Vietnam Passes New Corporate Income Tax Law

OVERVIEW 

The National Assembly of Vietnam officially passed the new corporate income tax (CIT) law on 14 June 2025.[1] This new CIT law is set to take effect on 1 October 2025 and is applicable for the fiscal year 2025.

This new CIT law is part of Vietnam’s broader efforts to modernize its tax system. It aims to provide a clear framework for corporate taxation in Vietnam, promoting compliance and encouraging investment while ensuring fair tax practices across different sectors and types of enterprises.

This alert highlights notable changes that will be relevant for many businesses, including private equity firms, real estate and e-commerce businesses as well as foreign corporates.

The new CIT law proposes to make the following significant changes to Vietnam’s tax system with respect to capital gains, permanent establishment (PE) concept, loss offset, overseas investment tax declaration, and exit planning:

1) Expanded taxpayer scope and introduction of digital PE 

The new CIT law expanded the definition of taxable entities to include, inter alia, foreign corporates having e-commerce and digital platforms that derive income from Vietnam. As the new CIT law also considers these e-commerce and digital platforms as a PE for Vietnam tax purposes, it could adversely impact the tax treaty relief applications in Vietnam of such e-commerce players. Further guidance is expected via the upcoming guiding decree and circular.

2) Capital gain tax – Key changes for foreign corporate investors

Earlier drafts proposed a 2 percent CIT on the transfer price of taxable capital disposals by foreign investors. Under the new law, while the principle of taxing the foreign corporate investors on the capital disposals on “transfer price” remains as passed, the 2 percent rate was removed. It is expected that the upcoming CIT decree should provide clarity on the following:

• Applicable tax rates for both direct and indirect transfers of Vietnamese entities/assets by foreign corporate investors
• Determination of taxable transfer price for Vietnam tax purposes
• Filing and payment obligations, including timelines
• Exemptions or reliefs (if any), for treaty-protected investors

The change is a welcome development toward simplification, especially for indirect transfers where calculating gains and cost bases are complex to determine. However, it may lead to additional tax liabilities even for cases that entail internal corporate restructurings or transfer of assets at loss.

3) CIT incentives 

The new CIT law introduces a more focused and streamlined approach to investment incentives, with several notable changes:

• Removal of industrial zones from the list of incentivized locations, implying that new investment projects or business expansions in these zones will no longer enjoy a two-year CIT exemption and a four-year CIT reduction
• Introduction of tax incentives for encouraged sectors such as AI, semiconductors, green energy, hi-tech and hi-tech related investment, and R&D centers
• Consolidation of tax incentives within the CIT law to eliminate overlaps with other legislation

4) Offshore investment profits to be taxed on an earned basis

Under the new CIT law, profits from foreign investments (e.g., dividends or earnings from overseas subsidiaries) must be declared and taxed in Vietnam in the year they are earned, even if the profits are not repatriated to Vietnam. This marks a major shift from the current remittance-based approach and could accelerate tax liabilities for businesses and funds making overseas investments.

5) More relaxation on loss offset 

While the five-year loss carry-forward rule remains unchanged, the new CIT law allows more flexibility to offset losses from business activities with other types of business income, including income from real estate transfers, investment transfers, or business (project) transfers. The new law only prohibits losses from real estate transfers, project transfers, or project participation rights to offset against income that benefits from CIT incentives. These changes are more favorable for businesses and investors in Vietnam.

6) New deductible expenses introduced 

The new CIT law broadens deductible expenses to include:

• ESG and sustainability costs (e.g., net zero transition)
• Digital transformation costs
• Public infrastructure co-investments (e.g., roads, utilities in real estate projects)

However, expenses that do not comply with sector-specific laws or lack proper documentation will be nondeductible. Despite receiving multiple public comments on the independence needs of tax law against other laws, the matter remains unresolved. Hence, the application of tax laws in Vietnam will remain officially interconnected alongside other laws.

HOW BUSINESS SHOULD PREPARE

The legislation marks a significant shift toward a more flexible and modernized tax environment in Vietnam. For businesses and investors, while these changes will lead to new compliance obligations, they will also offer opportunities for strategic planning.

To prepare effectively, businesses and investors should:

• Reassess exit and deal structures considering the upcoming decree on capital gains —  especially for divestments in Vietnam.
• Review offshore investments’ models, as foreign-earned profits will now be subject to Vietnam tax declaration on an earned basis, rather than remittance basis.
• Track deductible spending on ESG, digital, and infrastructure to maximize the tax deductions.
• Ensure compliance for foreign digital/platform operations that may now face direct CIT obligations in Vietnam.

HOW CAN A&M HELP?

To support your business in navigating these developments, we are available to further discuss the implications of these evolving tax treatments in Vietnam and can provide more information.

Our A&M Vietnam Tax team stands ready to support enterprises in adapting to the new regulations and preparing for the potential impacts of Vietnam’s tax system reform.

The A&M Vietnam Tax team is closely monitoring these developments and is ready to assist:

• Evaluating exit strategies and modeling transaction tax outcomes
• Reviewing investment project tax planning and location incentives
• Advising on deductible cost structures aligned with deal activity
• Supporting tax compliance readiness ahead of the implementation in October 2025

Please contact us if you would like to discuss how these changes may impact your investment structure, fund operations, or portfolio companies.

[1] Kỳ họp thứ 9

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