Foreign-invested enterprises in Vietnam that are subsidiaries or related parties of another enterprise may be excluded from the 15% and 17% preferential CIT rates – even where their revenue would otherwise qualify.
Official Letter No. 850/DAN-QLDN2 of the Da Nang Tax Department and Official Letter No. 2644/BNI-QLDN1 of the Bac Ninh Tax Department offer contrasting interpretations of how this exclusion applies in practice.
The enactment of the Law on Corporate Income Tax No. 67/2025/QH15 dated 14 June 2025 (“CIT Law”) and its guiding Decree No. 320/2025/ND-CP dated 15 December 2025 (“Decree 320”) marks a paradigm shift in Vietnam’s tax policy. For the first time, tiered preferential rates are introduced to reduce the tax burden on SMEs’ operations for qualified enterprises:
- 15% CIT: Annual revenue ≤ VND 03 billion; and
- 17% CIT: VND 03 billion ≤ Annual revenue ≤ VND 50 billion.
However, for Foreign-Invested Enterprises (“FIEs”) operating as subsidiaries, the application of these rates became a question mark.
The core conflict: Subsidiary and “Related-party” exclusion
Under Article 11.4.(c) of Decree 320, these preferential rates expressly exclude enterprises established under Vietnamese law, that are subsidiaries or related parties of another enterprise. The silence of the Decree on whether this exclusion extends to foreign parent companies has led to a notable split in provincial tax interpretations:
| Official Letter No. 850/DAN-QLDN2 dated 27 February 2026 (Da Nang Tax Department) (“OL 850”) | Official Letter No. 2644/BNI-QLDN1 dated 17 March 2026 (Bac Ninh Tax Department) (“OL 2644”) | |
|---|---|---|
| Reasoning | Adopts a strict “Entity Status” view. An enterprise is deemed a subsidiary where a parent company holds more than 50% of its: • charter capital, or • total ordinary shares. As a subsidiary, the enterprise falls within the exclusion in Article 11.4(c), regardless of its parent’s jurisdiction. | Adopts a “Jurisdictional” view. Article 11.4(c) only excludes where a parent company or related party: • being subject to Vietnam’s CIT Law, and • does not meet the qualifying conditions for the preferential rates. The subsidiary may not fall within the exclusion under Article 11.4.(c), if the parent company or related party is offshore and not subject to Vietnam’s CIT Law. |
| Policy effect | Restrictive: Most FIEs are ineligible. | Permissive: FIEs may qualify if they meet revenue thresholds. |
| Conclusion | Inapplicable | Applicable |
The conflicting stances taken by the Da Nang and Bac Ninh tax authorities highlight a significant interpretative gap in Article 11.4(c) of Decree 320. As these Official Letters are technically binding only on the specific applicants and non-binding on third parties, until the General Department of Taxation (GDT) issues a unifying circular, FIEs should not rely on these rulings as broad precedents.
Recommendations
We recommend the following high-level approach:
- Direct Rulings: Given the provincial divergence, FIEs should submit their own Official Letter request for ruling to their supervising tax authority to secure a formal, entity-specific position.
- Align with Transfer Pricing Framework: Tax incentives must be viewed through the lens of Decree 132/2020/ND-CP (“Decree 132”). Tax authorities now expect full transparency and internal consistency: where related-party relationships have the potential to influence taxable outcomes. Accordingly, claiming a preferential CIT rate for “small enterprise” while deeply integrated within group operations must be carefully assessed for coherence and defensibility across all transfer pricing filings and disclosures.
Global Minimum Tax (GMT) Overlay considerations may dilute local incentives
For large multinationals, any local tax benefit may be neutralized by OECD Pillar Two (Global Minimum Tax) top-up mechanisms. A global tax profile assessment is essential before claiming local incentives. With the introduction of the OECD Pillar Two in Vietnam – Decree No. 236/2025/ND-CP, the economic value of local tax incentives may be materially reduced for large multinational corporations. Even where a taxpayer successfully sustains a local position (preferential CIT rate 15% or 17% rate), the overall benefit may be offset by top-up taxation mechanisms elsewhere in the group’s global tax profile.
In light of Vietnam’s evolving CIT framework, FIEs and domestic companies should undertake a coordinated legal, tax, and accounting operational assessment before applying any preferential CIT rates. Businesses should assess whether the relevant entity satisfies the statutory conditions for the reduced rate, while also determining whether its status as a subsidiary or related party could restrict access to the incentive under the implementation rules.
Companies should evaluate operational substance in Vietnam by analyzing governance, decision-making, and commercial autonomy, leading as consequences to adopt a documented filing position before submission to strengthen defensibility in the event of a tax audit or dispute. Should you require assistance in navigating this issue or assessing your tax position, RBA’s advisory team is available to provide tailored guidance.
