Tax deductions and incentives for SMEs in Vietnam

Disclaimer: This page is for general information only and is not tax or legal advice. Vietnam's tax rules change frequently and vary by enterprise type, sector, and location. Verify every point with a licensed Vietnamese tax accountant or legal adviser before acting.

Vietnamese CIT framework

Corporate Income Tax (CIT) in Vietnam is governed primarily by Law on Corporate Income Tax No. 14/2008/QH12, as amended through several circulars and decrees. The General Department of Taxation (GDT) administers collection, and businesses file quarterly provisional payments with an annual finalisation return due within 90 days of the fiscal year end.

Most companies in Vietnam operate on a calendar fiscal year (January to December), though some foreign-invested enterprises use a different year-end with GDT approval. Taxable income is broadly defined as revenue minus deductible expenses, adjusted for non-deductible items specified in the law. Understanding what is and is not deductible is often the most practical lever available to an SME.

Standard rate vs SME preference

The standard CIT rate is 20% for most enterprises. This has been the headline rate since 2016 and applies to the majority of incorporated businesses operating in Vietnam.

For qualifying small and micro enterprises, a reduced rate has historically been available — most recently discussed as 17% for small enterprises and 15-17% for micro enterprises, though the precise thresholds (based on revenue and headcount) are set by decree and can change. As of mid-2026, verify the current thresholds with the GDT or a local tax adviser before assuming your business qualifies.

Preferential rates of 10% apply to certain priority sectors (technology, education, healthcare, environmental projects) and to enterprises operating in designated economic zones or disadvantaged areas. These are not automatic — they require registration, and in most cases the incentive period is time-limited (commonly 15 years at the reduced rate, preceded by full or partial exemption periods).

Deductible costs

Vietnam's tax law allows deduction of expenses that are actual, related to the business, and properly documented. The documentation requirement is strict: you generally need a valid VAT invoice (red invoice) or a substitute document accepted by the GDT.

Commonly deductible costs include:

• Salaries and wages, including mandatory social insurance, health insurance, and unemployment insurance contributions paid by the employer
• Rent for office, warehouse, or retail space, provided the lease contract and payments are properly documented
• Depreciation on fixed assets, calculated using GDT-approved methods and useful-life tables
• Interest on business loans, subject to a cap (related-party interest is further limited under thin-capitalisation rules introduced in Decree 20/2017)
• Marketing and advertising costs, though certain entertainment and hospitality expenses are capped at 15% of total deductible expenses
• Insurance premiums for business assets and compulsory employee insurance

Non-deductible items include fines and penalties, personal expenses passed through the company, and payments without proper invoices. For day-to-day bookkeeping, Vietnamese accounting software helps track invoice compliance and flags items that may not meet GDT requirements.

R&D deductions

Enterprises that conduct qualifying research and development activities can deduct R&D expenditure. Under current rules, companies may also establish an R&D fund — allocating up to 10% of annual pre-tax profit — and use that fund for approved R&D activities without the spending being treated as taxable income immediately.

Qualifying R&D includes development of new products, new production processes, and technology improvement. The rules require that R&D activities be registered and documented. Tech companies and manufacturers investing in process innovation are the most frequent users of this provision, but it is available to any enterprise that can evidence qualifying activity.

Sector-specific incentives

Beyond the standard SME rate, Vietnam uses CIT incentives as a tool to attract investment in priority areas:

• High-tech enterprises certified under the High Technology Law can access the 10% rate for up to 15 years, plus full exemption for the first four years and a 50% reduction for the following nine
• Software production (not just IT services) has historically benefited from a 10% rate for the project lifetime
• Education, healthcare, and environmental projects in qualifying locations attract similar long-horizon reductions
• Industrial zones and economic zones — enterprises in certain zones receive automatic incentives tied to the zone's investment licence conditions

These incentives are not self-executing. In most cases, the enterprise must apply, obtain the relevant certificate or approval, and then claim the incentive in its annual CIT finalisation. Missing the application window can mean losing years of benefit.

Loss carry-forward

Vietnamese tax law allows losses to be carried forward for up to five consecutive years from the year in which the loss arose. There is no carry-back provision. The loss must be offset against taxable income in full each year before moving to the next year's loss — you cannot choose to defer utilisation.

If your business has multiple operating units or lines, losses from one cannot generally be offset against profits from another unless they are consolidated within a single legal entity. This is a common planning consideration for groups operating multiple Vietnamese companies.

Audit triggers

The GDT uses a risk-scoring system to select enterprises for audit. Common triggers include:

• Consecutive loss years — reporting losses for three or more years while continuing to operate is a strong audit signal
• High expense ratios — entertainment, advertising, or management fees that are disproportionately large relative to revenue
• Related-party transactions — payments to overseas parent companies or affiliated entities attract transfer-pricing scrutiny
• Large VAT refund claims — exporters claiming VAT refunds above certain thresholds are routinely selected
• Discrepancies between CIT, VAT, and payroll filings — the GDT cross-references these, so inconsistencies stand out

Maintaining clean, consistent records across all tax types is the most effective audit defence. If you are invoicing Vietnamese clients, ensure your issued invoices match what is reported in your VAT declarations.

Common pitfalls

Missing or invalid invoices. Expenses paid in cash without a proper VAT invoice are routinely disallowed on audit. This is the single most common problem for smaller businesses.

Thin-capitalisation rules. Since 2017, related-party loan interest is capped at 30% of EBITDA (earnings before interest, taxes, depreciation, and amortisation). Businesses funded primarily by inter-company loans can find a large portion of their interest expense non-deductible.

Misclassifying capital expenditure as operating expenditure. Equipment purchases must be capitalised and depreciated; expensing them immediately is disallowed and triggers reassessment.

Ignoring transfer-pricing documentation. If your company transacts with related parties — even just paying a management fee to an overseas parent — you are required to prepare and maintain transfer-pricing documentation. Failure to do so is itself a penalty risk, separate from any substantive adjustment.

For a broader view of how CIT interacts with personal tax obligations for business owners, see the Vietnam tax as foreigner deep dive.

This page reflects publicly available rules as understood in mid-2026. Tax law and GDT practice evolve — confirm current rates, thresholds, and procedures with a qualified Vietnamese tax professional before making any filing or planning decision.

Related

• Vietnamese accounting software
• Business insurance in Vietnam
• Government FDI incentives
• Invoicing Vietnamese clients
• Vietnam tax as foreigner deep dive