Tax Incentives In Vietnam: What Foreign Investors Need To Understand To Maximize Benefits?

Vietnam has become one of the most attractive destinations in Southeast Asia for foreign investors, not only due to its strategic location and competitive labor costs, but also thanks to the government’s diverse tax incentive framework. However, while these incentives can significantly reduce the tax burden, they come with strict conditions. Many investors unintentionally lose these benefits due to compliance gaps.

1. Overview of tax incentives in Vietnam

Vietnam offers a wide range of tax incentives, primarily targeting encouraged industries and investment locations. These incentives mainly apply to Corporate Income Tax (CIT), but may also include import duty exemptions, land rental incentives, and Value Added Tax (VAT) reductions for certain sectors.

2. Current tax incentives for businesses and foreign investors (FDI)

2.1. Incentives by Encouraged Sectors and Industries

– Corporate income tax incentives

+ Corporate income tax incentives based on industries and sectors encouraged for investment:

The government uses tax incentives as a tool to direct investment into priority sectors and industries that require development or support, particularly high-tech industries, agriculture, education and healthcare, environmental protection, renewable energy, and supporting industries.

+ Preferential tax rate of 10% for 15 years

Applicable to income derived from new investment projects in the following sectors (Article 15 of the 2025 CIT Law):

• Software production (information technology)
• High-tech product manufacturing
• High-tech agriculture
• Scientific research and technological development
• Renewable energy production (e.g., solar, wind power)
• Environmental protection activities
• Investment in infrastructure of industrial zones, export processing zones, and economic zones
• Supporting industry product manufacturing (subject to specific government-issued lists)
• New investment projects in education, training, healthcare, culture, sports, environment, and other socialization activities

+ Preferential tax rate of 17% for 10 years

Applicable to certain manufacturing industries such as steel production, agricultural machinery, textiles, and footwear.

+ Tax Holidays and Reductions

Applicable to projects entitled to the 10% or 17% preferential tax rates:

• Tax exemption: Enterprises are exempt from CIT for a certain period. Projects eligible for the 10% rate are typically granted a 4-year exemption.
• Tax reduction: Enterprises are entitled to a 50% reduction of the payable tax for subsequent years (typically 9 years for projects under the 10% rate). 

Timing rule: The tax exemption and reduction period is generally calculated from the first year the project generates taxable income. If no taxable income is generated within the first three years, the incentive period starts from the fourth year.

+ Special Incentives for R&D and Digital Transformation (Article 16 of the 2025 CIT Law)

The 2025 CIT Law places strong emphasis on encouraging innovation and digital transformation, including:

• Up to 3 years of tax exemption for income derived from R&D or digital transformation activities
• Enhanced deductibility of R&D and digital transformation expenses (e.g., up to 150% of actual costs), thereby reducing taxable income

+ Additional Incentives for Green and Sustainable Investments

The 2025 CIT Law introduces additional tax incentives, including initial tax exemptions for income derived from the transfer of greenhouse gas emission reduction certificates, carbon credits, and income from interest on green bonds. These measures aim to promote the early-stage development of the green bond market and encourage businesses to participate in emissions reduction and sustainable investment activities..

– Value Added Tax Incentives (Law No. 48/2024/QH15, effective from July 1, 2025)

+ Items not subject to VAT (Article 5 of the VAT Law 2024)

The new law restructures and further clarifies certain categories of non-taxable goods and services. Key categories include:

• Agricultural, livestock, and aquaculture products that are unprocessed or only subject to preliminary processing, sold by organizations or individuals who directly produce or harvest them, including at the import stage
• Healthcare, education, and vocational training services
• Public postal and telecommunications services, as well as universal Internet services under government programs
• Financial, banking, insurance, and securities services
• Technology transfer and intellectual property rights transfer
• Exported natural resources and minerals that have not been processed into other products

+ 0% VAT rate (Article 9 of the 2024 VAT Law)

Applicable to:

• Exported goods and services, including goods exported through border gates, land borders, transshipment, and transit; services provided to foreign organizations, individuals, or non-tariff zones
• International transportation services
• Construction and installation activities carried out overseas

+ 5% VAT rate (Article 10 of the 2024 Value Added Tax Law)

Applicable to:

• Agricultural, livestock, aquaculture, and seafood products that have undergone natural processing and further processing into other products
• Clean water for production and domestic use
• Medical equipment and instruments; medical cotton, bandages; preventive and curative medicines
• Education, training, culture, arts, sports, and physical activities
• Science and technology services
• Sale, lease, or lease-purchase of social housing.

2.2. Incentives based on industries and sectors encouraged for investment

– Key Applicable Areas and Beneficiaries:

These incentives are primarily designed to promote investment in economically disadvantaged regions and high-tech industries.

2.3 Special Tax Incentives for Small and Micro Enterprises

The 2025 Corporate Income Tax Law (Law No. 67/2025/QH15) introduces preferential tax rates based on annual revenue, offering significant benefits to small and micro enterprises. This is an important new policy aimed at supporting the majority of businesses in Vietnam.

– Tax rate 15%

Applicable to enterprises with total annual revenue (of the preceding tax period) not exceeding VND 3 billion.

– Tax rate 17%

Applicable to enterprises with total annual revenue (of the preceding tax period) exceeding VND 3 billion but not exceeding VND 50 billion.

– The standard tax rate is 20%.

Applicable to most other enterprises.

3. Records and Compliance

Vietnamese tax authorities place strong emphasis on documentation and supporting evidence. To benefit from tax incentives, enterprises must not only meet the eligibility conditions but also understand how to properly register and comply with relevant regulations.

– Reviewing and Assessing Eligibility

This is the most critical step. Business owners should assign their accounting team or engage professional tax advisors to thoroughly review current legal regulations (especially the 2024 VAT Law No. 48/2024/QH15 and upcoming guiding decrees) to determine which incentives the enterprise qualifies for, based on factors such as industry, location, business type, and investment project.

– Preparing Supporting Documentation: Enterprises must collect and retain sufficient documentation to substantiate their eligibility for tax incentives, including:

• Investment Registration Certificate or Business Registration Certificate
• Official confirmation of eligible business sectors
• Contracts and acceptance reports (for investment projects)
• Payment documents clearly segregated for incentivized projects or activities
• Documents evidencing prior-year revenue thresholds

– Self-assessment and declaration: When preparing Corporate Income Tax (CIT) finalization returns or other tax filings, enterprises are responsible for self-assessing and declaring the applicable tax incentives.

– Record keeping: Enterprises must maintain complete documentation to substantiate eligibility, either upon internal request or for inspection by tax authorities. In the event of a tax audit, insufficient documentation may result in tax reassessment, penalties, and loss of incentive

4. TPM Practical Recommendations

To safeguard and maximize tax incentives, foreign investors and enterprises should:

• Conduct a tax incentive feasibility assessment prior to investment
• Engage a local tax advisory firm in Vietnam at an early stage
• Establish a robust internal compliance control system
• Perform periodic tax reviews to identify risks early
• Proactively engage with tax authorities when uncertainties arise

Tax incentives in Vietnam can deliver significant benefits to investors, but they are neither automatic nor unconditional. To fully capitalize on these incentives, enterprises must be well-prepared, maintain strict compliance, and continuously monitor their eligibility.

Investors who treat tax incentives as part of a long-term strategic framework—rather than a short-term benefit—are more likely to succeed and avoid unnecessary tax risks in Vietnam’s investment environment.

In practice, early-stage evaluation and proper structuring of tax incentives play a decisive role. This is why many foreign-invested enterprises (FDIs) choose to implement an initial tax advisory or tax incentive pre-assessment with professional advisors, in order to ensure eligibility, optimize their structure, and mitigate potential tax exposure in the future.

For enterprises and investors seeking advisory on tax incentives prior to investing in Vietnam, please feel free to contact TPM Tax Agency:

Van Le – Head of Tax Advisory
T: +84 916 777 662
E: van.le@tpm.com.vn

Or TPM Hotline: +84 28 3505 1800