Vietnam's New Corporate Income Tax Law

Vietnam has officially enacted a new Corporate Income Tax (CIT) law, which will come into effect in October 2025. Approved by the National Assembly on 14 June 2025, it will be implemented starting with the 2025 financial year. The reform underscores Vietnam's efforts to modernise its tax system, improve compliance, and encourage investment across various sectors.

Digital Economy Gains New Focus

Vietnam has broadened its tax regulations to cover the digital economy. The revised CIT law now includes more entities, such as foreign e-commerce companies and digital platforms earning income in Vietnam, as taxable. Since these platforms are regarded as a Permanent Establishment (PE) for tax purposes, their eligibility for treaty benefits might be affected. This change aligns Vietnam's tax policies with international standards, which tax digital activities based on where economic value is generated. This could impact large global tech firms operating within the country.

Significant Updates on Capital Gains and Offshore Investments

The new legislation introduces significant updates to capital gains taxes and regulations governing offshore investments. While initial drafts suggested a flat 2% tax on transfer prices, this was eliminated in the final version, with detailed rates to be determined later via regulations.

A significant change is that profits from foreign investments such as dividends or income from overseas subsidiaries—must now be reported and taxed in Vietnam in the year they are earned, regardless of whether they are repatriated or not. This change from the previous remittance-based system could cause businesses and investors to encounter tax obligations sooner.

Getting Ready for the Changes

Vietnamese businesses must prepare for imminent legislative updates. The upcoming laws offer benefits such as higher deductible expenses for ESG initiatives, digital transformation, and infrastructure projects, along with more adaptable loss offset options. Firms should assess their exit strategies, revisit offshore investment structures, and verify that their digital operations adhere to regulations that may now result in direct taxes in Vietnam. As the implementation date nears, proactive planning is crucial to navigate this evolving tax environment successfully.