Vietnam’s New Corporate Income Tax Law: What Foreign Investors Need to Know

Vietnam has introduced a significant amendment to its Corporate Income Tax (CIT) Law, marking a shift in how the country balances its tax incentives with anti-abuse safeguards. Passed by the National Assembly in June 2025 and set to take effect on January 1, 2026, the amended law is part of Vietnam’s broader efforts to protect its tax base while maintaining an attractive investment environment.

Foreign-invested enterprises (FIEs) and multinational corporations (MNCs) operating in Vietnam must now prepare for changes that could directly impact their tax planning and group structures.

Corporate tax rates remain stable, but scrutiny is rising

Despite the regulatory overhaul, Vietnam has opted to retain its standard corporate income tax rate at 20 percent. This continuity signals the government’s intention to maintain a stable and predictable investment environment. However, while the rate remains unchanged, the real shift lies in how preferential tax treatment is granted and monitored. Investors who previously relied on automatic eligibility for incentives based on group structures will now face more stringent scrutiny.

Stricter criteria for tax incentives signal a new direction

One of the most notable changes in the amended CIT Law is the introduction of stricter eligibility conditions for preferential tax incentives. The revised rules seek to prevent subsidiaries and affiliated entities of companies already receiving tax incentives from automatically qualifying for the same benefits. This move aims to curb the replication of incentives within corporate groups and to ensure that tax breaks are reserved for genuinely qualifying activities, rather than being extended across interconnected entities without substantial economic justification.

For example, consider a foreign parent company that establishes two manufacturing subsidiaries in Vietnam — Company A in the North and Company B in the South. Previously, if Company A qualified for tax incentives due to its high-tech activities, Company B might also receive the same preferential treatment even if its operations were more routine. Under the new rules, Company B would have to meet the incentive criteria independently, such as proving its own technological innovation, export contribution, or investment scale.

Anti-abuse safeguards target tax avoidance risks

The law introduces new anti-abuse measures aimed at curbing aggressive tax planning and potential base erosion. These provisions enhance Vietnam’s ability to address artificial arrangements that lack economic substance. Companies that engage in related-party transactions or use complex group structures to shift profits may now be subject to stricter compliance requirements.

The changes align with global standards under the OECD’s Base Erosion and Profit Shifting (BEPS) framework and reflect Vietnam’s commitment to international tax reform. Transfer pricing documentation, economic substance assessments, and intercompany arrangements will likely face closer examination.

Foreign investors must rethink group structuring and tax planning

These changes have wide-reaching implications for foreign investors and multinational firms operating in Vietnam. Group structures that previously benefited from uniform tax incentives across multiple subsidiaries may need to be revised. Investors planning new expansions or restructuring existing operations must evaluate whether their entities meet the updated incentive criteria. Industries with complex supply chains, such as electronics, manufacturing, and logistics, may be particularly affected, as multiple legal entities are often used to manage different stages of production and export.

The transition period offers time to prepare for compliance

With the amended law scheduled to take effect on January 1, 2026, businesses have a transition window in the second half of 2025 to assess and realign their tax strategies. While some implementing regulations and official guidance are still expected, companies should not wait for full clarity before acting. Early reviews of incentive agreements, transfer pricing arrangements, and business substance will help mitigate compliance risks. Although no explicit grandfathering clause has been issued, firms currently enjoying tax incentives should prepare for a potential reevaluation under the updated framework.

Strategic tax reviews are now essential

Considering the stricter rules, foreign-invested companies must undertake comprehensive internal reviews of their tax position. This includes reassessing incentive eligibility, reviewing the structure of related-party transactions, and ensuring that operations in Vietnam meet the required economic substance thresholds. As tax authorities are expected to increase enforcement, staying ahead of regulatory changes through proactive planning is critical.

A new era of tax governance in Vietnam

Vietnam’s amended Corporate Income Tax Law signals a shift toward selective incentivization and stronger enforcement. Foreign investors must respond strategically, by reassessing their local operations, making structural adjustments where necessary, and aligning with Vietnam’s evolving tax priorities.

• Previous Article How Malaysia’s SST Expansion can Impact Consumer Goods
• Next Article Philippines–Canada FTA: Trade and Investment Outlook