VCI Legal – May 18, 2026

1. Introduction   

On March 12, 2026, the Ministry of Finance issued Circular 20/2026/TT-BTC (“Circular 20”), providing detailed regulations on the Corporate Income Tax (CIT) Law and Decree 320/2025/NĐ-CP. Circular 20 takes effect from March 12, 2026, and its provisions apply to CIT periods from 2025 onwards. Foreign contractor agreements signed before March 12, 2026 will continue to follow the regulations effective at the time of signing.  

Key Takeaways: 

• CIT exemption for internal capital transfers 

• Management of expanded investment capital & Science and Technology Fund 

• Timing for determining taxable revenue 

• CIT revenue rules for foreign contractors 

2. Key Changes 

CIT exemption for internal restructuring transactions   

Under Circular 20, capital transfer transactions within a corporate group (such as demerger, merger, consolidation, share swap, capital contribution by shares, dividend distribution in shares, or changes in direct/indirect ownership without altering the ownership ratio) are considered non-taxable in Vietnam when the following conditions are met: 

• No change in the ultimate beneficial owner; 

• Transfer value does not exceed book value or initial capital contribution; 

• No valuation differences; the value under the approved restructuring plan must not be higher than the recorded value at the time of transfer; 

• The transferee inherits the full investment value, obligations, and related benefits.

Obligations on expanded investment capital and the Science and Technology Development Fund   

Enterprises are required to fully comply with obligations regarding expanded investment capital and the use of the Science and Technology Fund (S&T Development Fund). 

• Registration of expanded investment capital: Enterprises must notify the tax authority in writing of the registered investment capital to implement the company’s expansion investment project when submitting the CIT finalization return, no later than the year of project implementation. Any changes to registered capital must be promptly reported. 

• Assets from the S&T Development Fund: If fixed assets formed from the S&T Development Fund are transferred to production before being fully depreciated, the remaining value must be recorded as other income. At the same time, enterprises may continue to depreciate this value and deduct it as an expense when determining taxable income.

• Fund reporting: Enterprises must prepare reports on allocation and use of the S&T Development Fund in accordance with Circular 80/2021/TT-BTC to ensure transparent and lawful management.

Timing for determining taxable revenue in certain cases  

Circular 20 provides specific rules on the timing of revenue recognition for CIT purposes in certain activities. 

• Domestic enterprises: Revenue from air transport, construction/installation (including shipbuilding), utilities, and exports is recognized at the time of ownership transfer under contract, or in accordance with customs law if unclear.

• Foreign enterprises: Revenue from securities transfers, certificates of deposit, and derivative products (such as futures contracts) is recognized when the contract takes effect. For capital transfers, revenue arises when the initial capital transfer contract takes effect. However, the lack of clarity on the term “initial” may cause difficulties in determining tax obligations, particularly in M&A transactions that often involve multiple contract amendments before completion of ownership transfer.

Taxable revenue of foreign contractors   

Circular 20 stipulates that foreign contractors (whether or not they have a permanent establishment) doing business in Vietnam must pay Corporate Income Tax (CIT) on activities such as e-commerce, digital platforms, provision of goods/services, distribution and delivery, contracting through Vietnamese organizations/individuals, as well as import–export and distribution rights. The tax is calculated using the formula Taxable Revenue × Percentage Rate, in which taxable revenue includes VAT. If a contract does not separate values, the highest rate will apply to the entire contract.

The regulation on taxable revenue for foreign contractors has been abolished, and it does not provide for the exclusion of Value Added Tax (VAT) from taxable revenue for CIT purposes. In practice, for contracts signed on a NET basis (where the Vietnamese side bears the tax), including VAT in the taxable revenue for CIT creates a “tax-on-tax” effect, significantly inflating costs for Vietnamese companies. This regulation not only raises expenses but also erodes the competitive advantage of Vietnamese businesses. Without reviewing contracts and adjusting pricing, profits will be sharply reduced and market position weakened. 

Solutions and Actions 

Circular 20 will directly affect both domestic and foreign enterprises operating, investing, or contracting in Vietnam. Therefore, to mitigate risks and seize opportunities, the Tax & Legal Team at VCI Legal is rolling out a comprehensive support package for clients: 

• Emergency review of internal restructuring transactions to ensure full eligibility for tax exemption. 

• Timely registration and management of expanded investment capital, while complying with regulations on the Science & Technology Fund, especially in asset recognition and reporting. 

• Accurate determination of revenue recognition timing under the new rules, with special attention to the concept of “initial contract” in M&A deals to avoid tax risks. 

• Urgent review of contracts with foreign contractors and assist in restructuring pricing and contract terms to optimize tax obligations. 

About VCI Legal:

VCI Legal is an award-winning business law firm in Vietnam with a wide range of legal and corporate services, among other things, corporate, banking & finance, tax, labor & HR, real estate and dispute resolution with special focus on international investment disputes, We also offer our specialized type of service called “In-House Counsel Service” with the aim of assisting our clients in dealing with all types of internal and external issues arising from their day-to-day operations and business activities. With our offices in both Hanoi and Ho Chi Minh City, we have a tremendous depth of experience in providing well-reasoned and comprehensive legal advice to not only multinationals and Fortune 500 companies, but also small and medium enterprises.

Our professional team comprises one of the leading law firms in Vietnam with service quality highly recommended and acknowledged by international legal service reviewers such as: The Legal 500, AsiaLaw Profiles, IFLR, KPMG’s Tax Directors’ Handbook, Acquisition International, ACQ Global, Global Law Experts, Finance Monthly, and Chambers & Partners.

For many years, VCI Legal has been ranked among the top law firms in Vietnam for corporate, finance, insurance, taxation, employment, intellectual property and investment. With a “Can Do Attitude” combined with a “Know How” capacity, our firm is big enough to provide comprehensive legal support for any in-house legal matters, yet small enough to care about each of our clients. We undertake each engagement with the mindset of a long-term relationship, with the will to give whatever it takes to understand and fulfill your needs.

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