Vietnam’s Ministry of Finance has proposed a new Corporate Income Tax Law (“Draft CIT Law”), which aims to modernise the tax framework and align it with international standards. The draft is set for consultation in October 2024 and is expected to be approved by May 2025, with implementation scheduled for 1 January 2026.

Key Changes in the Draft CIT Law

Tax treatment of non-resident entities: Non-resident entities deriving income from Vietnam, including e-commerce and digital businesses, will be treated as taxpayers for CIT purposes, regardless of their permanent establishment status in the country.

Capital transfer taxation: The draft introduces a 2% tax on gross proceeds from direct and indirect transfers of shares by foreign companies, replacing the current 20% tax on gains. This change simplifies the tax structure for foreign investors.

CIT liability = Tax Rate (%) x Sale Proceeds, with the applicable tax rate for capital transfer being 2 percent.

Input VAT deduction: Input VAT that cannot be deducted against output VAT and is ineligible for a refund will be considered a deductible expense, enhancing tax efficiency for businesses.

Expanded tax incentives: New industries, including digital content production, car manufacturing, and support for small and medium enterprises, will be eligible for CIT incentives.

Reduced CIT rates for small enterprises: Micro and small enterprises will benefit from lower CIT rates of 15% or 17%, depending on their total revenue from the previous year.

Incentives for economic zones: The draft includes new CIT incentives for enterprises operating in economic zones and high-technology zones, with varying rates and exemptions based on location and industry.

Global minimum tax compliance: The draft expands on the implementation of the Pillar 2 global minimum tax, introducing provisions for the Undertaxed Payments Rule (UTPR) and the Subject-to-Tax Rule (STTR) as Vietnam aligns with international tax standards.