When the State recovers land and an FDI enterprise receives compensation, the accounting questions are: where to book it, and is the amount subject to corporate income tax? Wrong treatment can draw audit qualifications and tax exposure.
Current accounting framework
FDI enterprises apply the Corporate Accounting Regime under Circular 200/2014/TT-BTC (still in force). The principle: compensation and support received on land recovery are recognised as other income (Account 711); the remaining value of recovered on-land assets (factories, structures) is derecognised through other expenses (Account 811). The net of income and expenses reflects the actual gain/loss from the recovery event in the period.
CIT on the compensation amount
For tax, compensation for land and on-land assets is taxable CIT income — current tax law provides no exemption for enterprise land-recovery compensation. It is declared in the taxable income of the receipt period under the CIT Law 67/2025/QH15. A commonly missed point: the corresponding cost (remaining asset value) is deductible in computing taxable income if properly invoiced and documented — so correct Account 811 booking also protects the tax position.
Audit and timing notes
Income is recognised when the right to compensation is firmly established — usually when the compensation plan is approved and a payment decision exists, not when cash arrives. Auditors will reconcile: the land recovery decision, the approved compensation plan, receipt vouchers, and asset derecognition minutes. Common errors: booking the entire compensation as core operating revenue (wrong in substance), or forgetting to derecognise the recovered assets from the books.
Frequently asked questions
1. Is land recovery compensation subject to CIT?
Yes. It is taxable CIT income — current law grants no exemption for enterprise land-recovery compensation. Declare it in the receipt period under CIT Law 67/2025.
2. Which accounts book the compensation?
Under Circular 200/2014/TT-BTC: compensation to other income (Account 711); the remaining value of recovered assets to other expenses (Account 811). Never to sales revenue.
3. When is the income recognised — at decision or at cash receipt?
When the right to compensation is firmly established (approved compensation plan, payment decision), under the accrual principle — not when cash hits the account.
4. What if compensation is replacement land instead of cash?
Recognise the new asset (land use right/asset) at fair value upon receipt, and derecognise the old asset. The difference is treated like the cash compensation case.
Key takeaways for investors
- Compensation to other income (Account 711); remaining asset value to other expenses (Account 811).
- Compensation is taxable CIT income — no exemption.
- Recognise when the right is firmly established, not on cash receipt.
- Never book compensation as core revenue — wrong in substance, draws audit qualification.
This article has been quality-reviewed by the FLAW AI Legal Council. Content is for legal reference only and does not replace lawyer advice for specific cases.