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The Draft CIT Law introduces some changes that could have a significant impact if eventually adopted. Taxpayers should review changes proposed under the Draft CIT Law to adequately prepare for upcoming legislative updates.

We will continue keeping a close eye on the legislation process to provide relevant updates. In the meantime, please do not hesitate to contact us if you have any questions.

In more detail

Below is a summary of key changes under the Draft CIT Law:

1. Foreign entities (regardless of permanent establishment status in Vietnam) deriving income in Vietnam, including income from the provision of goods and services in the form of e-commerce businesses and digital-based businesses (i.e., foreign suppliers as defined in Chapter IX of Circular No. 80/2021/TT-BTC), are treated as taxpayers for Vietnam CIT purposes.
2. Income derived in Vietnam by foreign organizations from capital transfer is subject to the deemed CIT rate of 2% on sale proceeds.
3. Input VAT that has not been deducted against output VAT and is not eligible for a VAT refund can be counted as deductible expense.
4. There are amendments to CIT rates and CIT incentives. Among others, notable changes include the following:
   1. Some new industries have been added to the list of industries eligible for CIT incentives, such as: production of digital information content products prioritized for development and provision of important information services regulated by the government; manufacturing and assembling of cars; and investments in technical facilities to support small and medium-sized enterprises.
   2. Small-sized enterprises and micro enterprises (in Vietnamese: Doanh nghiệp nhỏ và siêu nhỏ) are subject to the new CIT regime, with CIT rates of either 15% or 17%, depending on total annual revenues in the preceding year. 
   3. Industrial parks seem to be no longer regarded as incentivized locations.
   4. CIT incentive packages applicable to enterprises in economic zones and high-technology zones vary depending on their location. Specifically, as follows:
   • Economic zones located in the geographic areas with (especially) harsh socio-economic conditions: 10% for 15 years, tax exemption for no more than four years and 50% for no more than subsequent nine years.
   • Economic zones not located in the geographic areas with (especially) harsh socio-economic conditions: 17% for 10 years, tax exemption for no more than two years and 50% for no more than subsequent four years.
   • New investment projects in the high-technology zones doing business in high-technology sectors are entitled to 10% for 15 years, tax exemption for no more than four years and 50% for no more than subsequent nine years. New investment projects in the high-technology zones that do not fall within high-technology sectors are not entitled to the above CIT incentives.
   5. Supporting industrial products eligible for CIT incentives are the products that fall in the list of products prioritized for development and cannot be produced domestically until 1 January 2026.
5. The Draft CIT Law restates the Qualified Domestic Minimum Top-up Tax (QDMTT) and Income Inclusion Rule (IIR) provided under Resolution No. 107/2023/QH15 regarding the application of top-up corporate income tax according to the Global Anti-Base Erosion rules. In addition, the Draft CIT Law provides that the government will prescribe details on the Undertaxed Profits Rule (formerly known as Undertaxed Payments Rule) (UTPR) according to the BEPS guidance. The Draft CIT Law also provides that Vietnam will apply the Subject-to-Tax Rule (STTR) after Vietnam joins the Multilateral Convention of STTR.