FDI enterprises are entitled to corporate income tax incentives like domestic enterprises

A tax guidance document that has just been issued can make an impact that is much greater than the technical scope of tax policy. Official Letter No. 3896/CT-CS dated 11-6-2026 of the Department of Taxation has officially affirmed that foreign-invested enterprises (FDI), if they meet the conditions of small and medium-sized enterprises, are still exempt from corporate income tax (CIT) for three years from the date of issuance of the first Enterprise Registration Certificate as domestic enterprises[1].

To implement this Resolution, the Government has issued Decree No. 20/2026/ND-CP detailing and guiding the implementation

From a practical problem in the application of law

The National Assembly's Resolution No. 198/2025/QH15 on a number of special mechanisms and policies for private economic development has introduced many new support policies for the business sector. In particular, one of the policies that the business community is particularly interested in is CIT exemption for small and medium-sized enterprises for three years from the date of issuance of the first Enterprise Registration Certificate.

To implement this Resolution, the Government has issued Decree No. 20/2026/ND-CP detailing and guiding the implementation. However, in the process of implementation, many local tax authorities have arisen different interpretations of the scope of incentives.

The origin of the debate comes from the very name of Resolution 198, which is the resolution on private economic development. From there, there is a view that this tax incentive policy should only be applied to enterprises in the domestic private economic sector, excluding FDI enterprises.

In fact, many newly established small-scale FDI enterprises have encountered confusion when determining the right to enjoy tax incentives. Some local management agencies also do not have a unified understanding of this issue. Therefore, tax authorities in Hanoi, Ho Chi Minh City, Bac Ninh, Dong Nai and Ninh Binh have written to ask for guidance from the central tax administration agency.

Legal basis for FDI enterprises to enjoy incentives

A notable point in the guidance document of the Department of Taxation is that this agency does not rely on a policy understanding or speculation about the goals of lawmakers, but returns to direct analysis of current legal regulations.

First of all, Resolution No. 198/2025/QH15 stipulates the scope of application to enterprises, business households, business individuals and related organizations and individuals. The Resolution does not set any conditions that enterprises must be domestic enterprises or enterprises with a certain percentage of Vietnamese capital ownership.

Similarly, Article 2 of Decree No. 20/2026/ND-CP also defines the subjects of application as enterprises, business households, business individuals and other relevant organizations and individuals. There are no regulations excluding foreign-invested enterprises.

More importantly, the Law on Enterprises 2020 amends the definition of an enterprise as an organization established or registered for establishment in accordance with the law for business purposes. This concept is generally applied to all types of enterprises established in Vietnam, regardless of whether the enterprise has domestic investment capital or foreign investment capital.

In addition, the Law on Support for Small and Medium Enterprises in 2017 also does not distinguish the source of capital when determining the criteria for small and medium-sized enterprises.

From these bases, the Department of Taxation concludes that foreign-invested enterprises established and operating under Vietnamese law, if they meet the criteria of small and medium-sized enterprises and do not fall into the exclusions under Decree No. 20/2026/ND-CP, are exempt from CIT for three years from the date of issuance of the first Enterprise Registration Certificate.

In other words, the determining factor is not the nationality of the investor but whether the enterprise meets the statutory conditions or not.

A notable shift in policy thinking

If only viewed from a tax technical perspective, this is merely a document guiding the implementation of the law. However, if you look more broadly, this decision reflects a remarkable shift in Vietnam's policy-making and implementation thinking.

In many previous stages of development, support or preferential policies were often designed on the basis of a relatively clear distinction between domestic and foreign enterprises. This comes from the goal of protecting or supporting domestic enterprises in certain stages of the economy. However, as Vietnam becomes more and more deeply integrated into the global economy, the investment capital-based approach gradually reveals certain limitations.

The current economy is witnessing the emergence of more and more new business models. A technology startup in Vietnam can receive capital from Singapore, South Korea, or the United States from the early stages. A professional services business can be established by foreign professionals but creates jobs for Vietnamese workers and pays taxes in Vietnam. A business in a global supply chain may have a small capital scale but possess technology or expertise that is of great value.

In this context, the continued discrimination between domestic enterprises and FDI enterprises in policies to support small and medium-sized enterprises may no longer be in line with the goals of modern economic development.

In line with the trend of equal treatment in new-generation FTAs

Another notable aspect is that the approach of the Tax Department is also compatible with the trend of international economic integration that Vietnam is pursuing.

In new-generation free trade agreements such as CPTPP, EVFTA or UKVFTA, the principle of national treatment is considered one of the core principles. According to this principle, after being allowed to invest and operate legally in Vietnam, foreign investors must be basically treated no less favorably than domestic investors under similar conditions.

Of course, tax incentives for small and medium-sized enterprises are not directly governed by international investment commitments. However, the spirit of the principle of equal treatment is increasingly influencing the domestic policy-making process.

Many developed countries now also choose to support businesses based on their size, innovation capacity or ability to create jobs rather than based on the nationality of the business owner. This is considered a more transparent, more predictable approach and more suitable for the market economy.

The fact that FDI enterprises meet the conditions for small and medium-sized enterprises to enjoy the same incentives as domestic enterprises can therefore be considered a step in line with the general trend of the world.

Source: Saigon Hi-Tech Park

Not all FDI enterprises are entitled to incentives

However, it should be noted that the guidance of the Tax Department does not mean that all FDI enterprises are automatically exempt from CIT for three years.

The prerequisite is that enterprises must meet the criteria for small and medium-sized enterprises under the Law on Support for Small and Medium Enterprises.

According to current regulations, small and medium-sized enterprises must meet the criteria for the average number of employees participating in social insurance annually and the criteria for revenue or total capital. Large-scale FDI enterprises, employing thousands of workers or having a large total investment capital will not be eligible for this policy.

In addition, Decree No. 20/2026/ND-CP also stipulates many cases where incentives are not applied to prevent the abuse of policies.

For example, an enterprise established from a division, separation, consolidation, merger or transformation of an enterprise type will not be subject to tax exemption. Newly established enterprises that are actually just a continuation of old enterprises are also not entitled to incentives.

These regulations show that the goal of lawmakers is to support start-ups and substantive investment activities instead of creating opportunities for businesses to restructure their forms to benefit from taxes.

Small policies but big messages for high-quality FDI

For years, Vietnam has often competed to attract FDI through incentives for large-scale projects in the manufacturing or export sectors. However, global investment trends are changing rapidly.

Besides multinational corporations, more and more technology enterprises, innovative enterprises, professional service providers or companies in the global supply chain choose to expand their operations abroad with a relatively small investment scale.

This group of businesses may not create tens of thousands of jobs like large-scale manufacturing projects, but it has the ability to bring technology, management skills, intellectual property and high added value to the economy. For them, a transparent regulatory environment and the predictability of policy are sometimes more important than the level of financial incentives.

Therefore, affirming that small and medium-sized FDI enterprises are entitled to tax incentives like domestic enterprises does not only mean the amount of tax exempted in the first three years of operation. More importantly, it sends the message that Vietnam is moving towards a more equitable, transparent, and investor-friendly investment environment.

From tax incentives to changing management mindset

From a legal perspective, Official Letter No. 3896/CT-CS is merely a document guiding the application of the law. However, from the perspective of public policy, this document reflects a remarkable trend of reform in state management of the business sector.

In the past period, the question was often asked which economic sector the enterprise belonged to, a domestic enterprise or a foreign enterprise, a state-owned enterprise or a private enterprise. Today, the more important question seems to be shifting into whether the business creates value for the economy, contributes to growth, employment, innovation, and national competitiveness.

The affirmation that small and medium-sized FDI enterprises enjoy the same tax incentives as domestic enterprises shows that the policy is shifting from the mindset of classifying enterprises according to capital origin to the mindset of supporting businesses based on development needs and economic goals.

This may be just a minor adjustment in the application of tax law, but it is a remarkable step forward in the process of building a more equitable, transparent and internationally competitive investment environment. In particular, as Vietnam aims to attract high-quality investment inflows, develop an innovation ecosystem and improve national competitiveness in the 2026-2030 period, such changes have far greater significance than the value of a three-year tax incentive. At the same time, this also reflects Vietnam's commitment to the principle of fair competition, policy predictability and consistency in the process of international economic integration.