Understanding Vietnam’s New Corporate Income Tax Rates

Vietnam has introduced a significant update to its corporate income tax (CIT) system through Decree 320/2025/ND-CP, which details the implementation of the Law on Corporate Income Tax. This change aims to provide preferential tax rates for certain businesses, particularly those with lower revenues. Here’s a closer look at the new tax structure, what it means for businesses, and the implications of deductible expenses.

Corporate Income Tax Rates

Under the revised decree, the standard corporate income tax rate is set at 20 percent. However, preferential rates apply based on total revenue from the previous year:

• 15 Percent Rate: This lower rate is applicable to enterprises that reported total revenues of not more than VND 3 billion (approximately USD 114,000) during the preceding year. This adjustment is particularly beneficial for small businesses and startups, allowing them to retain more of their earnings to fuel growth and innovation.

• 17 Percent Rate: For businesses that exceeded the VND 3 billion threshold but did not surpass VND 50 billion, a CIT rate of 17 percent is instituted. This tiered approach enables medium-sized enterprises to enjoy a reduced tax burden, fostering a more conducive environment for their operations.

It’s essential to note that total revenue used to assess eligibility for these tax rates includes all income from sales and services (excluding deductions), as well as financial activities and other income reported in the enterprise’s business result statements.

Structure of Deductible Expenses

The new decree also delineates specific deductible expenses that can be claimed when calculating taxable income for CIT. Understanding what constitutes a deductible expense can significantly influence a business’s tax liability and overall profitability.

Major Categories of Deductible Expenses

1. Transaction-Based Expenses: Any expenses related to the purchase of goods and services exceeding VND 5 million per transaction are deductible, provided there’s proof of payment through non-cash methods. This rule encourages the traceability of transactions and bolsters financial transparency.

2. Research and Development Costs: Enterprises can deduct costs incurred for market research, product development, and service enhancement. This incentive underscores the government’s commitment to fostering innovation and competitiveness in the marketplace.

3. Investment Costs: Should investments aimed at developing new products or services ultimately fail or be discontinued, businesses can still claim a deduction for these expenses. This policy acknowledges the risks often associated with innovation and offers a safety net for companies exploring new avenues.

4. Output VAT on Gifts: Any output VAT related to goods given as complimentary gifts to customers is also deductible. This provision encourages businesses to enhance customer relationships through promotional gifts without facing adverse tax implications.

Conclusion

The implementation of Decree 320/2025/ND-CP marks a significant shift in Vietnam’s corporate tax landscape, particularly for small and medium-sized enterprises. By offering preferential tax rates and clarifying deductible expenses, the government aims to stimulate economic growth, encourage innovation, and create a more supportive environment for businesses to thrive. As companies navigate this new framework, understanding the specifics of these tax regulations will be crucial for optimizing their financial strategies.