Quick answer: Money a foreign parent sends its Vietnamese subsidiary labeled “support” or “grant” is not automatically tax-free — the economic substance decides the CIT treatment. Non-refundable support covering costs or operations is other taxable income. Only amounts that are genuinely capital contributions (increasing charter/investment capital through proper procedures) escape income treatment. This boundary is a hot spot in FDI tax inspections, because many groups use the “support” label to move cash quickly while skipping capital-increase procedures.
Applicable legal bases
The framework below is in force as of the writing date (20/10/2026) and directly governs this article:
- Corporate Income Tax Law 67/2025/QH15 (effective 01/10/2025, applicable from tax year 2025) — other income includes subsidies and grants received.
- Tax Administration Law 108/2025/QH15 (effective 01/7/2026, replacing Law 38/2019/QH14) — the duty to declare the true substance of transactions.
- The Enterprise Law and Investment Law 143/2025/QH15 (effective 01/3/2026) — procedures for capital contribution and charter-capital increases by foreign investors.
- Decree 255/2026/ND-CP (effective 01/7/2026) — support transactions between related parties must follow the arm’s-length principle.
In-depth analysis
Classification turns on three questions: must the money be repaid, what is it used for, and what legal paperwork accompanies it. Non-refundable support covering losses, operating costs or performance bonuses — whatever it is called — is other taxable CIT income because it increases the company’s net assets with no counter-obligation. Conversely, money moved in through a charter-capital increase procedure (amended investment certificate registration, booked to equity) is a capital contribution, not income. In between sit loans: repayable, interest-bearing (or not) — not income on receipt, but payable interest faces deduction caps and related-party scrutiny on excessive debt.
Inspection practice shows tax authorities apply “substance over form” aggressively to parent-company support. Red flags: recurring quarterly “support” in stable amounts resembling operating funding; support tied to sales targets (in substance a trade discount or business bonus); or cash landing in the account and funding routine expenses with no capital-increase decision anywhere. In these cases the authority reclassifies the amount as taxable income and reassesses — “the parent gave it, so it is not income” is not accepted.
For support constituting a related-party transaction (parent supporting subsidiary), there is another layer: the arm’s-length reasonableness of the support. Would an independent parent make a non-refundable “grant” to an independent party in similar circumstances? If not, the authority has grounds to revisit substance — and in many cases the support is really profit shifting or compensation for off-market purchase and sale pricing. Before receiving any parent support, the company should hold an internal document stating the purpose, conditions, repayment duty (if any) and the corresponding tax accounting treatment.
Four principles for classifying parent-company support
- Non-refundable, cost-covering: other taxable CIT income — the “support/grant” label does not change substance.
- Proper capital-increase procedure: a capital contribution, not income — but only with completed amendment registration and correct equity booking.
- Loans (repayment duty): not income on receipt; payable interest faces deduction limits and related-party checks.
- Business-conditioned support: sales-linked support or target bonuses are in substance discounts or income — declare as taxable income.
Common risks and how to prevent them
- “Support” transfers to dodge capital-increase procedures: if the goal is more capital, do the capital increase properly — mislabeled support brings reassessment plus explanation costs.
- No document stating the purpose: every parent-company inflow needs a decision or agreement stating purpose, conditions, repayment duty and accounting treatment.
- Booking against substance: income-type support booked to equity (or vice versa) — align documents, accounting and tax filing.
- Ignoring the transfer-pricing angle: related-party support must also survive arm’s-length reasonableness review — prepare the argument and files upfront.
Frequently asked questions
1. Is a parent’s loss-covering transfer to its subsidiary subject to CIT?
Yes — non-refundable loss coverage increases the subsidiary’s net assets and is other taxable CIT income, unless done through a proper additional capital-contribution procedure.
2. What is the procedure for a parent to increase capital?
A foreign investor increasing contributed capital must register the amendment of the investment registration certificate (for foreign-invested projects), contribute through the direct investment capital account, and book the equity increase.
3. What tax risks sit in an interest-free parent loan?
An interest-free related-party loan may be deemed to bear market interest: the lender is assessed interest income while the borrower may not deduct matching interest — creating tax from a “zero” loan.
4. What about in-kind support (machinery, equipment)?
Same principle: non-refundable in-kind support is recorded at fair value as taxable income; asset capital contributions require valuation and statutory contribution procedures.
Key takeaway for investors
No parent-company money is “automatically tax-free” — each inflow must be correctly identified as income, capital or a loan, with matching documents and booking. Misidentification invites reclassification.
This article has been quality-reviewed by the FLAW AI Legal Council This content is legal reference only and does not replace counsel for a specific case.