Vietnam Passes New Corporate Income Tax Law

On June 14, 2025, Vietnam’s National Assembly enacted Law No. 67/2025/QH15 on Corporate Income Tax (CIT). This significant legislation is set to take effect on October 1, 2025, applying to the tax year 2025 and beyond. The new law is poised to reshape the landscape for corporate taxation in Vietnam, particularly for foreign enterprises.

Key Features of the New Law

Significant Changes for Foreign Enterprises

One of the most notable shifts involves the classification of e-commerce and digital platforms as permanent establishments (PEs). This change means that foreign entities engaging in these activities will be subject to CIT based on their income derived from Vietnam, even if they do not have a physical presence in the country.

Expanded Tax-Exempt Income Categories

The law introduces a broader scope of tax-exempt income, including:

• Innovation and Digital Transformation: Income from activities focused on innovation and digital transformation can be exempt for up to three years.
• Scientific Research Funds: Income derived from grants and funds for scientific research and technological development will also qualify for exemptions.
• Carbon Credits: Revenue from carbon credits, green bonds, and related activities is included in this tax-exempt framework.

These changes aim to encourage foreign investment and innovation, making Vietnam a more attractive destination for businesses focused on digital and ecological sustainability.

Clarification on Taxable Income

Under the new law, taxable income for foreign enterprises is redefined. Specifically, it indicates that income sourced from Vietnam must be taxed, regardless of where business activities occur. This includes revenue from the transfer of interests in Vietnamese enterprises, likely to be taxed at a percentage of total revenue.

A draft Decree from the Ministry of Finance, currently open for public comment, suggests a rate of 2% for capital transfer activities, with further modifications anticipated before the law’s implementation.

Offsetting Profits and Losses

The new legislation allows taxpayers to self-determine the offsetting of losses and profits from various business activities. Businesses can offset losses from sales of real estate or investment projects against other taxable profits, provided certain conditions are met. However, specific rules apply to mineral resource investments, which must be accounted for separately.

Deductible and Non-Deductible Expenses

Determining Deductible Expenses

The CIT Law simplifies the determination of deductible expenses. New regulations include:

• Broader categories for R&D expenditures and costs for innovation.
• Relaxation of the matching principle, allowing businesses to deduct expenses that don’t align directly with revenue in the same period.
• Eligibility for deductions related to contributions for public infrastructure and environmental sustainability efforts.

Conversely, the law also extends the list of non-deductible expenses, which now includes:

• Adverse expenses that don’t comply with specific legal requirements.
• Excessive loan interest payments.
• Costs surrounding non-compliant build-transfer contracts.

Taxpayers must produce documented evidence for deductions, with adjustments anticipated for certain thresholds.

Tax Rates and Incentives

The standard CIT rate remains at 20%. However, two additional rates are introduced:

• 15% for micro-enterprises with revenue not exceeding VND 3 billion.
• 17% for small enterprises with revenue between VND 3 billion and VND 50 billion.

Incentives for New and Expansion Projects

Incentives targeted at new investment projects and expansions are also part of the new law. Industries associated with strategic technologies, national defense, agriculture, and environmentally friendly projects may qualify for special tax breaks. Notably, existing industrial zones may no longer receive tax holidays unless they are in preferential geographical regions.

Investment expansions in incentivized sectors can continue to benefit from existing tax exemptions, simplifying compliance for growing businesses.

Adoption of International Standards

Vietnam’s commitment to adhering to international regulatory frameworks is evident in this new law. Provisions are included to comply with regulations set forth by international organizations, allowing for flexibility in application while securing the right to tax income generated within the jurisdiction.

Final Thoughts

As the implementation date approaches, it is essential for affected enterprises to prepare for the implications of the new Corporate Income Tax Law. Detailed guidance from the government is expected to follow, assisting businesses in navigating this significant transformation in the Vietnamese tax landscape. Understanding these nuances will be critical for both local and foreign enterprises aiming to thrive in Vietnam’s evolving economic environment.