Groundbreaking Reforms under the Law on Corporate Income Tax 2025

On 14 June 2025, the National Assembly of Vietnam officially passed the amended Law on Corporate Income Tax 2025 (“Law on CIT 2025”), demonstrating the State’s strong commitment to enhancing support for the private sector, particularly small and medium-sized enterprises (“SMEs”), and promoting the conversion of household businesses into enterprises. This is one of the key measures to implement Resolution 68-NQ/TW, reaffirming the private sector as a significant driver of the national economy.

Under the current legal framework, a uniform 20% corporate income tax (CIT) rate is applied to all enterprises, regardless of size or revenue. This, to some extent, has not encouraged the growth of SMEs, as the tax burden does not align with the financial capacity of this type of enterprise. To promote SME development, the Law on CIT 2025 introduces two preferential tax rates: a 15% tax rate applicable to enterprises with total annual revenue not exceeding VND 3 billion, and a 17% tax rate applicable to enterprises with total annual revenue exceeding VND 3 billion but not exceeding VND 50 billion. However, to prevent large enterprises from establishing SME subsidiaries solely to take advantage of these preferential tax rates, the law stipulates that such rates will not apply to subsidiaries or affiliated enterprises if the remaining enterprises within the affiliated group do not simultaneously meet the revenue criteria mentioned above. The implementation of preferential tax rates for SMEs is expected to provide significant financial support to the private sector, enabling SMEs to retain more capital for reinvestment and business expansion.

To facilitate the operations of small enterprises and reduce their compliance burdens concerning accounting and tax obligations, the Law on CIT 2025 also introduces a simplified tax calculation method based on a percentage of revenue. Accordingly, enterprises with total annual revenue not exceeding VND 3 billion are permitted to choose the method of declaring and paying CIT based on a fixed percentage of their revenue. The applicable rates vary depending on business activities: 0.3% for the distribution and supply of goods; 1.2% for manufacturing, transportation, services associated with goods, and construction activities where the contractor supplies materials; 1.5% for services and construction activities where the contractor does not supply materials; 4% for property leasing, insurance agency, lottery agency, and multi-level marketing agency activities; and 0.5% for other activities. This policy is anticipated to reduce compliance burdens and accounting costs while aligning with the small scale and limited management capacity of these enterprises.

Another notable point of the Law on CIT 2025 is the corporate income tax exemption for enterprises formed through the conversion of household businesses, aiming to encourage household businesses to convert into enterprises in line with the Government’s policies. Specifically, enterprises established through the conversion of household businesses, with total annual revenue not exceeding VND 50 billion, will be exempt from CIT for two consecutive years starting from the first year they generate taxable income. To ensure this tax exemption policy is applied to the appropriate beneficiaries, the law requires that household businesses must have operated continuously for at least 12 months before converting into an enterprise. Additionally, this exemption will not apply if the newly converted enterprise has its legal representative, largest capital-contributing member, or general partner simultaneously holding one of these positions in another operating enterprise or in another enterprise that was dissolved within 12 months prior to the registration date for the conversion.

Overall, the Law on CIT 2025 brings groundbreaking reforms, marking a significant step in improving the business environment, enhancing competitiveness, and promoting sustainable development for the private sector in Vietnam. The new policies will provide substantial support to SMEs, particularly household businesses transitioning into formal enterprises, thereby expanding the formal economy and contributing to long-term economic growth.