Vietnam vs China Corporate Income Tax 2026: Incentives and Enforcement

Comparing corporate income tax (CIT) between Vietnam and China is no longer an academic exercise. With supply-chain relocation in full swing, more and more Chinese enterprises are setting up factories in Vietnam, while many Vietnamese companies have opened offices, warehouses or trading companies in China. CIT obligations arise on both ends, yet the two tax systems are built on different philosophies: Vietnam comprehensively reformed its CIT Law at the end of 2025, while China operates a legal framework stable since 2008 but continuously adjusts it through phased incentive policies. This article places the two systems side by side across seven comparison axes, with the specific legal basis of each side, so investors can see the similarities, the differences, and the most common enforcement traps.

Table of Contents

• 1. Context: why this comparison matters
• 2. Overview comparison table
• 3. Detailed analysis of each difference
• 4. Notable similarities
• 5. Common investor risks
• 6. Practical recommendations
• 7. Frequently asked questions

1. Context: why this comparison matters

Three groups of readers need this comparison. First, Chinese investors considering a manufacturing base in Vietnam who want to know the real tax burden compared with staying in China. Second, Vietnamese enterprises with subsidiaries, branches or trading partners in China that must calculate tax obligations on both sides and the mechanism for eliminating double taxation. Third, the in-house legal and accounting teams of groups operating across Vietnam and China, who must explain to management why the same profit is taxed, incentivized and audited so differently in the two countries.

2026 is a special moment. Vietnam has just replaced its legal framework: the Corporate Income Tax Law No. 67/2025/QH15 took effect on 01/10/2025 and applies to tax year 2025, accompanied by Decree 320/2025/ND-CP guiding implementation issued on 15/12/2025. This is the deepest reform in more than a decade, introducing a revenue-tiered rate system and a rewritten incentive framework. China, meanwhile, keeps its Enterprise Income Tax Law of 2008 (amended in 2018) but administers incentives through time-bound policy announcements, notably the small-enterprise policy effective through 31/12/2027. Comparing the two systems at this point is therefore not just about headline rates — it is about two entirely different approaches to tax administration.

2. Overview comparison table

3. Detailed analysis of each difference

The seven comparison axes below move from the nominal tax rate to how enterprises actually enjoy incentives and are administered in practice. They are ordered by impact on the investment decision: headline and small-enterprise rates, project-based packages and holiday policies, the R&D incentive mechanism, then the bilateral tax treaty, and the deepest difference between the two systems — enforcement.

3.1. Headline tax rates: 20% vs 25%

The simplest starting point is also the most easily misunderstood. Vietnam applies a 20% standard CIT rate; China applies 25%. Seeing the two numbers, many investors immediately conclude Vietnam is cheaper. That conclusion is correct at the nominal rate level, but insufficient for a decision, because the effective tax payable depends on the tax base (how taxable income is determined, which expenses are deductible), the incentives enjoyed, and the tax obligations arising in the other country when profits are repatriated.

Under Law 67/2025/QH15, Vietnam for the first time introduces revenue-tiered rates into CIT law: enterprises with total annual revenue not exceeding VND 3 billion pay only 15%, and those with revenue above VND 3 billion up to VND 50 billion pay 17%. The revenue base is the total revenue of the immediately preceding tax year, including revenue from sales of goods and services, finance revenue and other income. A point requiring particular attention is the anti-avoidance mechanism: under Article 18(4) of the Law, the 15% and 17% rates do not apply to enterprises that are subsidiaries or have related-party relationships where an enterprise in the relationship fails the qualifying conditions. In other words, a group cannot be split into multiple small legal entities so each enjoys 15%. This is a trap more than a few foreign investors have fallen into when restructuring their Vietnam business models.

On China's side, the 25% rate set out in Article 4 of the EIT Law has barely changed since 2008. This stability is itself a forecasting advantage: investors can be confident the standard rate framework will not be disturbed in the short term. The flexibility of China's system lies in incentive policies issued by the Ministry of Finance and the State Taxation Administration for each period, rather than in amending the law.

3.2. SME incentives: two opposing philosophies

This axis shows the philosophical difference most clearly. Vietnam chose to cut rates directly by revenue scale and to codify it in law with long-term effect. A small trading company in Vietnam with annual revenue of VND 2 billion pays CIT at 15% steadily, independent of year-by-year policy. In addition, newly established small and medium enterprises are exempt from CIT for 3 years from first issuance of their enterprise registration certificate under Resolution 198/2025/QH15 on private sector development.

China took the opposite approach: keep the 25% standard rate but allow small low-profit enterprises (小型微利企业) to reduce their taxable income base. Under Announcement 2023 No. 12, effective from 01/01/2023 to 31/12/2027, enterprises meeting all three conditions (annual taxable income not exceeding RMB 3 million, headcount not exceeding 300, total assets not exceeding RMB 50 million, and not in restricted or prohibited industries) are taxed on only 25% of taxable income at a 20% rate — an effective rate of just 5%. This is significantly deeper than Vietnam's 15%, but has two weaknesses: it is a time-bound policy (currently through 2027, with extension depending on the authorities' decision) and the qualification conditions are more complex, calculated on quarterly averages during the year.

The practical consequence: a very small technology startup may find China more attractive on tax in the early stage, but must accept the policy-change risk after 2027. Vietnam, conversely, offers higher legal certainty with a law-codified incentive framework.

3.3. Project-based rate incentives: Vietnam detailed, China focused

For large-scale investment projects, especially FDI, Vietnam's framework is far more detailed. Article 13 of Law 67/2025/QH15 provides three groups of rate incentives. The first applies a 10% rate for 15 years to income from new investment projects in incentivized sectors (high technology, supporting industries, energy, infrastructure and the sectors in Article 12(2)), projects in areas of exceptional socio-economic difficulty, and projects in high-tech zones, high-tech agricultural application zones, concentrated digital technology zones and economic zones located in incentivized areas. The second applies a 10% rate for the entire operation to certain special activities such as publishing, press, cooperatives and certain trades in difficult areas. The third applies a 17% rate for 10 years to new investment projects in areas of socio-economic difficulty.

The preferential rates come with the holiday policy in Article 14: up to 4 years of exemption and 50% reduction for up to the following 9 years for the Article 13(1) project group; if the project is not in an incentivized area the reduction period is shortened to up to 5 years; the special group under Article 13(4) receives 2 years of exemption and 4 years of reduction. The holiday is counted from the first year with taxable income, and if there is no profit in the first 3 years from earning revenue, it is counted from the fourth year. For especially large projects, the Prime Minister may decide to extend the holiday period by up to 1.5 times.

China's approach is more compact: instead of classifying projects in detail in the law, it focuses on high and new technology enterprise (高新技术企业) accreditation. Enterprises accredited through the joint process of the Ministry of Science and Technology, the Ministry of Finance and the State Taxation Administration enjoy a 15% rate under Article 28 of the EIT Law, with accreditation valid for 3 years and renewable if conditions continue to be met. Phased exemptions (for example for newly established software enterprises) are set out in separate sectoral policy announcements. This lets China flexibly adjust incentives to each period's industrial orientation without amending the law, but requires enterprises to track policy documents closely.

3.4. R&D incentives: pre-accrued fund vs super-deduction

Both countries want to encourage enterprise investment in research and development, but the tools are completely different. Vietnam allows enterprises to appropriate up to 20% of annual taxable income to establish a Science and Technology Development Fund (Article 17, Law 67/2025/QH15), doubled from the previous 10%. This is a pre-accrual mechanism: the enterprise reduces taxable income in the year of appropriation and then uses the fund for R&D activities. The advantage is simplicity and predictable tax cash flow; the drawback is that if the fund is not used for the proper purposes, the appropriated amount may be subject to tax treatment again.

China uses the R&D super-deduction mechanism (研发费用加计扣除): qualifying R&D expenses, besides being deductible as ordinary expenses, enjoy an additional uplift when computing taxable income. The uplift rate is adjusted through policy announcements for each period and industry group, so enterprises must check the latest regulation when planning taxes. In substance, China's mechanism directly rewards R&D expenditure actually incurred, while Vietnam's allows proactive pre-accrual. For enterprises with large R&D operations in both countries, choosing where to locate the R&D center requires modelling both mechanisms rather than comparing by feel.

3.5. Double taxation avoidance agreement: a rare plus

The double taxation avoidance agreement between Vietnam and China was signed on 17/05/1995 in Beijing and has been effective since 18/10/1996. Its most notable feature is the uniform 10% source withholding cap for all three income types: dividends (Article 10), loan interest (Article 11) and royalties (Article 12). In treaty-negotiation practice, few agreements have a uniform cap across all three types; many of Vietnam's agreements with other countries set different rates per type or impose ownership-ratio conditions.

The practical meaning must be read by cash-flow direction. Vietnam-outbound: when a Vietnamese subsidiary pays dividends to its Chinese parent, Vietnamese domestic law generally imposes no additional corporate income tax or withholding tax on after-tax profits distributed to foreign institutional investors (effective rate 0%). The treaty sets a 10% cap on dividends (Article 10) — a ceiling, not a floor: it does not create a 10% tax liability where domestic law imposes 0%, and no treaty-application procedure is needed to obtain the 10% rate in this direction because no withholding arises in the first place. China-outbound: when a Chinese company pays dividends to Vietnam, Chinese domestic law does levy withholding on non-resident organizations, and the treaty's 10% cap genuinely reduces the burden. For loan interest and royalties, Vietnamese domestic law imposes foreign contractor tax (FCT), so the treaty's 10% cap (Articles 11 and 12) is a real tax-saving tool — the enterprise must complete treaty-application notification procedures with the tax authority to enjoy it. Notably, Article 23 of the Agreement also contains a tax sparing clause: tax exempted or reduced under one party's domestic law for economic development purposes is deemed paid at 10%, so enterprises do not lose the benefit of tax incentives when taxed in the residence country. Investors often overlook this clause, yet it is highly valuable when structuring cross-border cash flows.

3.6. Enforcement: where the two systems differ most

If the axes above are what the law says, enforcement is what enterprises actually experience — and this is where Vietnam and China differ most profoundly.

In Vietnam, the mechanism is self-declaration, self-payment and self-responsibility, with tax incentives enjoyed on the basis of self-assessed eligibility. That sounds liberal, but eligibility conditions are tightly regulated and the tax authority may audit and claw back incentives if conditions are not met — notably the rule excluding enterprises with related-party relationships from the 15% and 17% rates. For cross-border related-party transactions, Decree 132/2020/ND-CP imposes transfer pricing documentation obligations with specific exemption thresholds. The CIT tax year is the calendar year; enterprises make quarterly provisional payments and finalize annually no later than the last day of the third month after year-end.

In China, the philosophy is self-enjoyment of incentives with record-keeping for inspection (备查) — enterprises apply incentives themselves without prior approval, but the tax authority conducts strong ex-post audits on the back of a digitized tax administration system. The tax year is also annual, with monthly or quarterly provisional payments and annual finalization (汇算清缴) within the first 5 months of the following year. What surprises many foreign enterprises is the level of detail the Chinese tax authority holds through the e-invoicing system and bank-data cross-checks, and the aggressiveness of special tax investigations (特别纳税调查) against enterprises with transactions with overseas related parties.

One common trend to watch in both countries is the global minimum tax. Vietnam has taken steps to apply this mechanism from fiscal year 2024, meaning large multinational groups may have to pay top-up tax to reach the minimum effective rate, reducing the significance of low preferential rates in some cases. Investors in scope cannot look only at a 10% or 15% preferential rate — they must model the top-up obligation as well.

4. Notable similarities

Alongside the differences, the two systems share several similarities investors often mistake for differences. First, both countries apply a calendar-year tax period with provisional payments during the year and finalization after year-end, so the compliance rhythm is not materially different. Second, both take transfer pricing seriously and require enterprises with related-party transactions to prepare documentation proving arm's-length pricing; carrying a lax mindset from one country to the other is dangerous in both directions. Third, both reserve their deepest tax incentives for the same target groups — high technology, R&D and investment in difficult areas — differing only in the instruments used. Fourth, both are rapidly digitizing tax administration, meaning the room for non-transparent practices is shrinking on both sides.

5. Common investor risks

Risk 1: Applying Vietnam's incentive-approval mindset to China, or vice versa. Many enterprises accustomed to preparing incentive-application dossiers in Vietnam keep looking for an authority to file with in China, while China's mechanism is self-enjoyment with record-keeping. Conversely, enterprises used to China's flexibility arrive in Vietnam complacent about proving incentive eligibility, only to discover missing grounds when audited. Each system has its own logic, and getting the logic wrong can cost the incentive even where the substantive conditions are met.

Risk 2: Splitting legal entities to enjoy Vietnam's 15% rate. As analyzed, Article 18(4) of Law 67/2025/QH15 excludes enterprises with related-party relationships from the 15% and 17% rates. A model where a group divides into multiple small subsidiaries, each declaring revenue under VND 3 billion to enjoy 15%, is a model the tax authority has full legal tools to reject and claw back. Restructuring costs plus penalties and late-payment interest are usually far larger than the tax saved.

Risk 3: Misunderstanding China's effective 5% rate for small enterprises. The 5% figure is attractive but comes with three simultaneous conditions on taxable income, headcount and total assets, calculated on quarterly averages, and is a policy expiring at the end of 2027. Fast-growing enterprises may fall out of eligibility mid-way without time to adjust financial plans. Whether an industry is restricted also requires checking the specific catalogue — it cannot be guessed.

Risk 4: Misreading source withholding when repatriating profits. Many investors only model CIT where profits arise and forget withholding on cross-border interest and royalties, or forget the treaty-application procedures needed for the 10% cap on those items. Conversely, some companies fear losing 10% when a Vietnamese subsidiary pays dividends to its Chinese parent — in fact Vietnamese domestic law imposes no withholding on dividends paid to foreign institutional investors, and the treaty's 10% cap creates no additional liability in this direction. On large cash flows, getting the direction and income type right avoids both overpayment and claw-back risk.

Risk 5: Missing transfer pricing documentation for cross-border intra-group transactions. The common model is a Chinese parent supplying materials, machinery and technical services to its Vietnamese subsidiary, or vice versa. Both tax authorities may adjust transaction prices deemed not at arm's length. Enterprises should prepare transfer pricing documentation under each country's rules from the outset, instead of scrambling to build it when inspected.

Risk 6: Tax incentives partly neutralized by the global minimum tax. For multinational groups in scope, enjoying a 10% preferential rate in Vietnam does not mean the group's overall tax burden falls correspondingly, because the difference may be payable as top-up under the global minimum tax mechanism. This is a group-level modelling exercise that cannot be solved at the subsidiary level.

6. Practical recommendations

Before investing, model the effective tax burden over the project's full life cycle, not just the first year. For a Vietnam project, check whether it falls in the incentivized sectors and locations for the 10%-for-15-years rate with the 4-year exemption and 9-year reduction, and carefully match the conditions in Articles 12, 13 and 14 of Law 67/2025/QH15. For China operations, assess the likelihood of high-tech enterprise accreditation and model the scenario where the small-enterprise incentive expires after 2027. In all cases, build treaty withholding into the cash-flow model — noting that Vietnam-outbound dividends are 0% under domestic law, while interest and royalties should be modeled at the treaty cap after completing the application procedures.

During operations, build separate compliance processes for each country instead of applying one process everywhere. In Vietnam, the focus is keeping complete evidence of incentive eligibility and monitoring revenue thresholds for the tiered rates. In China, the focus is complete 备查 records for self-applied incentives and ensuring tax filing data is consistent with invoicing and banking data. For related-party transactions, prepare transfer pricing documentation in parallel under both countries' requirements from the first year transactions arise.

When disputes or inspections arise, the general principle is to prepare early and work with advisors who understand both systems. Disputes over incentive eligibility in Vietnam usually revolve around interpreting incentivized sectors and locations, while in China they usually revolve around the completeness of kept records and the reasonableness of related-party pricing. In both cases, having legal and accounting dossiers prepared in advance largely determines the outcome.

7. Frequently asked questions

What are the standard CIT rates in Vietnam and China in 2026?

Vietnam applies a 20% standard rate under Article 10 of the Corporate Income Tax Law 67/2025/QH15, effective from 01/10/2025. China applies a 25% standard rate under Article 4 of the Enterprise Income Tax Law (企业所得税法). Both countries have lower preferential rates for small enterprises and qualifying investment projects.

How are small enterprises taxed in Vietnam and China?

In Vietnam, enterprises with total annual revenue not exceeding VND 3 billion apply a 15% rate; revenue above VND 3 billion up to VND 50 billion applies 17% (Article 10, Law 67/2025/QH15). In China, small low-profit enterprises (小型微利企业) meeting all three conditions on taxable income, headcount and total assets are taxed on only 25% of taxable income at a 20% rate — an effective 5% rate — under a policy effective through 31/12/2027.

What CIT incentives can a Chinese investor's high-tech project get in Vietnam?

A new investment project in an incentivized sector or a high-tech zone, concentrated digital technology zone, or area of exceptional socio-economic difficulty may be taxed at 10% for 15 years, exempted for up to 4 years and granted a 50% reduction for up to the following 9 years, provided all conditions in Articles 12, 13 and 14 of Law 67/2025/QH15 are met.

How much withholding tax applies on dividends paid from a Vietnamese subsidiary to its Chinese parent?

Under Vietnamese domestic law, after-tax profits paid by a subsidiary to a parent that is a foreign institutional investor are generally subject to no additional corporate income tax or withholding tax (effective rate 0%). The Vietnam–China double taxation avoidance agreement (signed 17/05/1995, effective 18/10/1996) sets a 10% cap on dividends (Article 10) — a ceiling, not a new 10% liability where domestic law imposes 0%. In the reverse direction, Chinese domestic law does levy withholding on dividends paid out of China, and the treaty cap of 10% reduces the burden. For loan interest and royalties, the enterprise must complete treaty-application procedures with the tax authority to enjoy the 10% cap (Articles 11 and 12).

What should investors watch on tax enforcement between Vietnam and China?

The biggest difference lies in enforcement: Vietnam administers incentives through registration-based self-assessment with strict conditions on related-party relationships; China applies self-enjoyment with record-keeping for inspection (备查), but with strong ex-post audits and a highly digitized tax administration. Both countries are stepping up transfer pricing enforcement on cross-border related-party transactions.

Need counsel who understand both systems?

Comparing legal frameworks is one thing; applying them to an enterprise's actual business model is another. Each project has its own capital structure, transaction chain and cash-flow plan, and a single misunderstanding about incentive conditions or the tax treaty can materially change investment efficiency. FLAT Law Firm's China Desk accompanies investors through the project's full life cycle: modelling the tax burden before investment, structuring transactions and transfer pricing documentation during operations, and handling inspections and tax disputes. Contact our hotline 0988424851 for advice on your company's specific situation.

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References

• Vietnam Corporate Income Tax Law No. 67/2025/QH15 (effective 01/10/2025)
• Decree 320/2025/ND-CP guiding the Corporate Income Tax Law (issued 15/12/2025)
• Decree 132/2020/ND-CP on tax administration for enterprises with related-party transactions
• Resolution 198/2025/QH15 on private sector development
• Vietnam–China Double Taxation Avoidance Agreement (signed 17/05/1995, effective 18/10/1996)
• PRC Enterprise Income Tax Law (中华人民共和国企业所得税法, effective 01/01/2008, amended 2018)
• MOF–STA Announcement 2023 No. 12 on tax and fee policies supporting small enterprises (effective through 31/12/2027)