Vietnam Issues New Implementing Circular on Corporate Income Tax
Vietnam’s Ministry of Finance has recently issued Circular No. 20/2026/TT-BTC (“Circular 20”), providing detailed guidance on the implementation of the new Corporate Income Tax (CIT) regime under the Law on CIT 2025 and Decree 320/2025/ND-CP. The Circular took effect on 12 March 2026 and applies from the 2025 tax period onwards, marking a significant step in Vietnam’s ongoing tax reform agenda.
Key highlights
1. New approach to withholding CIT for foreign contractors
One of the most notable changes introduced by Circular 20 is the revised method for calculating withholding CIT. Under the new rules, taxable revenue now includes VAT, representing a shift from the previous framework where taxable revenue excluded VAT.
In addition, Circular 20 replaces several provisions under earlier regulations (notably Circular 103/2014), consolidating the framework for foreign contractor taxation under Decree 320 and the new Circular.
2. Transitional provisions for existing contracts
For contracts signed before 12 March 2026 that apply the hybrid method under the previous regime, taxpayers may continue to apply the rules in effect at the time of contract execution. This transitional approach provides certainty for ongoing arrangements and avoids retroactive impacts.
3. Clarification on capital transfer taxation
Circular 20 further clarifies the application of CIT on capital transfers by foreign corporate sellers, including both direct and indirect transfers.
Under the broader CIT framework, such transfers are generally subject to a 2% tax on gross proceeds, except in specific intra-group restructuring cases that meet strict conditions (e.g. no change in ultimate parent ownership and no income generated).
The Circular provides additional guidance on the conditions for these exemptions, helping taxpayers better assess eligibility and compliance requirements.
Broader context
Circular 20 forms part of a broader overhaul of Vietnam’s corporate tax system following the enactment of the CIT Law 2025 and Decree 320, which together aim to modernise the tax framework, enhance transparency, and align Vietnam more closely with international practices.
These reforms also reflect Vietnam’s increasing focus on regulating cross-border transactions, digital business models, and foreign investment activities within its tax regime.
Implications for businesses
The new Circular introduces material changes to tax calculation methods and compliance requirements, particularly for:
Foreign contractors and investors
Companies engaged in cross-border transactions
Businesses undertaking restructuring or capital transfers
Companies operating in Vietnam are advised to review existing contracts, tax structures, and compliance processes to ensure alignment with the updated rules. Early assessment and planning will be critical to managing potential tax exposure and leveraging any available exemptions.