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
According to Article 5 of Decree No. 80/2021/ND-CP, issued by the Vietnamese Government on 26 August 2021, a company must first qualify as a small or medium-sized enterprise (SME) to be eligible for the exemption. To qualify as an SME, the company must meet the applicable criteria for its business sector, number of employees, and either total capital or annual revenue. The company only needs to meet one of the two financial criteria (total capital or annual revenue), as shown below:
| 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 exemption period starts on the date your company’s first Enterprise Registration Certificate (ERC) is issued. This period runs continuously, regardless of whether the company generates any revenue or profit during that time. If your company’s ERC was issued before Resolution 198 took effect, but the three-year period has not yet expired, the company can continue to use the remaining exemption period.
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 Is Not Eligible
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.
Getting Ready for an Audit
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 by checking that the company meets the applicable revenue, capital, and employee thresholds, and keep evidence to support its qualification.
- Verifying “newly established” status by documenting that it was not created through a restructuring and that no key individuals are subject to the 12-month restriction.
- Reviewing prior filings to determine whether the exemption should have been claimed and whether a correction or refund claim is available.
- Maintain complete supporting records, including evidence of SME qualification, incorporation documents, ownership and management records, and any documents showing that no disqualifying conditions apply..
- Keep separate records of non-qualifying income from the start, rather than trying to identify it later.
The takeaway for foreign investors
For a newly established foreign-invested SME, the three-year corporate income tax (CIT) exemption can provide a valuable financial advantage. However, the company must be able to demonstrate that it meets all of the eligibility requirements, it is not enough to simply claim the exemption. The rules are designed to support genuine new investments, while preventing existing businesses from restructuring solely to qualify for the incentive. In practice, the tax authority usually reviews compliance after the exemption has been claimed, rather than granting approval in advance.
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 (General Department of Taxation, 11 June 2026).
