020/ND-CP and Circular 78/2021/TT-BTC.
- Invoice generated from cash register Restaurant invoices are also considered valid if they contain sufficient information and have a tax code.
Payment documents
- Bill of payment and accompanying order (if there is no economic contract or service order form).
- Receipt (in case of cash payment).
- Non-cash payment voucher for bills from 20 million VND or more [3, 5b, 7, 33, 45c, 70, 101, 116, 127].
Other accompanying documents
- Detailed list of food, drinks, and incidental expenses.
- Service confirmation or economic contract (if booked in advance).
- Contract liquidation minutes.
- Corporate financial regulations There are clear regulations on guest fees and limits.
- Payment/Advance Request (if any).
- Documents such as invitation, guest list to demonstrate the valid purpose of the expense.
Detailed instructions on accounting for reasonable hospitality costs
Hospitality costs are often included in a business's operating expenses.
Accounting for hospitality costs according to Circular 200 and Circular 133
According to the provisions of Circular 200/2014/TT-BTC and Circular 133/2016/TT-BTC, accounting for guest reception costs is performed as follows:
- Debit account 642 (Business management costs) or Account 641 (Cost of sales): Record actual costs incurred.
- Debit account 1331 (Deductible input VAT): Record the deductible VAT amount (if any).
- Have account 111 (Cash), Account 112 (Bank deposit), or Account 131 (Payable to Seller): Record the total payment amount.
For example: The company spends 2,000,000 VND on hospitality expenses and VAT is 200,000 VND:
- Debit account 642: 2,000,000 VND
- Debit account 1331: 200,000 VND
- Credit account 111/112/131: 2,200,000 VND
Accounting for guest reception costs according to Decision 48
For Decision 48, hospitality expenses are also accounted for under similar accounts:
- Debit account 6421/6422 (Business management costs): Record actual costs incurred.
- Debit account 1331 (VAT): Record the deductible VAT amount (if any).
- Credit account 111/112/131 (Cash/Bank Deposit/Payables to Vendors): Record the total amount payable.
For example: The company spends 1,500,000 VND on hospitality expenses and VAT is 150,000 VND:
- Debit account 6421 (or account 6422): 1,500,000 VND
- Debit account 1331: 150,000 VND
- Credit account 111/112/131: 1,650,000 VND
Accounting for hospitality costs without invoices
When hospitality expenses do not have invoices, businesses need to comply with regulations to ensure validity and transparency:
- Create replacement documents: It is necessary to make a record of expenses, payment vouchers or a detailed list of entertainment expenses. These documents must be signed by an authorized person.
- Bookkeeping: Record the cost of entertaining guests into the appropriate accounts such as Account 641 (Cost of sales) or Account 642 (Business management costs).
- Keep expense records: Expense records must be signed by the responsible person and the person receiving the expense.
- Related documents: Keep documents such as invitations, guest lists and other evidence to demonstrate the valid purpose of the entertainment expenses.
- Reasonable purpose: Ensure that hospitality expenses directly serve the business operations of the enterprise and are related to specific jobs.
- Qualify for tax deductions: Only reasonable entertainment expenses that require valid documentation are allowed to be deducted from taxes according to the law.
- Expense trackingBusinesses need to closely monitor hospitality costs to ensure they do not exceed their planned budget.
- Financial report: Reasonable hospitality expenses should be fully updated in the financial statements according to current accounting standards.
Important notes and common mistakes when accounting for hospitality costs
When accounting for hospitality expenses, especially to include them in reasonable expenses when settling corporate income tax, there are some important notes and common mistakes that businesses need to avoid. Below is a detailed summary:
How to write the name of goods/services on the invoice
When invoicing for hospitality expenses, businesses should note to write the invoice name as “Food Service” instead of “Reception” because there is no specific industry code for “Reception” in the Decision on business registration industry codes. Invoices with the name of goods and services as “Food and beverage services”, “Reception meals”, “Reception meals” need to be must be accompanied by a detailed list of food and drinks used
Distinguish between invoice and payment bill
Many accountants often confuse invoices and payment bills. In fact, many restaurants only issue payment bills and do not have the value of being used as a valid invoice. If you only rely on payment bills, it will not be enough to record the cost of hospitality in the business management cost.
Other non-deductible expenses
Some expenses incurred in connection with personal entertainment for management or clients (e.g. golf cost) are usually not considered as production and business expenses and therefore are not deductible from VAT, nor are they deductible when calculating corporate income tax. If this expense clearly states the name of the individual receiving it, it will be included in that individual's taxable income.
Optimize reasonable hospitality cost management with Bizzi Solution
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Automate the input invoice processing process
Bizzi uses Bizzi Bot with RPA and AI technology to Automatically download, check and reconcile input invoices. This solution helps:
- Automatic invoice reconciliation – PO – GR: Reconcile invoice details with purchase orders (POs) and warehouse receipts (GRs) in real time to detect discrepancies.
- Verify valid supplier: Check tax code, activity status on tax system.
- Risky Invoice Warning: Detect invoices from suppliers that show signs of risk.
- Automatically record and store input invoices: With a 10 year retention period, regulatory compliance is guaranteed.
- API Integration with ERP & Accounting Systems: Synchronize data with accounting software and business management systems.
Manage and monitor expenses effectively (Bizzi Expense)
Bizzi Expense feature helps businesses manage expenses closely:
- Set and monitor budgets: Allocate budget by department/project and warn when spending exceeds budget.
- Automated expense approval system: Help speed up the approval process of spending requests with flexible approval flow.
- Real-time expense tracking and expense reporting: Provide detailed updates and reports by category, department or project.
- Establish and enforce spending policies: Ensure compliance with company regulations.
- Electronic invoice authentication: Check the validity of invoices according to accounting regulations.
- Attach spending to each project or task: Easy to track and report.
Integration with accounting & ERP systems
Bizzi integrates APIs with accounting software and enterprise resource planning (ERP) systems, seamlessly synchronizing data. This minimizes errors in data entry and optimizes document and accounting control, speeding up the accounting step for guest expenses.
Conclude
In short, accounting for hospitality expenses in accordance with regulations is a key factor for businesses to optimize costs and minimize risks in the tax settlement process. With current regulations, hospitality expenses are no longer subject to a limit, but the requirements for valid documents, invoices and purposes of use are still very strict.
Applying technology solutions such as Bizzi can significantly support businesses in automating, controlling and ensuring the transparency and validity of these expenses, thereby improving the efficiency of reasonable guest cost management and financial and tax management capacity.
Bizzi is ready to listen to business problems to design optimal software, meeting the needs of solving cost problems. To experience solutions from Bizzi, register for a product trial here: https://bizzi.vn/dang-ky-dung-thu/
