2025 CIT Law: New Rates Established and Industrial Park Incentive Removed

The National Assembly’s approval of Vietnam’s amended Law on Corporate Income Tax (CIT) on June 14, 2025, marks an important change in the country’s tax regime. While the headline tax rate remains unchanged, the underlying structure of how corporate incentives are granted has shifted, especially for manufacturing companies operating in industrial parks.

Under the 2008 CIT Laws and relevant directives, tax holidays and reductions were often awarded solely based on geographic location, allowing businesses in designated industrial zones to enjoy preferential treatment regardless of the sector or scale of their operations. That premise has now changed. While maintaining support for disadvantaged areas and specialized zones, the amended CIT Law, which takes effect on October 1, 2025, also steers incentives towards priority industries, enterprise scale, and technological investment.

No more blanket benefits for industrial parks

Manufacturing companies have long benefited from tax relief by establishing operations in industrial parks. Typically, this included a two-year CIT exemption followed by a 50 percent reduction for four additional years. Under the amended CIT framework, the industrial park is no longer eligible for location-based incentives. This means that new investment projects or business expansions in the industrial park are no longer entitled to a two-year CIT exemption and a four-year CIT reduction.

FIND BUSINESS SUPPORT

Navigate Tariff Risks by Diversifying Your Supply Chain and Markets across Asia

It is noteworthy that this policy does not have a retroactive effect. The law applies only to new investment projects licensed on or after October 1, 2025. Projects that have already been granted incentives under existing regulations will continue to benefit from them for the duration specified in their investment certificates or incentive approvals.

The underlying rationale is clear: the government no longer sees mere location as a sufficient driver of national development goals. Instead, incentives are being rechanneled toward businesses that bring technological innovation, clean energy practices, or significant capital investment.

More explicit rules on what can or cannot be deducted

To tighten enforcement and eliminate ambiguity, the new law presents considerable amendments and supplements to the lists of deductible and non-deductible expenses prescribed under its Article 9.

The current CIT law only briefly prescribes that companies are entitled to tax deductions. The list is now amended, inluding:

• Actual expenses related to production and business activities: Under the new law, this provision is expanded with detailed descriptions of deductible expenses incurred during actual operations;
• Costs supported by sufficient invoices and non-cash payment receipts; and
• Expenses not included in the list of non-deductible expenses.

Under Decree No. 181/2025/ND-CP, which provides guidance on the new VAT Law and takes effect from July 1, 2025, businesses are required to have non-cash payment receipts for goods and services (including imported goods) with a value of VND 5 million or more, inclusive of VAT. However, the corresponding provisions under the amended CIT Law will only take effect from October 1, 2025, creating a regulatory gap between July 1 and September 30, 2025. It is therefore recommended that businesses maintain non-cash payment evidence for invoices ranging from VND 5 to 20 million during this transitional period.

The list of expenses not subject to tax deduction also undergoes detailed supplements, with most expense categories being expanded to include specific descriptions.

Given these significant revisions, manufacturers will need to ensure strict documentation and compliance, particularly in areas where tax deductibility hinges on environmental or labor law conformance.

Small businesses can still access lower tax rates

While tax breaks for businesses within industrial zones are no longer offered in the new law, small and medium enterprises (SMEs) may still qualify for new, lower tax rates based on revenue thresholds and another required condition, as follows:

• Businesses earning up to VND 3 billion (US$114,701) annually will pay a 15 percent CIT;
• Businesses generating from more than VND 3 billion to less than VND 50 billion (US$1.9 million) will qualify for a 17 percent rate; and
• These rates are not applicable to companies that are subsidiaries or have affiliated relationships where the related company does not meet the required conditions. This provision aims to prevent tax arbitrage via business fragmentation. The government has explicitly ruled out such structuring practices to protect the integrity of the SME-focused incentives.

Sectors qualifying for the new tax breaks

Although incentives based on location in industrial parks are no longer available, businesses can still receive preferential tax treatment for investing in priority sectors. These sectors include high-tech manufacturing, semiconductors, renewable energy, green hydrogen, and supporting products essential to global supply chains. Income from these projects may be eligible for a 10 percent CIT rate for up to 15 years, which is significantly more favorable than the standard rate.

This approach shifts the emphasis from where a business is located to what it produces and how it contributes to national objectives. For manufacturers, the message is clear: future incentives will favor quality over geography.

To avoid future regulatory overlaps, the new CIT Law states that it takes precedence over any conflicting provisions in other laws, with exceptions only for the Law on Capital and resolutions of the National Assembly.

This clarity provides legal certainty for investors, especially those operating under specialized investment laws or in partnerships with government agencies.

Expenses tied to R&D and green tech get better deductions

The CIT amendments offer greater deductibility for investments in research and development (R&D), environmental compliance, and infrastructure co-financing. While a forthcoming government decree will determine specific percentages for additional deductions, the principle is already in place.

FIND BUSINESS SUPPORT

Advance Your China + 1 Asia Manufacturing Strategy with Tailored Business Intelligence

Enterprises’ expenses aimed at reducing emissions, improving energy efficiency, or managing waste will be deductible even when they do not directly generate taxable revenue. This provision encourages manufacturers to embrace sustainability without fear of compromising tax efficiency.

On the government contract side, public infrastructure investments, such as roads or drainage systems in industrial zones, that are undertaken by private businesses will also be tax-deductible.

Expansion projects face dual incentive treatment

Manufacturers planning to scale up operations after October 1 will have to examine their eligibility through two lenses: whether the original project’s incentive period remains valid and whether the expansion qualifies for new incentives independently. The assessments are as follows:

• Expansion of an investment project may utilize remaining incentives from the original project. The eligible expansions include increasing scale, capacity, or implementing technological innovations or environmental improvements in incentivized locations or sectors.
• If those incentives have expired, incentives for new investments in the same location or sector could apply (without a preferential rate) if certain conditions are met, requiring separate procedures for accounting.

Existing projects get to keep their benefits or shift to the new system

While companies can no longer expect automatic tax holidays for merely being situated in an industrial park, transitional provisions do offer flexibility. Existing projects will retain their previously approved incentives until their expiration. Companies that qualify under the new incentive criteria, whether due to industry, capital size, or technological contribution, can choose to switch to the new system for the remainder of the period.

This opt-in clause is essential. It allows forward-looking manufacturers already operating in industrial parks to align themselves with Vietnam’s priority sectors and potentially enjoy more favorable long-term benefits, even if it means adjusting their business models or expanding into qualifying areas.

Foreign income and capital gains are now clearly regulated

The law brings e-commerce platforms and digital services firmly within the CIT scope. Foreign companies using these platforms to offer services or goods in Vietnam are now officially considered to have a permanent establishment, a move that will impact double taxation treaty claims.

FIND BUSINESS SUPPORT

Our expertise helps you capitalize on growth opportunities and navigate country-specific regulations in Asia's manufacturing sector

Another point to note is the taxation on income from overseas investments, which now becomes taxable when earned, not when remitted, as was previously the case. While Vietnamese firms can still claim credits for overseas taxes paid, this shift will impact cash flow planning for internationally active enterprises.

In terms of capital transactions, the new law also revises the basis of taxation for foreign shareholders on capital transfers, including indirect transfers. Accordingly, the seller (both direct and indirect transfer) will be taxed at a deemed CIT rate on the gross sales proceeds. With this new scheme, in the event of a loss, the seller remains subject to tax in Vietnam.

Looking ahead

New and expanded investment projects based in industrial parks will now have to meet stricter criteria, especially if the industrial park is located in an area with particularly challenging socio-economic conditions or in areas with difficult socio-economic conditions. This includes proving alignment with Vietnam’s designated priority sectors, deploying advanced or green technologies, undertaking initiatives that offer environmental improvements or substantial capacity expansions, and contributing to the country’s digital transformation agenda. These added layers of qualification shift the focus toward quality, innovation, and strategic relevance. The removal of location-based incentives might initially unsettle manufacturers located in industrial parks, but the broader shift in policy reflects a more targeted use of tax incentives.

For those willing to adapt, especially within industrial parks, there is still a viable way to gain competitive tax benefits, now more closely linked to what businesses contribute rather than where they are located.

With contribution from Doan Thi Yen Luy

(US$1 = VND 26,154.9)

• Previous Article Vietnam Joins BRICS: Investment Opportunities in the Strategic Partnership
• Next Article Amended Vietnamese Nationality Law: Key Updates for Foreign Workers