Merging Loss-Making Companies: Conditions for 5-Year Loss Carryforward in Vietnam: the issue
Merging a loss-making company is often motivated by its losses — but the right to use them afterwards is conditional, time-boxed and examinable. This article sets out the conditions for carrying a merged company’s losses into the following five years, the annual offset mechanics, and the reasons the tax authority refuses carried losses in practice.
The core legal basis
The loss rule lives in the current tax frame: the Corporate Income Tax Law 67/2025/QH15 governs, with the Tax Administration Law 108/2025/QH15 (replacing Law 38/2019/QH14 since 1 July 2026) running procedure. Business losses are carried forward fully and continuously for no more than five years from the year after the loss year; on a merger, the receiving company succeeds to the loss position under the succession of Article 195 of the Enterprise Law 59/2020/QH14 — determined amounts, remaining windows, and no extension.
The specific angle of the 5-year loss conditions: five years is a continuous window running from the year after the loss year, not a fresh five years starting at the merger date. A loss arising three years before the merger has at most two years left to absorb, and the transferable amount is the loss established through finalisation or valid tax filings up to the merger point. The costliest mistake is ‘buying’ a loss company expecting long-term loss relief without checking the age of each loss tranche: after closing, most of the losses turn out time-expired, the expected tax value vanishes, and the price has already been paid in full.
Analysis, question by question from the client’s brief
Yes — with conditions. A loss-making company’s determined losses can be carried into the receiving company and offset gradually against its taxable income over the following years, inside the losses’ remaining statutory life. The merger is the doorway, not the entitlement: what crosses is a verified loss schedule belonging to a business that continues, and the offset happens year by year as the survivor earns taxable income, not in a single deduction at closing.
The conditions are fourfold. The losses must be real and finally determined — declared in the company’s returns and settled through its tax finalisation up to the merger. The carryforward window must still be open for each loss year. The business that generated the losses must genuinely continue within the receiving company, so the succession is substantive. And the merger itself must be executed and registered properly, with the tax files of both companies closed and opened in the right sequence so the loss schedule has a documented home.
There is no separate annual percentage cap on the offset: in each year, carried losses can be deducted against that year’s taxable income up to its amount — the binding limits are the income available to absorb them and the five-year expiry of each loss year. In practice the constraint is arithmetic, not legal: a survivor with thin profits uses the losses slowly and may watch the oldest years expire unused, which is exactly why the expiry schedule, not the headline loss total, decides the value of the position.
The tax authority can and does refuse carried losses, and the common reasons are documentary and substantive rather than exotic: losses never properly finalised before the merger; a loss year already outside its five-year window; the loss business discontinued inside the survivor, breaking continuity; or a merger whose only visible rationale is the tax attribute, inviting the conclusion that the succession is formal rather than real. Each refusal ground is answerable in advance — finalise, schedule, continue the business, document the commercial rationale — which is what preparation means in this topic.
Recommended sequence of actions
Qualify the losses before they enter the price: first, run the merged company’s CIT finalisation to the merger date so every loss year is a determined number; second, build the year-by-year schedule with expiry dates under the five-year rule; third, evidence business continuity — the loss-making activity actually continuing inside the survivor; fourth, put the schedule and its conditions into the merger documents as a warranted tax position, with the seller cooperating through the first examination.
This article is pending review by the QA Council.
Frequently Asked Questions
What is the first point to verify on merging loss-making companies: conditions for 5-year loss carryforward?
The first verification is the finalised loss schedule: every loss year determined through tax finalisation to the merger date, with its remaining five-year window. A schedule the tax file cannot prove is not yet an asset.
Which documents and filings decide the outcome on merging loss-making companies: conditions for 5-year loss carryforward?
Decisive documents: the merged company’s CIT returns and finalisation minutes, the year-by-year loss schedule with expiry dates, the merger resolution and registration, and evidence that the loss-making activity continues in the survivor. The authority’s acceptance of the finalisation anchors everything.
What goes wrong most often on merging loss-making companies: conditions for 5-year loss carryforward, and what does it cost?
The commonest failure is importing the seller’s unaudited loss figure into the valuation and skipping finalisation — the refusal then arrives at the survivor’s first audit, when the window to repair the file has closed. Cost equals the full tax shield that was priced.
How should the parties allocate the risks of merging loss-making companies: conditions for 5-year loss carryforward in the deal documents?
Qualify before pricing: finalise the losses, schedule their expiry, evidence business continuity, and warrant the schedule in the merger documents with seller cooperation through the first post-merger examination.
This article has been quality-reviewed by the FLAW AI Legal Council