Corporate Income Tax Incentives: Vietnam vs China — Where Should Investors Build the Factory?

When a group weighs a new Asian factory, the "Vietnam or China?" question rarely stops at labor costs or logistics. CIT incentives in Vietnam and China are among the decisive variables — and the most easily misunderstood, because the two countries built their incentive systems on different philosophies. This article compares eight key corporate income tax policy axes of both countries, based on current legislation, so investors decide on evidence rather than instinct.

Table of contents

• 1. Background: why compare
• 2. Overview comparison table
• 3. Detailed analysis of each difference
• 4. Similarities worth noting
• 5. Common investor risks
• 6. Practical recommendations
• 7. Frequently asked questions

1. Background: why compare

Three audiences need this comparison most:

• Chinese investors weighing an expansion of manufacturing into Vietnam — driven by supply-chain shifts and the "China + 1" strategy.
• Vietnamese companies doing business with Chinese partners, which need to understand the other side's tax system in order to negotiate prices and design transaction structures.
• Multinational groups benchmarking several candidate factory locations across the region side by side.

On sources: the Vietnam side rests on Corporate Income Tax Law No. 67/2025/QH15 (effective 1/10/2025, applicable to tax year 2025) and its guiding Decree 320/2025/ND-CP; the China side rests on the 企业所得税法 (Enterprise Income Tax Law of China) together with the incentive instruments issued by the Ministry of Finance and the State Taxation Administration that remain in force at the time of writing — 财税〔2023〕12号 and 财税〔2023〕37号 run through 31/12/2027, while 财税〔2023〕7号 (R&D super-deduction) is a long-term regime in force from 1/1/2023 with no end date set.

2. Overview comparison table

3. Detailed analysis of each difference

3.1. Headline rates: Vietnam tiers, China one rate

Vietnam's CIT Law 67/2025 introduces revenue-tiered rates for the first time: companies with total revenue for the year not exceeding VND 3 billion pay 15%; revenue from above VND 3 billion to VND 50 billion pays 17%; above VND 50 billion stays at 20%. The base is the immediately preceding year's revenue, and subsidiaries and related entities are excluded from the 15–17% tiers (an anti-fragmentation rule preventing companies from splitting to capture lower rates).

China keeps a single 25% headline rate (Art. 4, EIT Law) with no size tiering — offset by a separate small low-profit regime at an effective 5%. Practical implication: a mid-size manufacturer (VND 20–40bn revenue, no project incentives) pays 17% in Vietnam versus 25% in China — a material 8-point gap. Conversely, a micro-enterprise in China may pay just 5% effective, below Vietnam's 15% floor.

3.2. Different philosophies: Vietnam rewards the "project", China the "status"

This is the core difference many investors miss. Vietnam attaches incentives to a specific investment project: the 10%/15-year rate applies to income from a new investment project in encouraged sectors/locations (Art. 13, Law 67/2025) — the company must separately account for the incentivized project's income. One company with three projects, only one qualifying, gets the incentive on that project alone.

China attaches incentives to enterprise status: once recognized as a 高新技术企业 (high-tech enterprise), the entire company's income is taxed at 15%. Recognition conditions (国科发火〔2023〕132号, effective 1/1/2024) include: core self-owned IP, products in national key high-tech fields, R&D staff ≥ 10%, R&D-to-revenue ratios met, high-tech product revenue ≥ 60% of total revenue.

Implication: a "one company – many projects" model fits Vietnam's approach; a "one tech company – one core business" model fits China's. Investors should design the legal-entity structure for each country's philosophy from day one — restructuring later costs far more. For projects eligible for special investment incentives and support under Article 12(2)(h) of the CIT Law 67/2025, the Prime Minister decides the package: the preferential rate may be cut by no more than 50% against the Article 13(1) rate, the incentive period may run up to 1.5 times and be extended by up to 15 additional years — never beyond the project's term — and the tax-holiday period may be extended up to 1.5 times (Article 13(6)(b); Article 14(3)).

3.3. Holidays: Vietnam standardized, China flexible

Vietnam applies a statutory holiday formula: projects in the 10%/15-year group enjoy up to 4 years of full exemption followed by up to 9 years at a 50% reduction of the tax payable; projects in the 17%/10-year group enjoy 2 years of exemption followed by up to 4 years at a 50% reduction (Article 14 of Law 67/2025; Article 20 of Decree 320/2025). The holiday is counted from the first year in which the project generates taxable income — or from the fourth year, if the first three revenue-generating years produce no taxable income.

China has no general statutory holiday in the EIT Law; instead it uses directly low rates (15%, 5%) and sector-specific schedules (e.g., integrated circuits have their own exemption/reduction schedules tied to project stages). Implication: Vietnam's incentives are easy to model and bank; China's require tracking sector- and time-specific policies — but once enterprise status is secured, the effective rate is stable and the maintenance procedures follow the recognition cycle.

3.4. R&D incentives: two mechanics, one goal

Vietnam allows appropriation to a Science & Technology Development Fund of up to 20% of taxable income — deductible when appropriated, but at least 70% must be properly used within 5 years or be clawed back with interest. A "provide now, spend later" mechanism.

China uses a super-deduction (加计扣除): non-capitalized R&D expenses are deducted at 200% of actual spend (i.e., an additional 100% on top of the ordinary deduction) under 财税〔2023〕7号 — a long-term regime in force from 1/1/2023 with no end date set; capitalized R&D is amortized at 200% of cost. Newly purchased equipment/instruments (excluding buildings) costing no more than CNY 5 million may be expensed at once (财税〔2023〕37号).

Implication: companies with high R&D intensity (10–15%+ of revenue) typically gain more from China's mechanism; companies wanting to build long-term technology-investment funding may find Vietnam's Fund more cash-flow friendly.

3.5. Global minimum tax: the variable that cannot be ignored

Vietnam has applied the supplementary CIT under the global anti-base-erosion rules (15% global minimum tax) since 1 January 2024 under Resolution 107/2023/QH15. For Pillar Two in-scope multinationals, incentives pushing Vietnam's effective rate below 15% may be topped up in the parent jurisdiction or via Vietnam's domestic top-up.

Practical implication: for large groups, the advantage of Vietnam's 10% incentive rate is materially narrowed — the location decision must rest on a modeled total global tax liability, not on any single country's headline incentive rate. This is also why Vietnam built the Investment Support Fund (cash support outside the tax system) for high-tech, large-scale projects — support not affected by the global minimum tax in the same way.

3.6. Cross-border dividends: outbound and inbound differ

• Vietnam subsidiary → China parent: where a Vietnamese subsidiary pays dividends to its Chinese parent, Vietnam levies no withholding tax at source on dividends paid to foreign organizations, since the underlying income has already borne CIT in Vietnam. The Vietnam–China DTA caps dividend tax at 10% (Art. 10(2)), but Vietnam's domestic rate of 0% is lower and therefore prevails.
• China subsidiary → Vietnam parent: China withholds 10% at source on dividends to non-resident enterprises (Art. 91 of the Implementation Regulations of the PRC EIT Law — 企业所得税法实施条例); the DTA also caps at 10%, so the effective withholding is 10%.
• China-domestic note: dividends between Chinese resident enterprises are exempt subject to holding conditions (Art. 26) — relevant when the group uses a Chinese intermediate holding layer.

4. Similarities worth noting

• Both are chasing high-tech: each country reserves its strongest incentives for high-tech, semiconductors, artificial intelligence and clean energy — a race to attract the same pool of investors.
• Both build in anti-abuse designs: Vietnam excludes subsidiaries and related entities from the tiered 15–17% rates; China imposes stringent conditions for recognizing high-tech enterprises and small low-profit enterprises.
• Both face Pillar Two pressure: despite different legislative timelines, both must factor the global minimum tax into new incentive design — the common trend is shifting from tax incentives toward direct support.
• Both demand transparent books: Vietnam requires incentivized income to be separately accounted for; China requires detailed R&D ledgers to claim the super-deduction. Companies that keep sloppy books lose their incentives in both countries.

5. Common investor risks

Risk 1 — Treating Vietnam's 10% as "automatic". Companies must meet sector/location conditions, maintain full accounting–invoicing–filing, and separately account incentivized income (Article 18(4) of Law 67/2025, guided by Decree 320/2025). Without separate accounting the incentive is apportioned by ratio — and upon inspection, the tax authority may disallow the incentive entirely if the conditions cannot be evidenced.

Risk 2 — Ignoring transfer pricing. Chinese companies operating in Vietnam typically maintain dense related-party transactions with their parent companies — purchases of raw materials, payments of service fees and royalties. Vietnam applies transfer-pricing rules under Decree 255/2026/ND-CP (effective 1 July 2026, replacing Decree 132/2020/ND-CP), which set documentation thresholds and impose disclosure obligations — and this is a priority inspection area for the FDI sector.

Risk 3 — Forgetting foreign contractor tax (FCT). Payments made by the Vietnamese company to foreign organizations — service fees, royalties, loan interest and the like — may be subject to foreign contractor tax. This tax cost is frequently overlooked when the initial financial model is built.

Risk 4 — Missing the global minimum tax. Pillar Two in-scope groups looking only at Vietnam's 10% headline incentive will see their financial models break when the differential is topped up elsewhere.

Risk 5 (reverse direction) — Underestimating China's incentive difficulty. 高新技术企业 status must be recognized and periodically re-assessed; failing conditions (R&D staff ratios, high-tech revenue share) means immediately losing the 15% rate. Language and paperwork barriers are practical challenges for Vietnamese investors entering China.

Risk 6 — Comparing "apples to oranges". The most common mistake is to compare Vietnam's 20% standard rate against China's 15% preferential rate (or the reverse). A proper comparison takes the same project profile — scale, industry, location, cost structure — runs it through both tax systems, and computes the effective tax rate over a 10–15-year horizon.

6. Practical recommendations

Pre-investment:

1. Build a 10–15-year tax model for each location option, using one consistent set of assumptions on revenue, profit margins and R&D costs across all options — and never make the decision on the basis of a single headline rate.
2. Treat incentive conditions as a contract: list every condition (sector, location, capital scale, localization ratios…) and assess the ability to satisfy it for the whole incentive period — an incentive lost midway is worse than none.
3. Design ownership structure and dividend flows with the Vietnam–China DTA and withholding taxes in mind from the start. See our guide on investment incentives for foreign-invested projects in Vietnam.

During operations:

1. Maintain the "incentive file" as an asset: separate accounting, documented evidence proving incentive conditions are met, tracking of re-assessment milestones (especially high-tech status in China).
2. Keep transfer-pricing documentation and filing obligations in order from day one — the cost of a transfer-pricing audit is typically far greater than the cost of getting compliance right at the outset. See tax compliance for FDI companies and tax compliance for Chinese companies in Vietnam.

On expansion or restructuring:

1. Re-assess incentives when projects change: in Vietnam, expansion investment (fixed-asset or 20%+ capacity increase) may earn incentives on incremental income if separately accounted — don't leave it on the table.

7. Frequently asked questions

7.1. Is CIT lower for a factory in Vietnam or in China?

There is no one-size-fits-all answer to this question. Vietnam: 20% standard (tiered 15%/17%/20% by revenue), 10%/15 years plus 4-year exemption and 9-year 50% reduction for high-tech projects. China: 25% standard, 15% for high-tech enterprises, 5% effective for small low-profit enterprises. The outcome depends on the scale, industry, location and ability to satisfy incentive conditions of each specific project — and it must be modeled on real project figures.

7.2. Which country is better for a small business on tax?

Vietnam: 15% for annual revenue up to VND 3 billion. China: small low-profit enterprises (taxable income ≤ CNY 3m, ≤ 300 employees, assets ≤ CNY 50m) face an effective 5% through 2027. Both offer good small-business deals — the choice turns on concrete figures and growth plans.

7.3. Is Vietnam's 10% rate for 15 years easy to obtain?

Not automatic. Companies must meet sector/location conditions under Article 13 of CIT Law 67/2025, maintain full accounting, invoicing and filing, and separately account incentivized income. Non-compliance can mean losing the incentive upon tax inspection.

7.4. How are cross-border profit repatriations taxed?

Vietnam → China: Vietnam does not withhold tax at source on dividends to foreign organizations (0%). China → Vietnam: China withholds 10% at source; the Vietnam–China DTA caps dividend tax at 10% (Article 10(2)).

7.5. How does the 15% global minimum tax affect factory location decisions?

For Pillar Two in-scope multinationals, incentives bringing the effective rate below 15% in one country may be topped up in another. Vietnam has applied the global minimum tax since 1/1/2024 (Resolution 107/2023/QH15). Model total global tax liability rather than a single country's headline incentive rate.

Need counsel fluent in both Vietnamese and Chinese tax systems?

A factory location is a 10–15-year decision — errors in the initial tax model are hard to fix later. FLAT's China Desk supports tax modeling, investment structuring and cross-border Vietnam–China tax compliance — contact hotline 0988424851.

References

• Corporate Income Tax Law No. 67/2025/QH15 (Vietnam) (effective 1/10/2025); Decree No. 320/2025/ND-CP (effective 15/12/2025).
• Resolution No. 107/2023/QH15 on supplementary CIT (global minimum tax), effective 1/1/2024.
• Resolution No. 110/2023/QH15 (6th session, XVth National Assembly) — legal basis of the Investment Support Fund; Decree No. 182/2024/ND-CP (signed 31/12/2024) on the establishment, management and use of the Fund.
• Corporate Income Tax Law No. 67/2025/QH15: Article 12(2)(h) (projects eligible for special investment incentives and support), Article 13(6)(b) (Prime Minister decides the preferential rate and incentive period for such projects), Article 14(3) (holiday extension of up to 1.5 times).
• Investment Law No. 143/2025/QH15 (effective 1/3/2026) — the current institutional framework for special investment incentives and support (replaces Investment Law 61/2020/QH14).
• 企业所得税法 (Enterprise Income Tax Law of China); 企业所得税法实施条例 (Implementation Regulations — Article 91: the 10% rate for income of non-resident enterprises).
• 财税〔2023〕12号, 财税〔2024〕2号 (small low-profit enterprises, through 31/12/2027); 财税〔2023〕7号 (R&D super-deduction: long-term regime, in force from 1/1/2023, no end date set); 财税〔2017〕79号 (technology-advanced service enterprises).
• 国科发火〔2023〕132号 (high-tech enterprise recognition, effective 1/1/2024).
• Vietnam–China Double Tax Avoidance Agreement, Article 10(2).

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