Vietnam CIT Incentives 2026: Sectors, Locations, Holidays

Vietnam’s corporate income tax (CIT) incentive framework under Law on Corporate Income Tax No. 67/2025/QH15 (the CIT Law) and Decree No. 320/2025/ND-CP (Decree 320) is undergoing a structural reform. Securing a 10% preferential CIT rate alongside multi-year tax holidays can cut an enterprise’s CIT bill by half during the preferential-rate years and by more during the exemption and 50% reduction periods. However, failing to substantiate eligibility or mismanaging segregated accounting triggers clawbacks plus late payment interest of 0.03% per day.

Automatic location-based tax breaks for standard industrial zones have been formally eliminated. Foreign investment planning must now prioritize technological sophistication, supporting industry integration, and sustainable regional development to qualify for preferential tax packages.

1. Industrial Zone Treatment and Grandfathering Rules

From 2014 to the 2024 tax year, a new project in an industrial zone (IZ) outside favorable areas could claim up to 2 years of CIT exemption and 4 years of 50% reduction on location alone. The CIT Law 67/2025/QH15 drops industrial zones from the list of incentivized locations from the 2025 tax year.

Location-Based Incentives and Standard Industrial Zones

Under the CIT Law and Decree 320, standard industrial zones do not appear in the list of incentive territories. Decree 96 Article 22.7.b classes industrial zones as investment-incentive locations at the ‘difficult’ level, but no CIT guidance confirms that this carries over. Unless that question is settled in their favor, newly incorporated manufacturing projects in standard IZs should plan on the standard 20% CIT rate, with limited exceptions:

• Encouraged Investment Sectors: Projects engaged in high-tech application, software and key digital technology products, semiconductor chip R&D, prioritized supporting industries, or renewable and clean energy (10% under the CIT Law; high-grade steel, energy-saving products and automobile assembly, at 17% for 10 years).
• Industrial Zones in Disadvantaged Areas: Projects in an industrial zone located in a commune classified as difficult or extremely difficult under Decree 96/2026/ND-CP, Article 22, may qualify. See the note above on Decree 96 Article 22.7.b and confirm with the tax authority before relying on it.

Foreign investors planning new manufacturing ventures can no longer rely on industrial park tenancy alone to justify preferential tax treatment. Corporate planners must verify technological criteria or evaluate location options in economic zones located in difficult or extremely difficult areas.

Grandfathering Provisions for Pre-Existing Projects

To safeguard investor confidence and maintain regulatory stability, the CIT Law incorporates grandfathering mechanisms:

• Projects with IRCs Issued Prior to Effective Date: Enterprises retain all preferential tax rates, tax exemptions, and reductions formally granted in their Investment Registration Certificate (IRC) for the remaining incentive period.
• Election of Favorable New Terms: If a qualifying project meets the higher incentive thresholds established under the CIT Law and Decree 320, the enterprise holds the right to elect and apply the new policy for the remaining incentive period.

Grandfathering protections apply strictly to the registered scope of the original project. Any post-effective expansion activities are governed by the revised expansion regime.

2. Preferential CIT Rates and Tax Holiday Frameworks

Vietnam’s CIT incentive framework combines preferential tax rates with tax holidays (periods of full exemption followed by 50% tax reductions).

Preferential Tax Rate Tiers

The CIT Law and Decree 320 classify preferential tax rates into clear operational tiers:

Legal basis: Articles 10 and 13 of the CIT Law; Article 19.3 of Decree 320.

Preferential rate periods run consecutively starting from the first year the project generates commercial revenue. New projects in the sectors of points (a), (b), (d) and (đ) of Article 12(2) of the CIT Law with at least VND 6,000 billion of capital and major socio-economic impact may have the 10% rate extended by up to 15 more years (30 years in total) on Prime Minister decision. From 1 July 2026, Law 133/2025/QH15 grants 10% for 25 years to group 1 high-tech enterprises, strategic technology enterprises and R&D centers for high or strategic technology; high-tech product manufacturers fall under the 17% for 10 years tier. Certificates issued under the earlier High-Tech Law keep their incentives until expiry.

Tax Holiday Packages: Standard vs. Enhanced Structures

Qualifying enterprises benefit from tax exemptions and subsequent 50% tax reductions:

• Enhanced Package (4-Year Exemption, 9-Year 50% Reduction): Available to investments qualifying for the 10% preferential rate for 15 years (high-tech zones, economic zones in difficult or extremely difficult areas, extremely difficult areas, and designated priority sectors).
• Standard Package (2-Year Exemption, 4-Year 50% Reduction): Available to projects qualifying for the 17% rate for 10 years or situated in standard disadvantaged socio-economic areas.

Operational note: Most CIT incentives are self-assessed, but high-tech enterprises, science and technology enterprises, and supporting-industry projects need a certificate or confirmation (Decree 320). Keep separate accounting ledgers for incentive-eligible projects and expansion investments to defend exemption entitlements during tax audits.

3. Incentive Commencement Milestones and the 4th-Year Rule

Determining the exact tax holiday trigger date is a primary focus during corporate audits, preventing unauthorized deferral of incentive lifecycles.

General Principle of Consecutive Calculation

Under Article 14 of the CIT Law, the tax exemption and reduction period begins consecutively from the first tax year the enterprise generates taxable income from the qualifying investment project (gross revenue exceeding deductible expenses, before loss carryforwards).

The 4th-Year Trigger Rule for Pre-Profit Projects

To control artificial loss prolongation aimed at postponing incentive countdowns, the rules mandate:

• If a project generates commercial turnover but fails to produce positive taxable income within its first 3 operating years, the tax holiday automatically begins in the 4th year from the first revenue-generating year.

If an enterprise continues recording losses during its 4th operating year, the tax exemption clock continues running against the holiday entitlement. For enterprises granted a 4-year exemption, years 4 through 7 elapse without practical tax relief. Enterprises must preserve audited financial dossiers substantiating initial operating losses under Vietnamese corporate accounting standards.

4. Expansion Project Incentives and SME Support Policies

Capital expansion projects and innovative startup enterprises are governed by specialized incentive mechanisms.

Capital Expansion Rules and Segregated Accounting

Under Article 14 of the CIT Law, the treatment of a capital expansion depends on the status of the original project:

1. Original Project Still Within Its Incentive Period: Incremental income from the expansion enjoys the incentive of the operating project for its remaining term, and the enterprise does not have to account for the incremental income separately from the original project.
2. Original Project Past Its Incentive Period: Incremental income from an expansion that meets the expansion criteria can receive a tax exemption and reduction period matching a new project in the same sector or zone, but not a preferential tax rate. The enterprise must account for the incremental income separately.

Expansion qualification requires an incremental fixed asset cost of at least VND 40 billion (VND 20 billion in disadvantaged or extremely disadvantaged areas), a 20% increase in fixed asset cost, or a 20% increase in design capacity, measured once the registered expansion capital is fully disbursed (Article 20(6) of Decree 320). Segregated accounting of the incremental income is required where the original project has passed its incentive period.

3-Year CIT Exemption for Newly Registered SMEs

National Assembly Resolution No. 198/2025/QH15 exempts small and medium-sized enterprises (SMEs) from CIT for 3 consecutive years from the year they first receive an Enterprise Registration Certificate (ERC). The exemption excludes companies formed by merger, division or conversion, and companies whose legal representative or largest capital contributor already held that role in another enterprise that is still operating or was dissolved less than 12 months earlier (Decree 20/2026/ND-CP). Income such as capital transfer and real estate gains stays outside the exemption. Innovative startups have a separate incentive under the same Resolution, so each foreign-invested subsidiary needs a case-by-case check. Separately, Vietnam-incorporated enterprises with total annual revenue of VND 1 billion or less are exempt from CIT from 1 January 2026, except subsidiaries of or affiliates with enterprises that do not meet the conditions (Law 09/2026/QH16; Decree 320 as supplemented by Decree 141/2026/ND-CP). Online sellers in this bracket can start with our tax guide for e-commerce companies. Foreign investors should still focus tax planning on sector-specific high-tech certifications and regional development categories under the CIT Law.

5. Impact of Global Minimum Tax and Related-Party Interest Caps

International tax reforms and transfer pricing regulations impose strict boundaries on corporate tax incentive planning.

The Incentive-Neutralizing Impact of Global Minimum Tax (GMT)

Vietnam enforces the 15% Qualified Domestic Minimum Top-up Tax (QDMTT) under Resolution No. 107/2023/QH15 and Decree No. 236/2025/ND-CP:

• Scope: Multinational enterprise groups with consolidated global turnover of EUR 750 million or more in at least 2 of the 4 preceding fiscal years.
• Neutralization Effect: When CIT incentives drag an enterprise’s effective tax rate (ETR) in Vietnam below 15%, the enterprise must pay top-up tax locally to reach the 15% floor.

For in-scope MNEs, 10% rates and tax holidays are largely offset by top-up liabilities. Vietnam’s Law on Investment 2025 (Article 16) provides for a Government-established Investment Support Fund to attract strategic investors and multinationals; implementing rules on eligible support are still pending, so grants for R&D, clean energy or workforce training should not be assumed.

Net Interest Deductibility Under Decree 255/2026/ND-CP

Enterprises enjoying CIT incentives remain subject to strict related party transaction regulations under Decree No. 255/2026/ND-CP (tax periods up to 2025 follow Decree 132/2020/ND-CP as amended by Decree 20/2025/ND-CP):

• 30% EBITDA Interest Cap: Net interest expense deductions are capped at 30% of adjusted EBITDA in each tax year. Our guide to deductible expenses shows how the cap sits alongside the other deduction conditions.
• Lending Relationships Triggering Affiliation: Decree 255 establishes that an enterprise guaranteeing or lending to another enterprise, including through third-party loans backed by an affiliate’s funding, triggers related-party status when the outstanding balance is at least 25% of the borrower’s owner equity and over 50% of its medium- and long-term debt. Credit institutions that do not take part in managing, controlling or contributing capital to the borrower are carved out.
• Disallowed Financial Expenses: Interest above the 30% cap is not deductible in that year, which increases net taxable income even during partial tax reduction years, but it can be carried forward for up to 5 consecutive years when later-year interest falls below the cap (Article 16 of Decree 255).

6. Tax Audit Inspection Risks and Clawback Sanctions

Tax audits of incentivized enterprises focus on substance-over-form compliance, verifying operational reality against registered parameters.

Critical Compliance Violations Triggering Revocation

Tax authorities disallow incentive claims based on three recurring compliance failures:

1. Failure to Maintain Segregated Accounting: Failing to maintain separate accounting ledgers for revenue and expenses tied to incentivized activities versus ordinary operations. Where income cannot be separated, the incentivized income is determined by the ratio of incentivized revenue or expenses to total revenue or expenses (the CIT Law).
2. Failure to Maintain Technology Ratios: Failing to satisfy the confirmed criteria (such as revenue and R&D spending) or the environmental standards committed to.
3. Unreported Facility Relocations or Scope Modifications: Relocating manufacturing plants outside designated incentive zones or altering business scopes without formally amending the IRC.

Penalties and Late Payment Interest

Consequences of incentive disqualification include:

• Full Back-Tax Clawback: Full retroactive assessment of tax differentials between the 20% standard rate and the preferential rate claimed across audited years.
• Administrative Penalty: A 20% penalty on the understated tax can apply where the error does not amount to tax evasion (Article 44 of Law No. 108/2025/QH15; Decree No. 125/2020/ND-CP for violations before 1 July 2026); evasion is fined 1 to 3 times the evaded amount.
• Late Payment Interest: Late payment interest accruing at 0.03% per day under the Tax Administration Law.

Indochina Link Vietnam (ICLV) provides full corporate tax advisory and incentive compliance management for foreign-invested enterprises in Vietnam. Our certified tax accountants and auditors guide investors through eligibility evaluations, expansion restructuring, and representation during provincial tax audits. Contact our senior tax advisors today to conduct an operational health check on your corporate tax incentive portfolio.

This guide references Law on Corporate Income Tax No. 67/2025/QH15, Decree No. 320/2025/ND-CP, Decree No. 255/2026/ND-CP, and Decree No. 125/2020/ND-CP. Consult licensed professionals for transaction-specific determinations.