OVERVIEW

The FY2025 CIT finalization marks a critical transition. While Decree 320/2025/ND-CP introduces opportunities like real estate loss offsets and SME incentivized rates, it created complex compliance gaps. Fortunately, the newly issued Circular 20/2026/TT-BTC (effective March 12, 2026) provides timely guidance on documentation requirements, resolving several critical uncertainties just ahead of the filing deadline.

Vietnam is moving toward stricter documentation-based compliance, mirroring trends in China and Indonesia. Coupled with drastically reduced non-cash payment thresholds, tax audits for FY2025 onward will heavily focus on operational compliance rather than purely technical tax adjustments.

KEY HIGHLIGHTS: OPTIMIZATION & DEDUCTIBILITY

1. Offsetting loss between income streams

• Losses can now be offset across different business activities. However, income is strictly defined by "registered business lines”.
• Potential risk: Losses from unregistered side activities or new ventures may be denied offset against registered activities. Given the novelty of this decree, companies must pay close attention to further specific guidance from tax authorities regarding the strict enforcement of this condition and consider registration updates.

2. Unlocking "Real Estate Losses"

• Real estate transfer losses are no longer ring-fenced and can offset main business profits in FY2025. This is a welcomed development as compared to previous rules.
• The Constraint: This offset is prohibited against income currently enjoying CIT incentives. Enterprises with incidental real estate transactions should review accounting separation and business registrations to defend this offset.

3. The "SME Tax Rate" for FDI Enterprises

• The new tiered tax rates are now effective: 15% for revenue under VND 3b (~USD 114K) and 17% for revenue between VND 3b and 50b (~USD 114K– USD 1.9M)
• Clarifications: FDI subsidiaries may qualify even if offshore parents exceed thresholds. However, tax authorities may also consider broader substance and control factors when assessing SME eligibility, including management overlap, financial dependence, or operational integration with larger group entities. FDI subsidiaries applying these SME rates should further watch out for written clarification or confirmation from tax authorities.

4. Deductibility: The Principle Shift & Regulated Expenses

• The strict revenue-matching principle is relaxed. Expenses are deductible if listed in regulations, actually incurred, and fully documented. Key explicit inclusions:
  • R&D Expenses: Enterprises can claim up to 200% deduction for R&D expenses. This is for activities qualifying under the Law on Science & Technology, not general internal research and does not result in a tax loss position.
  • Inventory: Goods that are technologically obsolete, out of fashion, legally restricted from circulation, or materials/components that are simply no longer in demand.
  • Fixed Assets: Assets that are damaged and no longer in demand are now explicitly deductible upon destruction (covering the remaining book value).
  • Production Scrap: Costs for destroying scraps and rejected products generated during processing are formally recognized as deductible expenses.

5. Non-cash Payment Control: The VND 5 Million (~USD 190) Threshold

• The non-cash payment threshold is drastically lowered from VND 20 million (~USD 760) to VND 5 million (~USD 190). 
• Operational Risk: Routine operational payments previously settled in cash will now create widespread non-deductible expenses. Companies must urgently update internal policies, vendor settlement processes, and ERP controls to ensure invoices exceeding the new threshold including accumulated payments are traced through banking channels.

6. Legalization of output VAT expense as Deductible Expense

• Output VAT on non-chargeable gifts/sponsorships, as well as uncreditable Input VAT ineligible for refunds, are now explicitly recognized as deductible CIT expenses, resolving historical audit disputes.

7. The "Specialized Law" Gatekeeper (Article 9, Clause 23)

• Expenses must comply with non-tax laws to be deductible. Valid invoices are no longer enough.
• For example: Marketing costs exceeding sector advertising limits, payments to unlicensed providers, or expenditures breaching labor/environmental laws will be denied for tax deduction purposes.

8. Pillar Two Interaction

• For multinational groups subject to Global Minimum Tax (QDMTT) rules, changes to deductible expenses, SME rates, and tax incentives under Decree 320 may alter local Effective Tax Rate (ETR) computations and trigger potential top-up tax exposure.

ISSUES FOR CONSIDERATION

1. Resolution of Retroactive Documentation Risk

• Previously, there was high risk that expenses incurred early in the year would be retroactively evaluated against strict new documentation standards. Article 10, Circular 20 provides a grandfathering rule. For deductible expenses incurred before Circular 20's effective date (i.e., March 12, 2026), companies can continue to apply the old documentation rules under Circular 96/2015/TT-BTC or use standard invoices. The strict new documentation standards will only apply to expenses incurred after the Circular's effective date.

2. The missing of the 15-month tax period rule

• The previous allowance to merge a short first/last CIT period (up to 15 months) is omitted in Decree 320 and remains unaddressed in Circular 20. Tax authorities may now require separate tax filings for short periods (e.g., Oct–Dec). This matter requires close monitoring during implementation.

3. Shift Toward Documentation Risk

• With the shift to documentation-based deductibility, enterprises must establish robust internal approval trails, destruction records, valuation reports, and technical justifications to mitigate the risks in future audits

4. Holistic Operational Review

• Beyond these highlights, Decree 320 and Circular 20 introduce broad changes to Tax Incentives, Exemptions, and Non-deductible items. A comprehensive review of specific company operations against the full regulatory framework is essential.

WHAT A&M CAN HELP

• Decree 320 and Circular 20 Impact Assessment: Diagnostic review of operational and accounting practices to identify areas affected by new deductibility rules, SME eligibility, and payment controls
• Pillar Two / Incentive Interaction Review: Assessment of how the new rules interact with existing tax incentives and global minimum tax obligations.
• Tax Audit Defense Preparation: Pre-audit review of documentation packages supporting high-risk deductions such as R&D, inventory destruction, and asset impairment.
• Comprehensive CIT Return assistance: A&M can assist to prepare or review the FY2025 CIT computation and declaration to ensure accuracy, optimize tax positions, and identify potential non-compliance risks prior to submission.
• Tax Update & Advisory Sessions: We organize tailored technical sessions to update your team on the full scope of Decree 320 and Circular 20 changes and discuss specific concerns related to your business model.
• Targeted Technical Advisory: We provide assistance on specific topics of interest (e.g., undivided income for socialized activities, R&D expenses, incentive requirements) to ensure compliance with new regulatory requirements and stricter documentation standards.

All the information contained in this tax update is for the general key update and reference purposes only and is not intended to be relied on as specific professional advice for any actions. There is no guarantee and/or liability (from A&M, its employees, or any parties and/or personnel) of the completeness and/or accuracy (express or implied) of any information contained in this tax update. For further discussion, please contact us.