Vietnam's amended corporate income tax law marks 'major shift'

Revised taxation welcomed but raises potential for increased liabilities.

Vietnam has a new Corporate Income Tax (CIT) law that will be implemented from October 2025, with changes in areas like capital gains and foreign investment profits.

"This new CIT law is part of Vietnam’s broader efforts to modernise its tax system," said tax experts at Alvarez & Marsal (A&M). "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."

Revisions to the current legislation include what A&M called "a more focused and streamlined approach" to investment incentives, which would see sectors such as artificial intelligence and green energy incentivised tax-wise. The same goes for semiconductors, research and development, as well as high-tech industries.

Another key amendment is the widening of the scope of taxation. A&M noted: "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 (permanent establishment) 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."

A PE in Vietnam was traditionally described as a fixed place of business through which a foreign enterprise carries out part or the whole of its business or production activities in the country. The scope included physical premises and Vietnam-based agents or representatives.

In terms of capital gains, PwC explained: "Currently, subject to any available tax treaty protection, foreign corporate investors are subject to tax at 20% on gains made from the sale of shares in non-public joint stock companies (JSCs) and the sale of interests in limited liability companies.

"There are rules setting out how the taxable gain is calculated for the direct sale of Vietnamese companies by foreign investors. For indirect sales, where an overseas company is sold which directly or indirectly owns a Vietnamese company, there is an absence of guidance and in practice the tax authorities have tended to apply the rules for direct sales. Under the new law, the 20% rate on gains is replaced by a tax on the disposal proceeds."

The new rate is not specified in the revised CIT law itself, but the Vietnamese government is set to issue an implementing decree where it will be stipulated. Notably, lawmakers were previously looking at a 2% rate.

"This replacement of the current taxation of gains with a tax on proceeds has been under consideration for many years, and represents a major change in the taxation of foreign corporate investors," commented PwC, which highlighted that even loss-making sales will be subject to tax based on the proceeds approach.

PwC said: "For sales of shares in non-public JSCs and interests in limited liability companies by foreign investors, acquisition costs and determination of deductible base cost will no longer therefore be relevant. This removes an issue which has often been contentious and is a welcome simplification.

"For indirect sales, it remains to be seen how this new tax will apply and whether the implementing decree will set out clear rules and address the various areas of uncertainty which currently exist."

Also welcoming the switch is KPMG, which at the same time presented a possible downside for businesses.

"This is a welcome change in the respect of providing a clearer and simpler tax implication for foreign corporate sellers," KPMG stated. "The change is especially helpful for indirect transfers, where calculating gains for the seller and confirming the buyer’s cost base has proved incredibly challenging. With this new basis of taxation, some of these complications will be removed.

"On the other hand, this potential change may result in an additional tax liability being incurred for transactions undertaken solely for internal restructuring purposes and/or those that are undertaken at a financial loss."

Other features of the amended tax law are new deductible expenses and a revised treatment when it comes to offshore investment earnings.

A&M pointed out: "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."

Effective on 1 October, Vietnam's new CIT law was passed by the National Assembly in June.