Amended CIT Law 2025: What will be amended?

The current Law on Corporate Income Tax ("Law on CIT") is being considered and amended by the National Assembly to meet the actual requirements of the domestic tax system, and at the same time be in line with the trend of international integration. In particular, this amendment takes place in the context that Vietnam has passed a Resolution on the application of additional corporate income tax under the global tax base erosion prevention mechanism, effective from January 1, 2024. The changes in the revised Draft Law on CIT not only directly impact the operations of domestic and foreign enterprises but also reshape tax policies to be more suitable for the current digital economy context. In this article, we will mention some notable expected adjustments in the amended Draft Law on CIT to help businesses proactively grasp the changes, to make appropriate adjustments to their business strategies in the coming time.

Completing regulations on taxpayers and taxable income

One of the prominent amendments of the amended Draft Law on CIT[1] (the "Draft") this time is the expansion of the concept of "permanent residence establishment" in Clause 3, Article 2 of the Draft. The purpose of this is to cover foreign businesses that are providing goods and services in Vietnam through e-commerce platforms or digital technology. Accordingly, these businesses will be considered as taxpayers in Vietnam.

The expansion of this concept of "permanent establishment" is important in the context of the current digital economy, when cross-border business activities are becoming more and more popular. This helps ensure that foreign businesses operating in Vietnam must also contribute to the state budget, creating fairness for domestic businesses.

In addition, the Draft also supplements specific regulations on taxable incomes, including:

• Income from securities transfer;
• The difference from fines, compensation for violations of economic contracts, or bonuses for good performance of commitments under contracts;
• Profits from overseas business activities;
• Income arises from service provision and distribution activities in Vietnam, including through digital platforms.

The addition of specific regulations on taxable income helps narrow the legal gap on taxes related to cross-border business and e-commerce. At the same time, this adjustment is also in line with international trends and strengthens Vietnam's taxation power in the context of increasingly developing e-commerce and business activities on digital platforms. However, these changes also place higher requirements on businesses in tax administration. Businesses need to improve their tax administration capacity to adapt and comply with new legal regulations effectively.

Flexible tax period and regulations on deductible and non-deductible expenses

Another important change in the Draft is the legislation that allows enterprises to choose a tax period according to the calendar year or fiscal year, but must notify the tax authority directly managing it. This regulation creates flexibility, helping businesses be more proactive in optimizing their financial plans. Choosing the right tax period can help businesses make the most of tax incentives, as well as simplify tax management and reporting. For example, enterprises can choose a tax period that coincides with the fiscal year of the parent company abroad to facilitate the preparation of consolidated reports.

In addition, the Draft also clarifies expenses that are included in deductible expenses and supplements regulations on non-deductible expenses when determining taxable income:

• Deductible expenses: including expenses with sufficient valid invoices and documents, except for special cases according to the Government's regulations (the regulation "for invoices for the purchase of goods and services with a value of less than VND 20 million each time, non-cash payment vouchers must be included" in Clause 1, Article 9 of the current Law on CIT).
• Non-deductible expenses: such as expenses in excess of the prescribed amount, such as business management expenses allocated to permanent establishments in Vietnam or welfare expenses for employees; or loan interest in excess of the level specified in the Civil Code.

Clarifying deductible and non-deductible expenses helps businesses accurately determine taxable income, avoid errors and disputes with tax authorities. Enterprises also need to pay special attention to reviewing expenditures to ensure compliance with the adjusted provisions of the Draft, especially for enterprises with large investment costs, associated transactions or welfare expenses for employees. Strict management of these costs will not only help businesses reduce legal risks but also optimize tax obligations.

National Assembly Chairman Tran Thanh Man at the 37th session of the National Assembly Standing Committee contributing opinions on the amendment of the Corporate Income Tax Law. Source: Government News

Adjust the tax rate according to the turnover of the enterprise

The draft has adjusted the tax rates in Article 10 with a clear classification according to enterprise turnover:

1. Enterprises with a total annual revenue of not more than VND 3 billion: Tax rate of 15%.
2. Enterprises with a total revenue of from VND 3 billion to not exceeding VND 50 billion: Tax rate of 17%.
3. Other businesses: Tax rate 20%.

This adjustment clearly shows the State's orientation to support small and medium-sized enterprises, helping these enterprises reduce their tax burden and have more resources for investment and development. In addition, the Draft stipulates that the revenue used as the basis for applying the preferential tax rate will be determined based on the total revenue of the preceding year. However, to ensure transparency and avoid taking advantage of preferential policies, the tax rates of 15% and 17% will not apply to enterprises that are subsidiaries or affiliated companies that do not meet the conditions for applying incentives. This regulation aims to ensure that tax incentives really reach small and medium-sized enterprises, avoiding the situation that large enterprises take advantage of this policy to evade tax obligations.

In addition, the Draft also adjusts the tax rate applicable to foreign enterprises with some specific types of income:

• Income from transfer of capital and assets: 2% of the revenue generated.
• Loan interest: 5% on revenue generated in Vietnam.

In general, the new way of classifying and adjusting tax rates in the Draft brings many benefits to businesses, especially small and medium-sized enterprises. It creates conditions for these enterprises to develop in accordance with the State's policy of supporting small and medium-sized enterprises. At the same time, maintaining the same tax rate for large-scale enterprises helps ensure stability in tax policy and create a fair business environment. Therefore, businesses need to pay attention to carefully reviewing revenue and organizational structure to determine the right applicable tax rate, ensure compliance with legal regulations and take advantage of appropriate incentives.

CIT incentives – Modified to suit businesses

The draft amendment brings many positive changes, especially the expansion and optimization of tax incentives for businesses. A notable point is that the regulation allows enterprises to choose the most favorable tax incentive conditions[2] and apply them stably throughout the entire period of enjoying incentives if they meet many different preferential conditions. Allowing businesses to choose the most favorable tax incentive conditions helps them choose the most suitable preferential conditions for their actual situation and business plan, thereby maximizing after-tax profits.

In addition, enterprises with investment projects that were previously not eligible for incentives but then meet new conditions as prescribed in the Draft will be eligible for incentives from the tax period of 2026. This is an important step, creating opportunities for ongoing investment projects to take advantage of new support policies to increase profits.

In particular, the Draft has legislated the content of loss transfer, allowing enterprises to offset profits from real estate transfer and transfer of investment projects (according to Clause 2, Article 16 of the Draft) for a continuous period not exceeding 5 years from the year following the year in which losses arise. The legalization of the content of loss transfer is an important change, helping businesses effectively manage cash flow and minimize the tax burden when carrying out high-value transfer activities.

In general, the above changes are the State's efforts not only to encourage new investment enterprises but also to create conditions for ongoing projects to optimize costs. This is a positive sign of the State's companionship in improving the business and investment environment, enhancing the competitiveness of businesses and in line with the trend of digital economy and international integration. We believe that these amendments to the CIT Law will open up many new opportunities for businesses. With these changes, businesses need to actively review financial and investment plans, master the legal basis to ensure compliance with legal regulations to catch up with business opportunities.

Lawyer Cao Nguyen Bao Lien

HM&P Law Firm