# The first 03-year corporate income tax exemption for small and medium enterprises

**URL:** https://investment-insights.vn/blog/the-first-03-year-corporate-income-tax-exemption.md

To support businesses in keeping up to date with the new exemption regulation under Decree No. 20/2026/ND-CP, the legal post updates the eligibility criteria and timelines for applying the new 03-year Corporate Income Tax (CIT) exemption for small and medium-sized enterprises (SMEs) registering business for the first time starting from the 2025 tax period.

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## 1. Criteria for identifying First-Time Registered SMEs (Article 7.3)

To qualify for the 03-year CIT exemption starting from the initial issuance of the Enterprise Registration Certificate (ERC), an enterprise must concurrently satisfy 02 conditions:

- Classify as a SME (including micro-enterprises) pursuant to the criteria under Decree No. 80/2021/ND-CP.
- Not fall under statutory exclusion cases ineligible for tax incentives.

## 2. Statutory Exclusions from CIT Exemption

The initial 03-year exemption DOES NOT apply to the following:

- **Restructured Enterprises:** Newly established entities resulting from mergers, consolidations, divisions, separations, or changes in ownership or corporate form.
- **Management Entities with Under 12 Months of Business History:** Legal representatives (except non-capital-contributing representatives), general partners, or majority capital contributors who held equivalent positions in active or dissolved enterprises within 12 months before the new incorporation date.
- **Incomes under Article 18.3 of CIT Law 2025:** e.g., Income derived from capital transfers, share transfers in public/listed companies, real estate transfers, oil and gas or mineral exploration/extraction, online video game operations, and goods/services subject to Special Consumption Tax, etc. (except automobile, aircraft, and yacht manufacturing/assembly projects).

## 3. Applicability timelines & SME classification criteria

| Criteria | Detailed Regulatory Provisions | Legal Basis |
| --- | --- | --- |
| Applicable Tax Period | Effective from the 2025 tax period; the 03-year exemption period runs continuously from initial ERC issuance. | Article 7.3, Decree 20/2026/ND-CP |
| Transitional Provisions for Pre-existing Entities | Enterprises issued ERCs before May 17, 2025, with remaining time in their 03-year window enjoy incentives for the remaining term. | Article 5.1, Decree 80/2021/ND-CP |
| Micro-Enterprises | - Agriculture/Forestry/Fishery, Industry & Construction: Annual Revenue/Capital \< VND 3 billion; Annual average Social Insurance (SI) employees \<10. - Commerce & Services: Annual Revenue \< VND 10 billion (or Capital \< VND 3 billion); Annual average SI employees \< 10. | Article 5.1, Decree 80/2021/ND-CP |
| Small Enterprises | - Agriculture/Forestry/Fishery, Industry & Construction: Annual Revenue \< VND 50 billion (or Capital \< VND 20 billion); Annual average SI employees \< 100. - Commerce & Services: Annual Revenue \< VND 100 billion (or Capital \< VND 50 billion); Annual average SI employees \< 50. | Article 5.2, Decree 80/2021/ND-CP |
| Medium Enterprises | - Agriculture/Forestry/Fishery, Industry & Construction: Annual Revenue \< VND 200 billion (or Capital \< VND 100 billion); Annual average SI employees \< 200. - Commerce & Services: Annual Revenue \< VND 300 billion (or Capital \< VND 100 billion); Annual average SI employees \< 100. | Article 5.3, Decree 80/2021/ND-CP |

## Strategic actions

To ensure the enterprise qualifies for the CIT exemption for the 2025 tax period, it should carry out the following three steps:

1. **Review Management Personnel Eligibility Before Incorporation** — Audit the operational history of legal representatives, general partners, and majority shareholders to ensure a full 12-month period has elapsed since their departure or dissolution from previous entities.
2. **Determine Remaining Transitional Exemption Period for FY2025** — Enterprises established before May 17, 2025 must calculate the remaining eligible months within their 03-year initial ERC window to claim CIT exemption for the 2025 tax period.
3. **Maintain Separate Accounting for Excluded Income Categories** — Establish segregated accounting records distinguishing core operational income from statutory non-qualifying income sources (e.g., capital transfers, real estate transfers, special consumption tax items).

### **OPTIMIZING TAX INCENTIVES WHILE PREVENTING ARTIFICIAL INCORPORATION**

  
The new 3-year CIT exemption delivers a powerful financial runway for legitimate SMEs, while establishing strict regulatory guardrails to prevent artificial restructuring and policy exploitation.