Things to note when setting up and using science and technology development funds in enterprises

The Law on Corporate Income Tax 2025 ("Law on CIT") allows enterprises to deduct up to 20% of their annual taxable income to form the Science and Technology Development Fund. But the correct compliance when setting up this fund is also something that businesses need to pay attention to. In essence, allowing enterprises to set up science and technology funds is a strategic financial and tax tool, helping enterprises reallocate pre-tax profits to high value-added activities. However, this mechanism is not absolute tax exemption. In case of using the science and technology fund for the wrong purpose, failing to reach the minimum utilization rate as prescribed, or violating the declaration obligation, the enterprise may be subject to the arrears of CIT corresponding to the invalid appropriation, accompanied by late payment interest.

Source: The Saigon Times

When is the enterprise set aside?

The Law on CIT stipulates that enterprises are allowed to deduct up to 20% of their annual taxable income to set up the Science and Technology Fund. This regulation should be correctly understood in two points: (i) the basis for calculating the deduction is "taxable income",[1] not "revenue" or "taxable income"[2]; and (ii) the level of 20% is the ceiling level, the enterprise has the right to decide on the specific deduction rate depending on the demand.

The deduction for the establishment of the Science and Technology Fund shall be determined according to each tax period and shall be deducted from the income subject to enterprise income tax when determining the tax liability. In addition, due to the nature of the Science and Technology Fund, it is formed from the taxable income that the enterprise has been deducted. Therefore, in order to avoid the situation of "double deduction", expenses "funded" by the Science and Technology Fund will not be included in deductible expenses when determining income subject to corporate income tax in the tax period.

In addition, in case an enterprise has chosen to set up  a fund for science, technology development, innovation and digital transformation as prescribed in Resolution No. 198/2025/QH15, it will not set aside a science and technology fund in accordance with the provisions of the Law on CIT because basically, these two types of funds are one and both are implemented in accordance with the law on corporate income tax karma.

Must be used for the right purpose

The appropriation for the establishment of the science and technology fund is the right of the enterprise, not a mandatory obligation according to the law. However, once the appropriation has been made and enjoyed the corresponding tax reduction mechanism, the enterprise must comply with the obligation to use at least 70% of the fund and use the science and technology fund for the right purposes within five years from the time of appropriation. If violated, it may lead to the remittance of the enterprise income tax on the income deducted from the fund without use or improper use and the interest arising from such enterprise income tax amount.

Enterprises need to note that expenditures from the science and technology fund must have full and valid invoices and documents. Because the science and technology fund is formed from the income that has been deducted from the tax base, all expenditures from here must be strictly controlled financially and proven by an appropriate system of accounting documents. In case the expenditure does not have or does not meet the requirements on invoices and documents, the enterprise must fulfill its obligations to the State.

In addition, the science and technology fund is only used for research investment activities associated with scientific and technological development and contents as prescribed by law. This means that enterprises are not allowed to arbitrarily allocate funds for normal production and business purposes, financial investment or management costs that do not serve the purpose of scientific and technological development.

Requirements for the establishment and use of the Science and Technology Fund

The first deduction from the Fund shall be used first

The use of the Fund is calculated on the principle that the deduction from the Fund is used first. This principle ensures transparency and control over the Fund. At the same time, the law also gives enterprises a certain flexibility when the demand for spending on scientific and technological activities in the year exceeds the existing balance of the Fund. At this time, the enterprise may choose or account the excess into the deductible expenses when determining taxable income in the period, or deduct in advance the Fund of the following years to make up for the shortfall according to the statutory mechanism. This regulation not only ensures the goal of encouraging investment in research and development, but also maintains the principle of strict management of funds associated with corresponding tax obligations.

Modern production line at TH True Milk's factory. Source: Government Newspaper

Compliance with mandatory administrative procedures

As required, the enterprise must notify the establishment of the science and technology fund within 30 days from the date of establishment of the fund to the Department of Science and Technology of the provincial People's Committee where the enterprise registers to pay tax. In addition, every year, enterprises must make a report according to the form and send it to the tax authority and the direct management agency in charge of science and technology, which is the Department of Science and Technology and the Department of Finance. The deadline for submitting reports coincides with the deadline for submitting annual corporate income tax finalization dossiers. In case of transfer of funds between funds in the same system as between parent companies and subsidiaries, the enterprises must also separately report on the receipt and use of the transferred funds to the competent agencies.

In addition, the new regulations also require enterprises from the first appropriation period to develop, approve and send to the tax authorities directly managing internal regulations, including science and technology regulations from regulations on proposals, determination of tasks, etc  organizing the implementation and acceptance of scientific and technological tasks to the regulation on expenditure and use of funds. These regulations must be sent at the same time as the submission of the report on appropriation, transfer and use of the fund.

Some recommendations for businesses

Failure to identify or improperly determine the legal obligations to be complied with when setting up a science and technology fund can lead to legal risks, thereby reducing the reputation of the business in the market as well as in the eyes of the regulator. Therefore, businesses need to focus on some of the following notes:

First, enterprises should establish a separate monitoring and control system for all cash flows spent from science and technology funds, including a separate accounting mechanism, storing invoices and documents according to each science and technology task, and building a clear internal approval process. This helps to enhance accountability when tax authorities or specialized management agencies conduct inspections and examinations; minimizing the risk of arrears due to document errors.

Secondly, enterprises need to periodically review the rate of use of science and technology funds compared to the minimum level prescribed by law, especially before the end of the fiscal year. Regular monitoring helps businesses proactively adjust deployment plans, allocate resources appropriately and avoid not meeting the required usage threshold. Periodic reviews are also the basis for assessing the substantive effectiveness of the fund appropriation instead of just stopping at the goal of tax optimization.

Thirdly, before deciding to establish a science and technology fund, enterprises should provide comprehensive legal and tax advice on setting up conditions, notification processes, reporting obligations as well as tax consequences arising in the process of using the fund. The decision to establish a fund is only really effective when it is based on solid legal advice and a clear governance strategy, helping businesses take advantage of preferential policies correctly and sufficiently, while minimizing compliance risks in the long term.

If properly set aside and used, the science and technology fund is an effective tool in the science and technology development strategy of enterprises. On the contrary, if rushed and lacking strict control, this can become a significant risk point in tax inspections and examinations that businesses may face in the future.