Latest update on 3-year corporate income tax exemption for newly established companies

In 2025, Vietnam’s tax policy introduces several significant changes, especially the regulation on Corporate Income Tax (CIT) exemption for 3 years for newly established companies. This is a major highlight aimed at encouraging entrepreneurship, supporting small and medium-sized enterprises (SMEs), and creating incentives for both domestic and foreign investors

1. Latest legal basis

• Resolution 198/2025/QH15, passed by the National Assembly on May 17, 2025, provides a 3-year CIT exemption for newly established SMEs.
• Corporate Income Tax Law 2025 (No. 67/2025/QH15), effective from October 1, 2025, supplements and improves the legal framework on tax incentives.

Accordingly, newly established companies that qualify as SMEs will enjoy a 100% CIT exemption for 3 consecutive years starting from the date of issuance of their first Enterprise Registration Certificate.

2. Expected tax incentives for startups and SMEs

The draft framework introduces two key groups of tax incentives:

A. For innovative startups (engaged in innovation activities)

• If recognized (under the Law on Science and Technology and related guidelines), innovative startups will enjoy:
  • CIT exemption for the first 2 years on income derived from innovation-driven startup activities.
  • 50% CIT reduction for the following 4 years on such income.
• The incentive period starts from the first year the enterprise generates taxable income from innovation activities.
• If no taxable income is generated within the first 3 years, the incentive starts from the 4th year since revenue generation.
• Companies must separately account for income derived from innovative startup activities (with incentives) and other income (without incentives). If separation is not possible, an allocation ratio will be applied.
• In addition, if an enterprise has income from transferring shares, capital contributions, stock purchase rights, etc. to innovative start-up enterprises, it is proposed to exempt corporate income tax on this income.

B. For newly established SMEs

• For small and medium-sized enterprises (SMEs) that are registered for business for the first time (newly established companies, not formed from division, merger, conversion of type, or transfer of ownership) and meet the condition that: the owner or the person with the highest capital contribution must not simultaneously own another company, or if they do, the previous enterprise must have been dissolved for more than 12 months.
• The draft proposes that newly established SMEs will be exempted from Corporate Income Tax (CIT) for the first 3 years, starting from the date the enterprise is granted its first business registration certificate.
• The tax exemption period is counted from the first year the enterprise receives its first registration certificate.
• If an innovative startup enterprise is also an SME and has income eligible for incentives under both item A and item B, the enterprise may choose the most favorable tax incentive and apply it consistently during the preferential period.
• In case, during the first tax period, the enterprise operates for less than 12 months, the enterprise may choose to start enjoying the incentive right from the first period or register to start from the next period.

3. Significance of the tax exemption policy

The 3-year CIT exemption for newly established companies brings practical benefits:

• Reducing cost burdens: allowing businesses to focus capital on production and business activities during the startup phase.
• Encouraging entrepreneurship: motivating individuals and organizations to establish new businesses.
• Attracting foreign investment: since the policy also applies to FDI enterprises, it enhances Vietnam’s competitiveness and investment appeal.
• Promoting innovation: SMEs in high-tech and R&D sectors receive prioritized support.

4. Key notes

• The CIT exemption only applies for the first 3 consecutive years; afterward, enterprises will pay the standard CIT rate (20%).
• Companies must maintain SME eligibility throughout the incentive period. If they exceed the revenue or labor thresholds, the incentive may be revoked.
• The Government will issue detailed guidelines to implement the policy starting October 1, 2025, when the CIT Law 2025 takes effect.

The 3-year CIT exemption for newly established companies is an important milestone in Vietnam’s tax policy, contributing to the sustainable development of SMEs. Businesses planning to establish from 2025 onwards should carefully follow implementation guidelines to maximize these tax benefits.