If you’re setting up — or recently set up — a foreign-invested company in Vietnam, this clarification directly affects your first three years of tax planning.
What changed
On 11 June 2026, the General Department of Taxation issued Official Letter No. 3896/CT-CS, addressing unresolved questions raised by the tax departments of Hanoi, Ho Chi Minh City, Bac Ninh, Dong Nai, and Ninh Binh about how to apply the CIT exemption under Decree No. 20/2026/NĐ-CP.
The letter is unambiguous: where a foreign-invested enterprise is established and registered under Vietnamese law, holds its first Enterprise Registration Certificate, meets the SME criteria set out in the Law on Support for Small and Medium-sized Enterprises and Decree No. 80/2021/NĐ-CP, and doesn’t fall into one of the excluded categories, it is entitled to the three-year CIT exemption on the same basis as a domestic company. The Tax Department has directed provincial tax offices to apply this position uniformly and to guide enterprises accordingly.
This matters because the underlying incentive — a three-year CIT exemption for newly registered SMEs, introduced under Resolution No. 198/2025/QH15 and detailed in Decree No. 20/2026/NĐ-CP — was widely read as a domestic private-sector measure. In practice, some local authorities, Ho Chi Minh City among them, had been excluding foreign-invested startups from the incentive entirely on that basis. Official Letter 3896/CT-CS, alongside companion guidance issued the same day, resolves that inconsistency at the national level.
Who counts as an SME
Eligibility for the exemption depends first on meeting Vietnam’s SME classification, based on sector, headcount, and either total capital or annual revenue (an enterprise only needs to satisfy one of the two financial thresholds):
| Category | Agriculture, forestry, fishery, industry & construction | Trade & services |
| Micro enterprise | ≤ 10 employees, and revenue ≤ VND 3 billion or capital ≤ VND 3 billion | ≤ 10 employees, and revenue ≤ VND 10 billion or capital ≤ VND 3 billion |
| Small enterprise | ≤ 100 employees, and revenue ≤ VND 50 billion or capital ≤ VND 20 billion | ≤ 50 employees, and revenue ≤ VND 100 billion or capital ≤ VND 50 billion |
| Medium enterprise | ≤ 200 employees, and revenue ≤ VND 200 billion or capital ≤ VND 100 billion | ≤ 100 employees, and revenue ≤ VND 300 billion or capital ≤ VND 100 billion |
Headcount is measured by employees participating in social insurance. This classification applies regardless of ownership structure — foreign-invested companies are assessed against exactly the same thresholds as domestic ones.
How the exemption works
The three-year clock starts running from the date your company’s first Enterprise Registration Certificate was issued, and it runs continuously — whether or not the business is generating revenue or profit during that period. Companies whose ERC was issued before Resolution 198 took effect, but which still have time left on their incentive window, can carry the remaining period forward.
There’s no separate application or approval step. The exemption is self-assessed: your company determines its own eligibility and declares the exemption directly in its annual CIT finalisation return. Tax authorities don’t check eligibility at the point of filing — they review it later, during audit, looking at financials, headcount, and corporate structure. If an enterprise is found to have miscalculated, or to have fallen into one of the excluded categories, back-taxes and penalties apply retroactively.
That timing detail matters. It puts the burden of proof on the taxpayer, not the tax office — which means the strength of your documentation, not the strength of your initial filing, determines your position if questioned later.
Who’s excluded
Two categories of newly established enterprise are carved out of the incentive, and both exist to stop existing businesses from restructuring into smaller entities purely to access it:
- Entities formed through restructuring — companies created via merger, consolidation, division, separation, change of ownership, or conversion of enterprise type don’t qualify as “newly established” for this purpose.
- The 12-month rule — if your legal representative (unless they hold no capital contribution), general partner, or largest capital contributor held the same role in another enterprise that is still operating, or that was dissolved less than 12 months before your new company’s establishment date, the new entity is disqualified.
Certain categories of income are also excluded from the exemption outright, regardless of overall SME eligibility, including income from capital transfers, real estate transactions, investment project or mining-rights transfers, activities conducted outside Vietnam, natural resource extraction, and income from certain regulated industries such as excise-taxable goods or online gaming. Where a business earns both qualifying and non-qualifying income, it needs to track and separate that income clearly in its accounting records — otherwise the whole position becomes harder to defend at audit.
Building your audit-ready position
Because the CIT exemption is self-declared and only checked retroactively, the practical priority for foreign-invested founders isn’t the filing itself — it’s the file behind it. That means:
- Confirming SME status against the revenue, capital, and headcount thresholds above, and being able to show it.
- Verifying “newly established” status — documenting that the entity isn’t the product of a restructuring, and that key individuals don’t trigger the 12-month rule.
- Reviewing prior filings if the exemption wasn’t applied when it should have been, to check whether a correction or reclaim is available.
- Keeping the full paper trail — SME qualification evidence, incorporation history, ownership and management records, and anything establishing the absence of disqualifying conditions.
- Separating non-qualifying income in your accounting from day one, rather than trying to reconstruct the split later.
Where a company previously received inconsistent guidance from a local tax department — Ho Chi Minh City being the most commonly cited case — it’s worth proactively raising the updated national position with that office rather than waiting for the next filing cycle to surface the discrepancy.
The takeaway for foreign investors
For a newly established foreign-invested SME, a clean three-year CIT exemption is a meaningful head start — but it’s an exemption you have to be able to prove, not just claim. The rules reward genuine new investment and penalise anything that looks like restructuring dressed up as a startup, and the tax authority’s actual scrutiny happens after the fact, not before.
If you’re incorporating a new foreign-invested entity in Vietnam, or you’ve registered in the past year and haven’t yet applied this exemption, it’s worth having your eligibility and documentation reviewed before it becomes an audit question rather than a planning one.
Forra manages company formation, accounting, and tax compliance for foreign-invested businesses in Vietnam as one integrated service — fixed fee, one team, no surprises. Book a free consultation to review your CIT exemption eligibility and get your documentation in order from day one.
This article is for general information purposes and does not constitute tax or legal advice. Sources: Official Letter No. 3896/CT-CS (Tax Department, 11 June 2026).
