Vietnam Passes Amended Corporate Income Tax Law – Targeted Incentives with Anti-abuse Safeguards

Introduction

On 14 June 2025, the National Assembly of Vietnam passed the amended Law on Corporate Income Tax (“CIT“) (“Amended CIT Law“) with an approval rate of approximately 94.56%. The Amended CIT Law introduces notable revisions to the corporate tax framework to enhance the integrity and effectiveness of tax incentives while supporting key developmental sectors. The law is scheduled to take effect on 1 October 2025.

This Update outlines the key provisions of the Amended CIT Law and discusses their implications for businesses, including foreign-invested enterprises (FDIs).

Key Changes Under the Amended CIT Law

1. Standard and Preferential Tax Rates
   1. • The standard corporate income tax rate remains unchanged at 20%.
      • Enterprises with annual revenue not exceeding VND3 billion (approximately US$120,000) and VND50 billion (approximately US$2 million), as determined based on the fiscal year as defined under the CIT Law, will be eligible for preferential tax rates of 15% and 17%, respectively.
      • However, subsidiaries or enterprises with related-party relationships to larger entities are excluded from these incentives. This restriction aims to prevent the artificial fragmentation of businesses for the purpose of accessing SME-focused tax relief.

2. Sector-specific Preferential Rates
   • • A preferential CIT rate of 10%, applicable for up to 15 years, is granted to qualifying income derived from new investment projects in designated strategic sectors.
     • The eligible sectors include:
       • • high-tech industries
         • renewable energy
         • supporting industries
         • software development; and
         • venture capital activities.

3. Exemptions for Science and Technology Contributions
   1. • Income derived from contributions to scientific research, technological development, innovation, and digital transformation is exempt from corporate income tax.
      • However, this exemption does not apply to contributions made between related parties, due to concerns regarding transfer pricing manipulation and base erosion risks.

Our Observations

1. Definition and Clarity on Related Parties 

The effectiveness of the Amended CIT Law will largely depend on the clarity and consistency of related-party definitions within the context of tax incentives. Current interpretations under transfer pricing regulations may not fully align with the criteria for incentive eligibility, creating potential uncertainty for businesses with complex ownership or operational structures.

2. Internal Innovation at Risk 

Although the law aims to promote innovation, the exclusion of related-party contributions from tax exemption may inadvertently discourage intra-group investments in research, development, and digital transformation. A more refined framework, such as one incorporating valuation thresholds or safe harbour provisions, may provide a better balance between risk control and innovation encouragement.

3. Implementation and Compliance Requirements 

Effective implementation will require the prompt issuance of guiding decrees, clarity on eligibility criteria, and strong inter-agency coordination. Businesses are advised to conduct early-stage compliance assessments and consider seeking advance tax rulings or entering into Advance Pricing Agreements (APAs), where appropriate, to mitigate related-party risk exposure.

Conclusion 

The Amended CIT Law reflects a shift towards principle-based tax incentives, seeking to balance national development priorities with robust anti-avoidance safeguards. Enterprises should proactively reassess their group structures, monitor revenue thresholds, and closely follow the promulgation of implementing regulations to ensure effective and timely access to the new tax benefits.

If you have any queries on the above, please feel free to contact any of our team members.

This article was authored by Dr Le Hong Phuc.