Attorney Vu Manh Quynh is the Managing Partner of ECOVIS Vietnam Law, advising international investors on Foreign Direct Investment (FDI), corporate governance, and regulatory compliance in Vietnam.

Vietnam’s corporate income tax incentive framework is genuinely competitive — 10% CIT for 15–30 years for qualifying manufacturing projects is a material advantage relative to regional alternatives. But the incentives are contingent, not automatic. Companies that fail to document the conditions attaching to their incentive, misidentify when the tax holiday begins, or fail to maintain eligibility conditions through the incentive period discover at audit that they owe back-tax, interest and penalties that eliminate years of anticipated savings. Understanding the framework correctly from the outset is the difference between a competitive tax position and a significant unbudgeted liability.

This article is Section VI of the 100 FAQ about Factory Setup Vietnam series. It covers questions Q51–Q60.

What corporate income tax rate applies to foreign-owned factories in Vietnam?

The standard CIT rate is 20% (Law on Corporate Income Tax, as amended). Manufacturing companies qualifying for investment incentives may be eligible for a preferential rate of 10% or 17%, depending on location and sector. High-tech manufacturing, large-scale manufacturing projects (meeting defined capital and headcount thresholds) and investment in disadvantaged areas typically qualify for the 10% rate for 15–30 years. The preferential rate is contingent on continued compliance with the conditions under which it was granted and must be actively maintained and documented.

What CIT incentives are available for manufacturing companies in priority sectors or zones?

CIT incentives for qualifying manufacturers: (1) Preferential tax rates — 10% for 15–30 years for high-tech manufacturing, new material manufacturing, and large-scale projects; 17% for projects in certain industrial parks and disadvantaged areas; (2) Tax exemption — 2–4 years of 0% CIT from first profitable year; (3) Tax reduction — 4–9 years of 50% CIT reduction following the exemption period. Incentives are location-dependent: projects in industrial parks in disadvantaged areas receive stronger incentives. Verify incentive eligibility with the IPA and a qualified tax advisor before committing to a structure.

When does the CIT tax holiday begin — and what is the most common timing mistake?

The CIT tax holiday begins from the first year in which the company generates taxable income — not from IRC issuance, ERC issuance, or production commencement. If the company generates revenue but reports a loss in year one, the holiday period does not begin in that year; it begins in the first year with taxable income. This creates a planning opportunity: investors who manage first-year cost structure can delay the start of the CIT clock. The most common mistake is assuming the holiday begins from ERC issuance or investment registration date — it does not, and the error is discovered at tax authority audit.

What VAT obligations apply to foreign-invested manufacturing companies?

Standard VAT rate is 10% on domestic sales (or 8% under temporary reductions in effect for certain periods). Exported goods are subject to 0% VAT. Raw material and machinery imports are subject to VAT at import (unless exempt under EPE rules), which can be offset against output VAT on domestic sales or refunded for export-oriented companies. Monthly VAT declarations are required for companies with annual revenue above VND 50 billion; quarterly declarations apply below this threshold. VAT refund claims for export-oriented manufacturers are subject to tax authority audit and supporting documentation requirements.

How do transfer pricing rules apply to intra-group transactions in Vietnam?

Decree 132/2020/ND-CP governs transfer pricing for related-party transactions. Foreign-invested factories paying management fees, royalties, technical service fees, interest or sales commissions to related parties must document these at arm’s length pricing and prepare an annual transfer pricing disclosure (Appendix I to Decree 132) filed with the CIT return. Transactions with related parties in jurisdictions with tax rates below 20% face enhanced scrutiny. Non-documentation of related-party transactions is a top audit target for the General Department of Taxation. Annual benchmarking by a transfer pricing specialist is the most effective mitigation.

What Foreign Contractor Tax applies to payments to foreign service providers?

Payments by a Vietnamese company to foreign service providers without a Vietnamese permanent establishment are subject to Foreign Contractor Tax (FCT) — a combination of VAT and CIT withheld at source by the Vietnamese payer. Applicable rates depend on service type: technical services attract 14.5% effective FCT rate on the gross payment (10% CIT + 5% VAT); management consulting, equipment leases, construction supervision and software services have varying rates. FCT applies to payments for installation, commissioning, technical training, and maintenance provided by offshore suppliers — common cost categories for foreign-invested factories during setup and operation.

What accounting standards must a foreign-invested company in Vietnam use?

Foreign-invested companies must use Vietnamese Accounting Standards (VAS — Chuẩn mực Kế toán Việt Nam) and comply with the Vietnamese Accounting Law 2015. VAS is based on older IAS versions and differs from IFRS in revenue recognition, lease accounting and financial instrument treatment. IFRS is not required for non-listed companies. Companies reporting to parent entities under IFRS or US GAAP must maintain dual-track accounting records. The Ministry of Finance has a roadmap for voluntary IFRS adoption for large companies — but VAS remains mandatory for statutory reporting.

When must a foreign-invested manufacturing company submit its annual financial statements?

Annual financial statements must be submitted to the DPI, tax authority and General Statistics Office within 90 days of financial year-end. For most companies (December 31 year-end), the deadline is March 31. Audited financial statements are mandatory for all foreign-invested companies (statutory audit requirement under Decree 17/2012 and the Law on Independent Audit). The annual CIT finalisation return is also due within 90 days of year-end. Late filing attracts administrative fines. Companies with foreign loans must also submit annual SBV reports on foreign loan balances and interest payments.

What import VAT obligations apply to machinery and raw materials?

Machinery and raw material imports are subject to both import duty and import VAT (10%) at the customs gate. For standard foreign-invested companies (non-EPE), import duty on production machinery may be exempt under investment incentive provisions of Decree 134/2016/ND-CP. Import VAT paid on raw materials for domestic-sale production can be offset against output VAT. For export-oriented production, import VAT on raw materials incorporated into exported goods is refundable under specific procedures. EPE factories are exempt from import duty and VAT on all production inputs — no VAT offset or refund process required.

What are the most common tax compliance risks for foreign-owned factories?

Top 6 tax compliance risks: (1) Transfer pricing — undocumented related-party transactions; (2) FCT under-withholding — failure to withhold on all qualifying offshore payments; (3) CIT holiday misapplication — claiming incentives without maintaining eligibility conditions (headcount, revenue, sector activity); (4) VAT refund disputes — export documentation deficiencies; (5) Expense deductibility — claiming non-deductible items (undocumented expenses, non-business costs, gifts above thresholds); (6) Annual DPI report non-filing — which can jeopardise incentive maintenance. Annual tax reviews by a qualified Vietnam tax advisor are the most cost-effective risk mitigation.