How do newly established SMEs in Vietnam qualify for the CIT exemption under the private-sector policy?
The short answer
Under Article 10(4) of Resolution No. 198/2025/QH15 and Article 7(3) of Decree No. 20/2026/ND-CP, small and medium-sized enterprises (SMEs) registering for the first time are exempt from CIT for 3 years from the issue of their first Enterprise Registration Certificate. The exemption period runs continuously.
The exemption does not apply in two main cases:
enterprises formed through merger, consolidation, division, separation, change of owner or change of legal form;
where the legal representative (if a capital contributor), a general partner or the largest capital contributor already holds a similar role in another operating enterprise, or one dissolved less than 12 months earlier.
If the first tax period is shorter than 12 months, the enterprise may choose to start the exemption in that period or in the next one.
Context: a policy to open the way for the private sector
Resolution No. 198/2025/QH15, passed by the National Assembly on 17 May 2025, gives effect to the policy of developing the private economy. The 3-year CIT exemption for SMEs is one of its most closely watched measures, because it directly affects cash flow in the start-up phase.
The policy is detailed in Decree No. 20/2026/ND-CP dated 15 January 2026. Circular No. 20/2026/TT-BTC dated 12 March 2026 confirms that enterprises self-assess the conditions for exemptions and reductions, the incentive period and losses carried forward when filing and finalising tax.
Self-assessment means no prior approval is needed. The flip side is that the full risk of misapplication sits with the enterprise and will surface in a tax audit.
Three conditions for the exemption
1. The enterprise must be small or medium-sized. The criteria follow SME support legislation (Decree No. 80/2021/ND-CP) and combine the annual average number of employees on social insurance with either total revenue or total capital:
Sector | Small enterprise | Medium enterprise |
Agriculture, forestry, fisheries; industry and construction | Up to 100 employees; revenue up to VND 50 billion or capital up to VND 20 billion | Up to 200 employees; revenue up to VND 200 billion or capital up to VND 100 billion |
Trade and services | Up to 50 employees; revenue up to VND 100 billion or capital up to VND 50 billion | Up to 100 employees; revenue up to VND 300 billion or capital up to VND 100 billion |
(Micro-enterprises also fall within the SME category.)
2. First-time business registration. The enterprise must be genuinely new, not an existing business in new clothes.
3. Conditions must be met in each tax period. In any year the enterprise no longer qualifies, for example by growing beyond the medium-enterprise thresholds, it is not exempt for that year.
The two most common exclusion traps
Trap 1: restructuring into a "new" company. Enterprises formed through merger, consolidation, division, separation, change of owner or change of legal form do not qualify. Spinning off an existing business line into a new company to "get three tax-free years" therefore does not work.
Trap 2: "familiar" founders. The exemption is excluded where any of the following has already held a similar role in an operating enterprise, or in one dissolved less than 12 months before the new enterprise is established:
the legal representative (unless that person is not a capital contributor);
a general partner;
the largest capital contributor.
This is very common among entrepreneurs who already own a company and want to set up another one for a new business line. How ownership and the legal representative are structured from the outset determines whether the new company qualifies. That structure must be genuine and reflect substance, as the tax authority looks at who actually contributes capital and runs the business.
Choosing the start year: a decision worth getting right
Under Article 7(5) of Decree No. 20/2026/ND-CP, where the first tax period has less than 12 months of operation, the enterprise may choose:
Option 1: to start the exemption in the first tax period; or
Option 2: to register with the tax authority to start the exemption from the next tax period.
Example: Company D, a small service enterprise, receives its Enterprise Registration Certificate on 15 September 2026. It operates for only 3.5 months in 2026 and is likely to make a loss because of start-up costs.
Under Option 1: the exemption covers 2026, 2027 and 2028. With no taxable income in 2026, one year of the incentive is effectively wasted.
Under Option 2: the exemption covers 2027, 2028 and 2029, i.e. three full years of operation.
For enterprises established in the second half of the year, Option 2 is usually more valuable. The enterprise must, however, complete the registration with the tax authority correctly.
Transitional note: enterprises registered before Resolution No. 198/2025/QH15 took effect (17 May 2025) and still within 3 years of establishment enjoy the exemption for the remaining period.
After the 3-year exemption
Once the exemption ends, small enterprises may apply the reduced rates under the 2025 CIT Law:
15% where total annual revenue is no more than VND 3 billion;
17% where total annual revenue is above VND 3 billion and up to VND 50 billion.
These rates are subject to related-party conditions, as discussed earlier in this series.
For household businesses converting into enterprises, the 2025 CIT Law provides a separate exemption. Each case should be assessed to determine which policy applies and which is more beneficial.
Checklist for founders
Before registration: review the roles of the legal representative and the largest capital contributor in other enterprises.
Determine whether the enterprise is small or medium based on sector, headcount, revenue or capital.
If incorporating in the second half of the year: consider registering to start the exemption from the next tax period.
Each year: re-check the size conditions and keep supporting evidence (social insurance records, financial statements).
Continue filing and finalising CIT in full. Being exempt does not remove filing obligations.
Plan for the post-exemption period: the 15% or 17% rate, group structure and related-party transactions.
FAQs
How many years of CIT exemption do SMEs get?
Three years, running continuously from the first year in which the first Enterprise Registration Certificate is issued.
Is an application for exemption required?
No prior approval is needed. The enterprise self-assesses and declares the exemption in its finalisation return. Registration with the tax authority is required only if it chooses to start the exemption from the next tax period.
Our director is the legal representative of another company. Can the new company still qualify?
If that person is both the legal representative and a capital contributor of the new company, and is the legal representative of an operating enterprise, the new company is excluded. A legal representative who is not a capital contributor falls outside this test.
What if the enterprise outgrows the medium-enterprise thresholds in year two?
It is not exempt for any year in which it fails to meet the conditions.
Legal basis
Resolution No. 198/2025/QH15 dated 17 May 2025 on special mechanisms and policies for private economic development (Article 10(4)).
Decree No. 20/2026/ND-CP dated 15 January 2026 guiding Resolution No. 198/2025/QH15 (Article 7(3) and (5)).
Circular No. 20/2026/TT-BTC dated 12 March 2026 guiding the CIT Law and Decree No. 320/2025/ND-CP.
CIT Law No. 67/2025/QH15 and Decree No. 320/2025/ND-CP.
Decree No. 80/2021/ND-CP on SME criteria.
How W&A can help
The 3-year exemption is valuable to new businesses, but it can be lost entirely through a single structuring mistake at registration. W&A supports founders from before day one:
Incorporation structuring: choosing the legal form, ownership structure and legal representative so that they are genuine and meet the incentive conditions.
Exemption eligibility assessment: confirming SME status, reviewing exclusions and choosing the optimal start year for the exemption.
Accounting, tax filing and finalisation for new enterprises, keeping incentive evidence complete year by year.
Household business conversion advice: comparing incentives and planning the conversion.
Virtual CFO: financial support through the growth phase, preparing for the post-exemption period and fundraising.
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