Decree No. 320/2025/ND-CP: A Comprehensive Overhaul of Vietnam’s Corporate Income Tax System

Decree No. 320/2025/ND-CP is a landmark initiative in Vietnam’s economic landscape, marking a significant shift in the corporate income tax (CIT) framework. Officially enacted on December 15, 2025, this decree aims to provide clarity and efficiency as Vietnam adapts its tax policies to accommodate a rapidly digitalizing economy. It lays down essential rules governing taxpayers, withholding responsibilities, capital transfers, and tax incentives.

Effective Date and Implementation Guidance

The decree is effective as of December 15, 2025, which aligns with the 2025 CIT assessment period. However, enterprises have the option to implement several provisions flexibly. They can choose to apply rules on revenue recognition, deductible expenses, and tax incentives at different intervals:

• The start of the 2025 tax year.
• The 2025 CIT Law’s effective date, which is October 1, 2025.
• The effective date of Decree 320 itself.

This flexibility allows companies to adapt to the new rules without disrupting their operations significantly.

Annulling Previous Directives

Decree 320 also revokes several earlier directives, aiming to streamline and modernize the regulatory landscape. By doing so, it eliminates obsolete practices and paves the way for a more robust tax compliance system that aligns with international standards.

Clarity for Foreign Taxpayers

A major aspect of Decree 320 is its implications for foreign enterprises. Under Article 2, it is clarified that:

• Tax Obligations: Foreign entities with a permanent establishment (PE) in Vietnam are liable for CIT on income generated both inside and outside Vietnam that relates to their operations. Moreover, they are taxable on income generated within Vietnam, even if not directly linked to their PE.

• E-commerce and Digital Transactions: Income from e-commerce or digital platforms is also taxable, making it clear that all business activities, including online ones, are subject to regulation.

This approach effectively extends tax obligations to foreign businesses engaging in Vietnamese markets, thus promoting fairness and accountability.

Expanded Withholding Tax Responsibilities

Decree 320 enhances the responsibilities of Vietnamese entities acting as taxpayers on behalf of foreign enterprises. This includes:

• Any party engaging in service transactions with foreign companies must withhold tax while remitting it to the government.
• Collaborations involving e-commerce activities also fall under this provision, placing an added compliance burden on local businesses.

This adjustment aims to create a clearer taxation framework and minimize loopholes.

Capital Transfer Taxation

Another crucial component of the decree is the taxation of capital transfers, set at a rate of 2%. This rate applies to various transactions, including:

• Direct transfers of shares in Vietnamese companies.
• Transfers via offshore entities with indirect connections to Vietnamese subsidiaries.

Certain intra-group restructuring operations are exempted from this tax, provided they do not alter the ultimate parent company’s ownership or result in taxable income. This nuanced approach seeks to encourage healthy corporate restructuring while ensuring tax compliance.

Tax Exemptions and Incentives

Decree 320 also expands tax exemptions and introduces new incentives, particularly concerning technological advancements. Key highlights include:

• Exemptions now cover income from technical services aimed at enhancing agricultural activities, such as flood control and soil treatment. This change is a strategic move to support Vietnam’s agricultural sector and promote sustainable practices.

• The period for income derived from new technologies eligible for CIT exemption is reduced to three years, down from five. To qualify, the technology must be certified as first-time applied in Vietnam, ensuring that genuine innovations receive support.

Lower Threshold for Non-Cash Payments

One notable change is the reduction of the deductible threshold for non-cash payments from VND 20 million to VND 5 million. This adjustment encourages transparency in transactions and compliance with tax regulations while simplifying the record-keeping process for businesses.

Transitional Provisions

Businesses with ongoing projects that were granted tax incentives prior to the passage of Decree 320 will retain those benefits for the remaining incentive period unless the new regulations offer more favorable conditions. This transitional measure is crucial for maintaining stability during the shift to new tax rules.

Preparing for the Change

To adapt effectively to the new regulations, businesses—especially foreign investors and digital platform operators—must take proactive steps, such as:

• Reviewing Taxpayer Positions: Companies should reassess their taxpayer status and determine if they are now liable for withholding taxes under the expanded rules.

• Reevaluating Capital Transfers: Businesses must analyze ongoing or planned capital transactions to ensure compliance with the new tax implications.

• Updating Documentation Practices: Adjustments need to be made to internal controls surrounding payments and documentation standards to align with the new VND 5 million threshold for deductible expenses.

Summary

Decree No. 320/2025/ND-CP represents a significant step towards modernizing Vietnam’s corporate income tax system. By offering clearer guidance on taxation for both domestic and foreign enterprises and introducing provisions that reflect a digital economy, it positions Vietnam for sustainable economic growth. Businesses are encouraged to stay informed and prepared, ensuring compliance and optimal utilization of the new regulations.