3-Year CIT exemption for newly established companies in Vietnam

Vietnam has officially introduced a 3-year Corporate Income Tax (CIT) exemption for newly established SMEs, including eligible FDI companies, effective from 17 May 2025. This is a meaningful cost advantage designed to support new businesses in their early years of operation. But the exemption isn’t automatic, it depends on meeting specific conditions on SME status, business formation, and income type. This guide breaks down exactly what those conditions are.

Content

1. What is this incentive and how is it applied?

In simple terms, a newly established SME does not have to pay corporate income tax on its business profits for the first 3 years, counted from the date its Enterprise Registration Certificate (ERC) is first issued. This saves the standard 15% to 20% CIT rate during the company’s early years of operation.

The exemption works on a self-declared mechanism: no separate application or prior approval is needed. Eligible companies simply declare the exempted income under criterion C2 on their annual CIT finalization return (Form 03/TNDN), and remain responsible for keeping supporting documents, such as the ERC and SME status records, in case of a tax audit.

2. Conditions for eligibility

The legal basis for this exemption is Decree No. 20/2026/ND-CP, dated 15 January 2026, which provides detailed guidance for implementing Resolution No. 198/2025/QH15 on special mechanisms and policies for private sector development. Under this framework, a company must concurrently satisfy the following conditions:

Condition 1: Qualifying as an SME

Under Article 4 of the Law on Provision of Assistance for SMEs, a company qualifies as an SME if:

Its annual average number of employees participating in Social Insurance (SI) does not exceed 200; and
Either its total capital does not exceed VND 100 billion, or its previous year’s total revenue does not exceed VND 300 billion.

Once a company qualifies as an SME, it is further classified as micro, small, or medium, based on more specific thresholds under Decree No. 80/2021/ND-CP:

Enterprise Type	Fields of operation	Average annual number of employees participating in SI	Maximumtotal annual revenue	OR Maximum total capital (per year)
Micro-enterprise	Agriculture, forestry, aquaculture; industry and construction	Not exceeding 10 people	Not exceeding VND 3 billion	Not exceeding VND 3 billion
Micro-enterprise	Commerce and services	Not exceeding 10 people	Not exceeding VND 10 billion	Not exceeding VND 3 billion
Small enterprise	Agriculture, forestry, aquaculture; industry and construction	Not exceeding 100 people	Not exceeding VND 50 billion	Not exceeding VND 20 billion
Small enterprise	Commerce and services	Not exceeding 50 people	Not exceeding VND 100 billion	Not exceeding VND 50 billion
Medium enterprise	Agriculture, forestry, aquaculture; industry and construction	Not exceeding 200 people	Not exceeding VND 200 billion	Not exceeding VND 100 billion
Medium enterprise	Commerce and services	Not exceeding 100 people	Not exceeding VND 300 billion	Not exceeding VND 100 billion

Condition 2: Being a newly established enterprise

The exemption applies only to first-time registered SMEs, and the 3-year period starts from the year a company’s ERC is first issued.

For companies whose ERC was granted before Resolution 198/2025/QH15 took effect (17 May 2025), only the unused portion of the exemption period applies. For example, a company established in 2023 would only be exempt for the 2025 tax year, since 2023 and 2024 have already passed.

The Tax Department has officially confirmed, via Official Letter No. 3897/CT-CS dated 11 June 2026, that FDI companies are also entitled to this exemption, provided they meet the SME criteria and other conditions above

Condition 3: Independent ownership

A company will not be treated as “newly established” for this purpose, and will be denied the exemption, if:

It was formed through a merger, consolidation, division, split, conversion of enterprise type, or change of ownership;
Its legal representative, general partner, or largest capital contributor concurrently holds the same role in another operating company; or
The same individual sets up the new company within 12 months of dissolving a prior one.

These rules exist to prevent existing businesses from restructuring or re-registering simply to claim the exemption as a “new” entity.

3. Corporate income not eligible for exemption

Even if an SME meets all other conditions, not all its income is eligible for the 3-year CIT exemption, including those prescribed under Clause 3, Article 18 of the Law on Corporate Income Tax No. 67/2025/QH15 as follows:

Incomes from transfers of capital, transfers of the right to contribute capital.
Incomes from transfers of real estate, except for incomes from investment in construction of social housing.
Incomes from transfers of investment projects (except for transfers of projects to process minerals), transfers of the right to participate in investment projects, transfers of the right to explore, extract and process minerals
Incomes from business operations outside Vietnam.
Incomes from the exploration and extraction of petroleum and other rare resources, and incomes from mineral extraction and extraction.
Income from the production and operation of online video games.
Incomes from the production and sale of goods and services are subject to excise taxes as stipulated by the Excise Tax Law, except for projects related to the production and assembly of automobiles, aircraft, helicopters, gliders, yachts, and petrochemical refining.
Other special cases as prescribed by the Government.

4. Q&A

#1. Is it permissible to concurrently enjoy multiple incentives?

Under Clause 4, Article 7 of Decree No. 20/2026/ND-CP, during the same period, if a newly established SME has income that is eligible for this tax exemption and also qualifies for other tax exemption or reduction incentives, it must:

Choose the most favorable incentive; and
Apply it consistently, without change, throughout the incentive period.

#2. If the first tax period is shorter than 12 months, can an SME choose to apply the 3-year CIT exemption from the following tax year to fully benefit from the incentive?

Yes. Under Clause 5, Article 7 of Decree No. 20/2026/ND-CP, if an SME has less than 12 months of tax-exempt business activity in the first tax period, it may choose between:

Option 1: Applying the tax exemption from that first tax period, or
Option 2: Register with the tax authority to apply the tax exemption from the next tax period.

Option 2 is beneficial for enterprises established near the end of the year, as it allows them to preserve the full exemption period instead of using it up on a short initial tax period.

#3. If an SME incurs losses in the first year, is the CIT exemption period still counted?

YES.

The 3-year CIT exemption period is counted continuously from the first year the enterprise is granted its ERC, regardless of whether the enterprise generates profit or incurs losses in that first year. The enterprise may lose the practical benefit of one exemption year if it does not generate taxable income during that period.

5. Conclusion

The 3-year CIT exemption gives real tax relief for new SMEs, but it is not automatic. Businesses must meet specific conditions on establishment time, SME status, ownership structure, and income type. Some entities may only enjoy part of the incentive period, while others may be excluded entirely. In practice, companies should check their eligibility early, track the correct start date of the incentive, and choose the most beneficial tax incentive if multiple options apply.