1. Overview of the tax management mechanism for FDI projects in Vietnam

1.1. Core tax obligation structure

Foreign Direct Investment (FDI) projects operating in Vietnam are governed by a tax system based on the principle of taxation according to the nature of the transaction and the location where income is generated, which is stipulated throughout the Law on Corporate Income Tax No. 14/2008/QH12 (amended and supplemented over the years), the Law on Value Added Tax, and related documents. The core taxes that directly impact the project’s cash flow and return on investment include Corporate Income Tax (CIT), Value Added Tax (VAT), and Foreign Contractor Tax (FCT). Establishing a transparent transaction structure right from the investment licensing stage is a mandatory requirement to optimize tax costs.

1.2. Compliance control trends by tax authorities

Pursuant to the Law on Tax Administration No. 38/2019/QH14, tax authorities currently apply a risk-based inspection and examination mechanism, interconnecting e-invoice data and monitoring cross-border cash flows. This shift requires FDI enterprises not to merely stop at periodic tax filings, but to build a management accounting system capable of proving the reasonableness and validity of all transactions, especially intercompany transactions and income generated outside the project’s initial boundaries.

2. Practical analysis of applying Corporate Income Tax (CIT) incentives by location

2.1. Constituent conditions and scope of entitlement

 The policy of CIT incentives based on location is a key mechanism for attracting investment. According to Point b, Clause 2, Article 10 of Circular No. 96/2015/TT-BTC (amending and supplementing Clause 4, Article 18 of Circular No. 78/2014/TT-BTC), an enterprise with an investment project eligible for CIT incentives due to meeting location conditions (including industrial parks, economic zones, and high-tech parks) will enjoy incentives for the entire income arising from production and business activities in that location. This mechanism applies to the core activities of the project, but excludes certain specific types of income that are not eligible for incentives according to CIT laws.

2.2. Risk allocation when expanding business locations

When an FDI enterprise expands its operations, generating income outside the location where the investment project is implemented, the tax authority applies the principle of income segregation based on Circular No. 96/2015/TT-BTC as follows:

• If this income arises in a location not designated as an investment incentive area, the enterprise is not entitled to CIT incentives for this income.
• If this income arises in another location that is also subject to investment incentives, the enterprise is entitled to CIT incentives based on the conditions of the new location.
• The level of incentive is determined independently for each location, based on the duration and the tax incentive rate of the enterprise at the project’s implementation location.

3. Risks of losing incentives for peripheral commercial and service activities

3.1. The boundary between manufacturing and commercial services

 A major risk for FDI enterprises is automatically applying the preferential tax rate to all mixed revenues. Clause 17, Article 1 of Decree No. 12/2015/NĐ-CP clearly stipulates: corporate income from investment projects in the field of commercial business and services arising outside economic zones, high-tech parks, industrial parks, and tax incentive locations shall not be eligible for CIT incentives.

3.2. Legal consequences when generating activities not attached to the project

Practice shows that many manufacturing investors tend to import additional finished goods for commercial distribution to leverage their customer network. However, according to current legal regulations, if an enterprise has an investment project in a tax-incentivized location, but during its operation generates commercial activities unattached to the investment project in that incentivized location, the income from such commercial activities will not be eligible for CIT incentives under the location conditions.

4. Management of Value Added Tax (VAT) and Invoices in specific transactions

4.1. Mechanism for issuing e-invoices per occurrence

For point-in-time transactions or asset disposal, the law applies a strict invoice management mechanism. According to Clause 10, Article 1 of Decree No. 70/2025/NĐ-CP, the tax authority issues an authenticated electronic invoice per occurrence for non-business organizations that have transactions involving the sale of goods or provision of services. Specifically, if state agencies or organizations that do not pay VAT under the deduction method auction off assets (in cases where the winning bid price explicitly includes VAT), they will be issued a VAT invoice to hand over to the buyer. From July 2025, the VAT policy for the sale of loan security assets shall comply with the Law on Value Added Tax No. 48/2024/QH15 and its guiding documents.

4.2. VAT handling in the handover and liquidation of assets

In debt restructuring or collateral disposal structures, based on Clause 3, Article 1 of Circular No. 26/2015/TT-BTC, the sale of loan security assets by credit institutions, civil judgment enforcement agencies, or the borrowers themselves under authorization is classified as a credit granting service. Tax handling is carried out as follows:

• In case the borrower is unable to repay the debt and hands over the collateral to the credit institution for handling, and the parties carry out the collateral handover procedures in accordance with the law, no VAT invoice is required to be issued.
• In case the credit institution receives the collateral to replace the performance of the debt repayment obligation, it must account for an increase in the value of assets serving production and business. When the credit institution subsequently sells this asset, if the asset is subject to VAT, it must declare and pay VAT in accordance with regulations.

5. CIT obligations in asset transfer and handling activities

5.1. Responsibilities for tax declaration and payment in enforcement transactions

When FDI enterprises participate in acquiring assets through auctions from state agencies, they must note the seller’s tax payment responsibilities. Clause 5, Article 17 of Circular No. 78/2014/TT-BTC stipulates: If the civil judgment enforcement agency auctions off real estate as an enforcement security asset, the organization authorized to auction the real estate shall declare and deduct the income tax from the real estate transfer to pay into the State Budget. The documentation must clearly state the contents of declaring and paying tax on behalf of the sale of enforcement security assets.

5.2. Method for determining the valid cost basis

The core issue in asset transfer transactions is accurately determining the cost price to calculate CIT. In cases where the judgment enforcement agency transfers real estate as a security asset but the cost price of the real estate cannot be determined, the cost price shall be determined as the debt amount payable under the Court’s decision plus the expenses incurred during the real estate transfer if valid invoices and documents are available.

6. Recommendations and compliance strategic guidelines for foreign investors

6.1. Establish an independent segregation accounting mechanism

To maximize the protection of benefits when enjoying location-based investment incentives, FDI enterprises must establish an accounting system compliant with Vietnamese Accounting Standards (VAS) capable of independently separating revenue and expenses. Income from the incentivized project and income from peripheral commercial and service activities must be clearly distinguished on the books. Merging mixed revenues will create the risk of the tax authority reassessing the income ratio and rejecting all incentive benefits during inspections.

6.2. Tax Due Diligence in M&A transactions

 When participating in mergers and acquisitions, especially buying back mortgaged assets or winning asset auctions from judgment enforcement agencies, investors need to conduct a strict legal review. Enterprises must obtain written confirmation that the seller or auction organization has fulfilled the obligation to declare and pay CIT from the asset transfer and has a fully valid electronic invoice issued per occurrence (pursuant to Decree 70/2025/NĐ-CP).

6.3. Develop a strategy to manage related-party transactions (Transfer Pricing)

 The operations of FDI enterprises are often tied to the parent company’s global supply chain, leading to related-party transactions. The transfer pricing of assets, goods, services, or internal corporate loans must strictly comply with the Arm’s Length Principle under Decree No. 132/2020/NĐ-CP. Enterprises need to proactively prepare and maintain Transfer Pricing Documentation to avoid the risk of the tax authority imposing a profit margin and reclaiming taxes.

7. Conclusion

Establishing and operating an FDI project in Vietnam requires investors to have a strategic vision not only commercially but also regarding legal and tax compliance structures. Vietnam’s tax legal environment is shifting strongly towards transparency, digitalization, and alignment with international standards (especially in managing e-invoices and combating transfer pricing). Potential risks from misapplying location incentive policies, lacking valid documents in asset transfer transactions, or failing to comply with market price principles can completely lead to severe financial damages through tax arrears decisions and administrative penalties. Therefore, foreign-invested enterprises need to proactively build a robust internal control mechanism, establish transparent segregation accounting procedures, and maintain periodic legal risk assessments (Tax Health Checks). Only when the compliance system is systematically operated and continuously updated can investors maximize the protection of their legal interests, optimize cash flow, and ensure the sustainable development of their projects in the Vietnamese market.

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