Tax incentives have always been a crucial lever for promoting the development of the private sector. With the issuance of Decree 20/2026/ND-CP guiding Resolution 198/2025/QH15, the Government has opened up significant opportunities for small and medium-sized enterprises (SMEs) and startups. This article will analyze in detail the conditions for a 3-year corporate income tax exemption for SMEs so that business owners and accountants can fully understand their rights.
Eligible entities are entitled to a corporate income tax exemption for a period of 3 years.
According to Decree 20/2026/ND-CP, not all newly established businesses are automatically entitled to preferential treatment. To qualify for a 3-year corporate income tax exemption for small and medium-sized enterprises, the business entity must meet the following criteria:
- Small and medium-sized enterprises (SMEs) are defined based on criteria such as revenue or the number of employees covered by social insurance, as stipulated by current regulations.
- First-time business registration: This is a prerequisite. This incentive focuses on encouraging individuals and organizations to embark on a new entrepreneurial journey.
The following exclusions should be noted: This policy will not apply to the following cases:
- Businesses are established through mergers, consolidations, divisions, separations, or changes in ownership structure (except for conversions from household businesses, which are governed by separate regulations).
- Businesses where the main manager or investor has previously been involved in managing or investing in other operating businesses within the past 12 months prior to the establishment of the new business.
Details of the conditions for corporate income tax exemption according to Decree 20/2026/ND-CP
Based on Clause 3, Article 7 of Decree 20/2026/ND-CP, the core content regarding the conditions for a 3-year corporate income tax exemption for small and medium-sized enterprises includes:
- Tax-free period: 3 consecutive years.
- Starting point for calculation: From the year the business was first granted its Business Registration Certificate.
- Effective date: This policy will be applied from the tax year 2025 according to Resolution 198/2025/QH15, effective from May 17, 2025.
This means that businesses entering the market from the second half of 2025 and in 2026 will be key beneficiaries of this regulation.
How to accurately determine the first 3 years of corporate income tax exemption
Accurately defining the timeline helps businesses avoid errors in tax settlement. There are three typical cases when considering the conditions for a 3-year corporate income tax exemption for small and medium-sized enterprises:
Case 1: Businesses established after May 17, 2025
Businesses are exempt from corporate income tax for three consecutive years from the year of initial issuance of the business registration certificate.
For example: Businesses licensed in August 2025 will be exempt from taxes for the years 2025, 2026, and 2027.
Case 2: Businesses established before the effective date of the Resolution.
If a business was established before May 17, 2025, but at that time is still within the 3-year period from its establishment date, the business will continue to enjoy the preferential treatment for the remaining period.
Case 3: The first tax period is less than 12 months.
This is a very advantageous new feature. If a business operates for less than 12 months in its first year, it has the right to:
- Enjoy the preferential treatment right from the first tax period.
- Alternatively, register with the tax authorities to begin the 3-year tax-free period starting from the next tax period.
Additional incentives for startups and innovations.
In addition to the standard 3-year corporate income tax exemption for small and medium-sized enterprises, Decree 20/2026/ND-CP also offers special incentives for innovative startups:
- Income tax exemption from capital gains tax: Businesses are exempt from tax on income from the transfer of shares and capital contributions to innovative startups (this does not apply to the transfer of shares on the stock exchange).
- Accounting for preferential treatment: Businesses must separately account for the preferential income. If separate accounting is not possible, the tax-exempt income will be determined based on the ratio of revenue or expenses of the preferential activity to the total revenue/expenses of the entire business.
What should be noted when registering for corporate income tax exemption for small and medium-sized enterprises?
In principle, businesses determine their own preferential conditions to self-declare and self-settle taxes with the tax authorities. However, to ensure legal safety regarding the 3-year corporate income tax exemption for small and medium-sized enterprises, you need to:
- Record keeping: Initial business registration certificate, capital records, list of shareholders/contributing members to prove that the company is not subject to exclusions.
- Clear accounting: Accounting records must clearly separate preferential and non-preferential income (if any).
- Choosing the most advantageous tax incentive: In cases where a business is eligible for multiple tax incentives, the business has the right to choose the most advantageous one and must apply it consistently throughout the period.
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- E-mail: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Source: Resolution 198/2025/QH15 of the National Assembly on some special mechanisms and policies for the development of the private economy.
Frequently Asked Questions about the 3-Year Corporate Income Tax Exemption for Small and Medium-Sized Enterprises
Are businesses that convert from household businesses eligible for a 3-year tax exemption?
Yes, if the enterprise meets the criteria for small and medium-sized enterprise size and it is its first time converting to a business model under the government's support policy.
If a business incurs losses for the first three years, will the tax exemption period be preserved?
Normally, the tax exemption period is calculated continuously from the time taxable income is generated. However, for small and medium-sized enterprises (SMEs) registering for the first time under Decree 20/2026/ND-CP, the 3-year period is calculated from the date of issuance of the Business Registration Certificate. For innovative startups, if they do not generate taxable income in the first 3 years, the preferential period may begin from the fourth year.
