Many investors only discover their tax incentive has been disallowed when the tax authority carries out a finalisation and rejects the claim for lack of supporting evidence. Investment incentives in Vietnam operate on a self-assessment, self-declaration, self-responsibility basis — there is no application-and-approval mechanism for each ordinary incentive. This article sets out the forms of incentive, the conditions by business line and location, and the risks of combining tax incentives with related-party transactions.
Forms of investment incentive
Investment and tax law prescribe four main groups of incentives:
- Corporate income tax (CIT) — a preferential tax rate lower than the standard rate for a fixed period or for the entire project life, together with a time-limited tax exemption and reduction counted from the first taxable income.
- Land rent and land-use levy — exempted or reduced for a number of initial years, depending on the project's business line and location.
- Import duty — exemption from import duty on goods forming fixed assets, and on raw materials, supplies and components that cannot yet be produced domestically, for a set period.
- Other incentives — accelerated depreciation, and an increased deductible-expense allowance for calculating CIT on research and development (R&D) activities.
The specific level of incentive (tax rate, number of exemption/reduction years) depends on whether the project qualifies by business line, by location, or by both, and can vary with the capital scale or special criteria. From the 2025 tax period, incentive levels have been adjusted under the Law on Corporate Income Tax No. 67/2025/QH15 (effective 1 October 2025) and its implementing Decree 320/2025/ND-CP; notably, industrial parks no longer qualify for the location-based incentive for projects licensed from 1 October 2025 onward. The exact figures should be checked against the tax instrument in force at the time of application.
Incentivised business lines
The list of especially incentivised business lines and incentivised investment business lines is now issued together with Decree 96/2026/ND-CP (Appendix II — replacing Decree 31/2021/ND-CP), and generally includes:
- High technology, information technology, digital technology products.
- Supporting industry, new materials, renewable energy.
- High-tech agriculture, processing of agricultural and aquatic products.
- Education, high-quality vocational training, healthcare, pharmaceuticals.
- Innovation, research and development (R&D).
- Environmental protection, waste treatment, recycling.
This list is reviewed in line with investment-attraction priorities for each period; investors should confirm that the target business line is still on the current list before preparing the dossier.
Incentivised locations
In addition to the business line, the project's location is also a basis for entitlement to incentives:
- Localities with disadvantaged or especially disadvantaged socio-economic conditions, as set out in the list accompanying the detailing instrument of the Law on Investment.
- Industrial parks, export-processing zones, hi-tech zones, and economic zones — except that certain industrial parks within centrally run or provincial class-I cities may not qualify for the disadvantaged-location incentive.
A project may satisfy both criteria at once; in that case, the most favourable incentive level applies, and the two levels are not stacked together.
Conditions and procedure for claiming incentives
Unlike the IRC procedure, most investment incentives — particularly CIT incentives — apply on a self-assessment basis: the enterprise determines its own eligibility and self-declares at finalisation, without needing prior approval, except for special incentives for large-scale projects decided separately by the competent authority.
To claim an incentive safely, an enterprise needs to:
- Record the incentivised business line and location in the IRC dossier itself (if applying for the incentive), to provide a basis for later verification.
- Retain the full dossier and supporting documents evidencing eligibility throughout the entire incentive period, not only at the outset.
- Monitor conditions that may change over time (the revenue ratio from the incentivised activity, the localisation ratio) to ensure continued eligibility at each finalisation period.
Applying an incentive incorrectly creates a risk of an arrears assessment, late-payment interest, and an administrative penalty when the tax authority conducts an inspection or audit.
Combining incentives with related-party transaction obligations
An FDI enterprise enjoying CIT incentives typically transacts with its parent company or overseas related parties — purchasing raw materials, paying royalties or management fees, or borrowing through intra-group financing. The tax authority pays particular attention to this category of transaction, given the risk that it is suspected of "pushing profit" into the entity enjoying the lower tax rate, or shifting profit out of the entity subject to the standard rate.
Under Decree 132/2020/ND-CP, an FDI enterprise with related-party transactions must:
- Declare related-party transaction information on the prescribed appendix when preparing the annual CIT finalisation dossier.
- Prepare and retain transfer pricing documentation (the Local file, the Master file, and the Country-by-Country Report, depending on the applicable threshold) to demonstrate that pricing conforms to the arm's-length principle.
An enterprise currently enjoying a tax exemption or reduction that shows unusual movement in its related-party transactions (a sudden spike in costs, an abnormally low profit margin relative to its industry) is likely to be selected for a transfer-pricing inspection. When planning the benefit of a tax incentive, an enterprise should simultaneously review its related-party pricing policy, to avoid a risk that outweighs the value of the incentive obtained.
Frequently asked questions
Does a newly established FDI enterprise automatically receive investment incentives? No, not automatically. The enterprise itself determines whether the project meets the incentive conditions, self-declares at tax finalisation, and is responsible for the accuracy of that declaration.
Can a project stack incentives for both business line and location? No. If a project meets multiple criteria, the enterprise applies the highest incentive level; multiple levels are not combined.
Is the CIT incentive lost if an enterprise expands into a non-incentivised business line? There is a risk of this. The enterprise must account separately for income from incentivised and non-incentivised activities; if the two cannot be separated, the incentivised income is determined by the revenue or cost ratio between the two activities.
Is an enterprise with related-party transactions excluded from investment incentives? It is not automatically excluded, but it must fully comply with the obligation to declare and prepare transfer pricing documentation. If a transaction is determined not to comply with the arm's-length principle, the tax authority has the power to re-adjust the taxable income.
Book a consultation with TLA Consulting to review your investment incentive eligibility and optimise the tax position of your FDI project.
