Official Letter No. 7191/CT-QLNT: When SMEs are not entitled to the three-year CIT exemption

On 29 September 2026, the Tax Department issued Official Letter No. 7191/CT-QLNT in response to Cao Bang Provincial Tax Authority regarding a question on the corporate income tax (CIT) exemption policy applicable to Dong Bac Capital Joint Stock Company. Accordingly, the company is not entitled to the three-year CIT exemption for small and medium-sized enterprises (SMEs), because one of its largest capital contributors is currently the legal representative of another enterprise that is still in operation.

1. The three-year CIT exemption policy

• SMEs are exempt from CIT for 03 years from the date of issuance of their first Enterprise Registration Certificate (Clause 4, Article 10 of Resolution No. 198/2025/QH15 dated 17 May 2025 of the National Assembly).
• The exemption period is counted consecutively from the first year in which the first Enterprise Registration Certificate is issued (Point a, Clause 3, Article 7 of Decree No. 20/2026/ND-CP dated 15 January 2026 of the Government).
• An enterprise whose Enterprise Registration Certificate was issued before Resolution No. 198/2025/QH15 took effect, and which still has time remaining in the incentive period, is entitled to the incentive for the remaining period (Point a, Clause 3, Article 7 of Decree No. 20/2026/ND-CP).

Note: Clause 3, Article 7 of Decree No. 20/2026/ND-CP takes effect from the effective date of Resolution No. 198/2025/QH15 and applies from the 2025 tax period (Clause 2, Article 16 of Decree No. 20/2026/ND-CP). Accordingly, the incentive applies to the entire 2025 tax period, not only to income arising from 17 May 2025.

2. Cases where the incentive does not apply

The incentive does not apply to a newly established enterprise where any of the following individuals has participated in business activities as a legal representative, general partner or the person holding the largest capital contribution in another enterprise (Sub-point b2, Point b, Clause 3, Article 7 of Decree No. 20/2026/ND-CP):

• The legal representative, except where this person is not a capital-contributing member.
• A general partner.
• The person holding the largest capital contribution.

The other enterprise referred to above is:

• An enterprise that is currently in operation.
• An enterprise that has been dissolved, where less than 12 months have passed from the time of dissolution of the former enterprise to the time of establishment of the new enterprise.

In addition, the incentive does not apply to:

• Enterprises newly established as a result of a merger, consolidation, division, separation, change of owner or conversion of enterprise type (Sub-point b1, Point b, Clause 3, Article 7 of Decree No. 20/2026/ND-CP).
• Income specified in Clause 3, Article 18 of the Law on Corporate Income Tax No. 67/2025/QH15 (Sub-point b3, Point b, Clause 3, Article 7 of Decree No. 20/2026/ND-CP).

3. The Tax Department's conclusion

At Dong Bac Capital Joint Stock Company, an individual is both one of the persons holding the largest capital contribution in the company and the legal representative of another enterprise that is still in operation. The Tax Department determined that the company is not entitled to the CIT exemption under Clause 3, Article 7 of Decree No. 20/2026/ND-CP.

The Tax Department requested Cao Bang Provincial Tax Authority to handle the case on the basis of the above regulations and the actual circumstances of the enterprise.

💡 Recommendations for enterprises

• Review before claiming the exemption. Check whether the legal representative, general partners and the largest capital contributor have participated in any of these roles in another enterprise that is currently in operation, or in an enterprise dissolved less than 12 months before the establishment of the new enterprise.
• Note the scope of the 12-month threshold. The 12-month threshold applies only where the former enterprise has been dissolved. For a former enterprise that is still in operation, the regulation uses the wording "has participated" and sets no time limit. In a response published on the Ministry of Finance's Q&A portal, Ho Chi Minh City Grassroots Tax Office No. 15 applied the regulation in this way: an individual who had transferred all of their capital and stepped down as legal representative of an operating enterprise still caused the new enterprise to be ineligible for the incentive. The Tax Department has not issued general guidance on this point, and enterprises should take a cautious approach.
• Note that the roles are cross-checked. The largest capital contributor of the new enterprise only needs to be the legal representative of another enterprise for the exclusion to apply, as in the case addressed by the Official Letter.
• Monitor the point in time at which the conditions are assessed. In our understanding, the conditions are assessed at the time of establishment. No specific guidance has yet been issued on cases where the owner, the largest capital contributor or the legal representative changes after establishment. When asked about a change of owner after establishment, Hanoi Grassroots Tax Office No. 23 only cited the regulations (including Sub-points b1 and b2) and asked the enterprise to compare them against its actual circumstances. This is a risk to monitor.
• Proactively file supplementary declarations. Enterprises that have claimed the exemption since the 2025 tax period but fall within an excluded case should review their position and file supplementary declarations.

This newsletter is prepared by Crowe Vietnam for general information purposes only and does not constitute advice for any specific case. Enterprises should refer to the original legal instruments and consult professional advisors before applying the above to their particular circumstances.