Free for 3 Years?
Vietnam's SME Tax Exemption, Decoded
Chính sách ưu đãi thuế thu nhập doanh nghiệp 2026 — What every first-time founder needs to know before filing a single form.
From Latin taxare — "to touch sharply, to assess, to appraise." Passed through Old French taxer into Middle English around the 13th century. The root is shared with task and taste. Fittingly, for centuries kings "tasted" the wealth of their subjects. In 2026, Vietnam's government decided to give small businesses a break from that particular royal tasting — for three whole years. 👑➡️🎁
Imagine opening a bakery 🍞, a tech startup 💻, or a cozy little consultancy firm ☕ — and the government says: "You know what? Don't worry about corporate income tax for your first three years. On us."
That's essentially what Vietnam's Decree 20/2026/NĐ-CP (implementing Resolution 198/2025/QH15) offers to small and medium enterprises (SMEs) registering for the very first time. It sounds almost too good to be true — and like most things in tax law, there are catches, asterisks, and footnotes the size of a dictionary. 📚
Today we're going deep on this policy. Kurzgesagt-style. Science first, drama later. Two real cases. And a quiz at the end to make sure none of this slides out of your brain. Let's go. 🚀
Check employee count, revenue & capital thresholds
Receive your Business Registration Certificate for the first time
Continuous from Year 1 of the certificate — no pausing!
Corporate Income Tax = ₫0 for qualifying income during exemption period
✅ You're In If...
- Genuinely first-time SME registration
- Registered on or after May 17, 2025
- Legal rep is a "business newbie"
- Company wasn't born from a split/merger
- No business dissolved < 12 months ago
❌ You're Out If...
- Company formed via merger/split/restructure
- Legal rep ran another company recently (<12 months)
- Income from real estate transfers
- Income from oil/gas exploration
- Online gaming income, special excise goods
The Law, in a Nutshell 🥜
Vietnam's National Assembly passed Resolution 198/2025/QH15 on May 17, 2025 — a sweeping set of mechanisms to boost the private economy. The government followed up with Decree 20/2026/NĐ-CP on January 15, 2026, which detailed exactly how the tax incentives work.
The headline provision (Article 7, Clause 3 of Decree 20) says:
Small and medium enterprises registering for business for the first time are exempt from Corporate Income Tax (CIT) for 3 years, calculated continuously from the year their Business Registration Certificate is first issued. If the certificate was issued before Resolution 198 took effect (May 17, 2025) but time remains within the 3-year window, the remaining exemption period still applies.
Key timing detail: although Decree 20 was issued in January 2026, the CIT exemption provisions retroactively apply from tax year 2025, as anchored to the effective date of Resolution 198.
📏 Who Counts as an "SME"?
Under Decree 80/2021/NĐ-CP, the thresholds look like this:
| Type | Sector | Max Employees | Max Annual Revenue | Max Capital |
|---|---|---|---|---|
| Small | Agriculture / Industry / Construction | ≤ 100 | ₫50 billion | ₫20 billion |
| Trade & Services | ≤ 50 | ₫100 billion | ₫50 billion | |
| Medium | Agriculture / Industry / Construction | ≤ 200 | ₫200 billion | ₫100 billion |
| Trade & Services | ≤ 100 | ₫300 billion | ₫100 billion |
⚖️ Case Study #1: Henry's Second Chance
Henry Pham · Hanoi
Former owner turned fresh entrepreneur · Answered by Hanoi Tax Authority
📋 The Facts
Henry owned and served as legal representative of a single-member LLC — let's call it Pham & Co. 1.0. He ran it from 2023, then transferred all his shares in April 2024. After the transfer, he had zero involvement: no shares, no legal representative role, no nothing. Fast forward to 2026, and Henry wants to start fresh with a brand new SME — Pham & Co. 2.0.
Henry's Big Question: Does he qualify for the 3-year CIT exemption?
Owns Pham & Co. 1.0
Transfers ALL shares
Clean break, no role
Wants Pham & Co. 2.0
⚙️ The Legal Analysis
The exclusion rule (Article 7.3.b2) bars the exemption if the new company's legal representative, general partner, or largest shareholder was previously in the same role in a company that is currently active or was dissolved less than 12 months ago.
Henry's situation is nuanced:
- Pham & Co. 1.0 was not dissolved — it was transferred. The company still exists, just under new ownership.
- Henry is no longer the legal rep, general partner, or largest shareholder of any active company.
- The 12-month window primarily targets dissolved companies, not transferred ones.
The authority cited the relevant provisions and politely told Henry: "Please compare these rules against your specific circumstances and act accordingly." Classic bureaucratic wisdom — helpful in pointing to the right laws, but leaving the final judgment to the taxpayer and, ultimately, their lawyer. 🧑⚖️
Our read: Given that Henry's old company was transferred, not dissolved, and he holds no current controlling role in any business, the 12-month dissolution rule does not appear to block his path. However, this is not legal advice — see the disclaimer below!
⚖️ Case Study #2: Linda's Ownership Swap
Linda Nguyen · Hai Phong
Ownership-changing entrepreneur · Answered by Hai Phong Tax Authority
📋 The Facts
Early 2025, Linda registered a single-member LLC — Linda's Ventures — with herself as both owner and legal representative. In September 2025, she decided to sell the whole company to a new owner and hired a foreign national as the legal representative/director. Critical detail: neither Linda nor the new owner had ever previously set up or invested in any other company.
Linda's Big Question: Does Linda's Ventures still get the 3-year CIT exemption?
Linda registers LLC
Resolution 198 takes effect
New owner + foreign director
Tax status unclear!
⚙️ The Legal Analysis — Two Layers
Layer 1: Was the company formed through "change of ownership"?
Article 7.3.b1 excludes companies "newly established through merger, consolidation, division, split, change of ownership, or change of business type." However, Linda's company was established first, then changed ownership later. The exclusion targets companies born from restructuring — not companies that undergo restructuring after birth. This is a meaningful distinction. 🐣
Layer 2: What about the new legal rep?
Article 7.3.b2 requires that the legal representative/largest shareholder not have been in the same role in an active or recently-dissolved company. The new foreign director and new owner are both first-timers in Vietnamese business — neither triggers the 12-month lookback rule.
Same playbook as Hanoi: "Here are the relevant laws — please review your specific documents and apply accordingly." 📋 Both authorities essentially practiced structured legal referral rather than making a determination.
Based on the plain reading of the law, Linda's company should still qualify for the remaining portion of the 3-year exemption, starting from when the certificate was first issued. Since she registered in early 2025, she'd count from 2025 — meaning 2025, 2026, and 2027 could be exempt years. But again: professional verification is strongly recommended before filing.
Law: "That's... actually fine." 😌
🚫 The "Not So Fast" List — Excluded Income Types
Even if your company qualifies for the exemption, certain income types are always excluded under Article 18.3 of the Corporate Income Tax Law 2025. Think of it as the tax holiday's terms and conditions (yes, there are always T&Cs 📜).
- 💸 Capital transfers, equity transfers, real estate transfers (with limited social housing exceptions)
- 🛢️ Oil & gas exploration, rare resource extraction
- 🎮 Online gaming revenue; goods & services subject to special excise tax
- ⛏️ Mineral exploration and extraction
- 🌍 Business income earned outside Vietnam
🏠🚗 Real Life Examples
Let's make this concrete. Here's how the exemption plays out in everyday business scenarios:
The First-Time Café Owner
Minh opens his first café in HCMC in June 2025. He qualifies as an SME. His operating income? Tax-free through 2027. That's three full years to reinvest profits, hire more baristas, and perfect that avocado toast. 🥑
The Tech Startup Duo
Lan & Nam start a fintech company in January 2026. They've never run a business before. Their SaaS subscription income is exempt for 3 years. But their equity sale income? Still taxed. Nuance matters! 📊
The Property Flipper Who Doesn't Qualify
Thao sets up an SME specifically to buy and sell residential property. Even if it's her first business, real estate transfer income is explicitly excluded from the exemption. The tax holiday isn't for flipping houses. 🏚️→🏠
The Game Studio That Misses Out
Khoa launches an online gaming startup. Online gaming revenue is on the excluded list. He gets the registration, but not the exemption — at least not for gaming income. Time to pivot to board games? 🎲
Vietnam has approximately 900,000+ registered enterprises — the vast majority are SMEs. This 3-year exemption policy is designed to nudge more informal businesses and sole traders into the formal economy. Spoiler: it seems to be working. 📈
The 12-month "cooling-off period" for former business owners was introduced to prevent "phoenix company" schemes — where business owners dissolve one company to avoid liabilities and immediately relaunch under a fresh entity (with fresh tax benefits). The law essentially says: "We see you." 👁️
Vietnam isn't alone in this approach. Singapore, Malaysia, and Thailand all have SME tax incentive programs for new companies. Vietnam's version is notable for its simplicity: no application process for the exemption — you just meet the conditions and claim it on your annual tax return.
Separately, innovative startups get an even sweeter deal under Decree 20: 2-year full exemption + 50% reduction for the next 4 years. If your startup qualifies as "innovative," that's 6 years of preferential treatment. 🎉
Laws in Nature 🌿 — The Seed Analogy
In ecology, newly sprouted seedlings are given a "suppression-free window" — early competition from other plants is naturally reduced in forest gaps, allowing young trees to establish root systems before full competitive pressure begins. Vietnam's 3-year CIT exemption mirrors this beautifully: protect the business seedling during its most vulnerable phase (establishment and early growth), then apply standard rules once it's rooted. Even nature understood the wisdom of a startup incubation period. 🌳
💡 Practical Tips for Founders
Document Everything From Day 1
Keep your original Business Registration Certificate, proof of first-time registration, and all financial records clean and dated. The exemption is self-assessed — you'll need a paper trail if audited.
Track the 12-Month Rule Carefully
If you've ever been a legal rep or major shareholder in a company, count 12 months from dissolution before starting fresh. Don't guess — calculate precisely.
Separate Your Income Streams
If your company earns both exempt and non-exempt income (e.g., services + real estate), maintain separate accounting from the start. Mixing them creates headaches at tax time. 🧮
Don't Assume — Verify
These tax authorities answered real questions with "please refer to the law and check your documents." That's not evasion — it's a reminder that your specific facts matter. Get a qualified accountant or lawyer to review.
Time Your Registration Wisely
Registering in early 2025 vs. late 2025 vs. 2026 gives you different clock-start points. Work with an advisor to optimize your registration timing relative to your expected revenue year.
Free Digital Tools Available!
Decree 20 also mandates the government to provide free accounting software, integrated with e-invoicing and digital signatures, to micro-businesses and sole traders. Use it! 💻
🗣️ What's Your Take?
Do you think 3 years is enough of a runway for Vietnamese SMEs? Have you encountered issues with this policy in practice? Drop your thoughts in the comments below — Ngoc Prinny reads every single one. Let's build a smarter business community together. 👇💬
🏷️ Tags & Keywords
Labels: Tax Law · Corporate Law · SME Policy · Vietnam 2026 · Business Registration · Decree 20 · Resolution 198 · CIT Incentives · Legal Analysis · English-language Vietnam Law
🚨 Fun But Serious: A Brief Legal Disclaimer 🚨
Hey there, legal explorer! 🕵️ Before you sprint off to file your tax returns based solely on this article...
- 🗺️ This article is a map, not a teleporter. It'll guide you, but it won't zap your specific legal problems away!
- 🦄 Every legal journey is unique — your mileage (and your tax situation) will vary.
- 🧙 For real-world quests, seek a professional legal wizard. May we suggest Thầy Điệp & Associates Law Firm or Thu Thiem Notary Office?
- ✈️ Reading this does not make you a tax attorney, just like watching "Top Gun" doesn't make you a fighter pilot. (Although Maverick did make it look easy...)
Full disclaimer: ngocprinny.blogspot.com/2024/08/disclaimer.html 📋
#LegalInfo #delulu.vn #NotLegalAdvice #ConsultAPro #NgocPrinny
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Written by Nguyễn Lê Bảo Ngọc (Ngoc Prinny)
Legal review: Luật sư Lê Thị Kim Dung & Luật sư Nguyễn Văn Điệp
