Dear Clients and Partners,
In the evolving fiscal landscape of 2026, navigating the complexities of Corporate Income Tax (CIT) in Vietnam requires more than just basic accounting; it demands strategic precision and a deep understanding of the prevailing legal framework. As the General Department of Taxation (GDT) continues to enhance its digital oversight and audit capabilities, the margin for error has significantly narrowed. Many businesses operating in Vietnam inadvertently leave substantial capital on the table: or worse, invite unnecessary scrutiny: due to avoidable errors in claiming deductions.
Optimizing your tax position is not merely about reducing liability; it is about ensuring the long-term financial health and compliance of your enterprise. At BLaw Vietnam, we have observed that even seasoned corporations often stumble on specific regulatory nuances. Below, we outline the seven most common mistakes businesses make with corporate tax deductions and provide actionable strategies to fix them.
1. Failure to Maintain Legitimate E-Invoices and Documentation
In Vietnam, the "No Invoice, No Deduction" rule is absolute. Since the full implementation of Decree 123/2020/ND-CP regarding e-invoices, the GDT has a real-time window into your transactions. A common mistake is failing to verify the legitimacy of an e-invoice at the moment of the transaction. If an invoice is deemed "illegal" (e.g., issued by a "runaway" company or one that has suspended its tax code), the associated expense will be disqualified from CIT deduction.
How to Fix It:
Establish a rigorous internal audit process for all incoming invoices. Utilize the GDT’s official portal to verify the status of your suppliers' tax codes before processing payments. Ensure that every expense over 20 million VND is handled via non-cash payment methods (bank transfer), as cash payments for high-value transactions automatically disqualify the expense from being deductible. For specialized services, consider consulting our tax advisory experts to ensure your documentation hierarchy meets current standards.
2. Overlooking the "One-Month Salary" Cap on Employee Welfare
While attracting and retaining talent is vital, many businesses fail to account for the specific legal ceiling on "welfare expenses." Under current Vietnamese law, the total deductible amount for employee welfare: which includes costs like funeral/wedding gifts, holiday bonuses, medical support, and education assistance: cannot exceed the average of one month's actual salary realized during the tax year.
The Mistake: Aggregating all "people costs" into a single bucket without distinguishing between mandatory benefits and discretionary welfare.
How to Fix It:
Carefully categorize your labor costs. Differentiate between salary, mandatory social insurance, and discretionary welfare. If your welfare spending exceeds the one-month average salary limit, the excess must be treated as non-deductible. By proactively managing your labor and payroll strategies, you can optimize benefit packages to maximize deductibility without breaching regulatory caps.
3. Incorrect Depreciation of Fixed Assets
Fixed asset depreciation is a perennial area of dispute during tax audits. The common error lies in applying depreciation rates that fall outside the ranges specified in Circular 45/2013/TT-BTC (and its subsequent amendments). Often, businesses either depreciate assets too quickly to gain immediate tax relief or fail to properly document the "start of use" date.
How to Fix It:
Audit your fixed asset register annually. Ensure that the useful life assigned to each asset: from office equipment to industrial machinery: strictly adheres to the Ministry of Finance's guidelines. If your business utilizes specialized assets not clearly defined in the Circular, you must seek written guidance from the local tax authority to avoid retroactive penalties and the reversal of claimed deductions.
4. Mismanaging Interest Expenses and Related Party Transactions
As we move through 2026, the scrutiny on "Transfer Pricing" and Decree 132/2020/ND-CP remains intense. A frequent mistake is failing to cap interest expenses when a company has related-party transactions. Currently, the total deductible interest expense (after offsetting interest income) is capped at 30% of the company’s EBITDA.
The Mistake: Foreign-invested enterprises (FIEs) often overlook this cap when receiving loans from parent companies or affiliates, leading to massive non-deductible interest costs that could have been optimized through better capital structuring.
How to Fix It:
Perform a quarterly "Thin Capitalization" check. If your interest-to-EBITDA ratio approaches the 30% threshold, reconsider your financing strategy. It may be more tax-efficient to increase charter capital rather than relying on related-party loans. For complex corporate structures, governance reviews can help identify these bottlenecks before the fiscal year-end.
5. Non-Compliance with Foreign Contractor Tax (FCT) Requirements
In a globalized economy, businesses in Vietnam frequently procure software, consulting, or technical services from overseas providers. A critical mistake is claiming these costs as deductible expenses without having declared and paid the Foreign Contractor Tax (FCT).
The Mistake: Assuming that because a provider is overseas, the transaction is outside the scope of Vietnamese tax. If the FCT (which includes VAT and CIT components) is not withheld and paid by the Vietnamese entity, the entire expense of the service is typically deemed non-deductible.
How to Fix It:
Review all cross-border contracts for "Net" vs. "Gross" payment terms. Ensure that FCT is filed within 10 days of each payment or on a monthly/quarterly basis if registered. Maintaining proof of FCT payment is the only way to safeguard the deductibility of high-value international service fees.
6. Mixing Personal and Business Finances (The Director’s Trap)
For many small to medium-sized enterprises and startups in Vietnam, the line between the owner’s personal expenses and the company’s operational costs often blurs. The GDT is particularly vigilant regarding expenses like personal vehicle maintenance, domestic travel that lacks a clear business purpose, or household utilities charged to the company.
The Mistake: Using the corporate credit card for personal purchases and attempting to categorize them as "General and Administrative" (G&A) expenses.
How to Fix It:
Implement a strict corporate expense policy. Require all travel and entertainment (T&E) claims to be accompanied by a "Business Purpose" memo and a valid invitation or meeting minutes. If an expense cannot be directly linked to the generation of revenue, it should not be processed through the company books. For those looking to scale, maintaining professional separation is essential before considering Mergers and Acquisitions or external investment.
7. Failing to Account for Accrued Expenses and Provisions
Under Vietnamese accounting standards, expenses must be recognized when they are incurred (accrual basis). However, for tax purposes, many "provisions": such as those for severance pay, inventory devaluation, or doubtful debts: are only deductible if they meet very specific, narrow criteria.
The Mistake: Accruing a large expense at the end of the year to lower tax liability without having the actual "payment obligation" or supporting documentation ready by the time of the tax finalization.
How to Fix It:
Ensure that any accrued expense is settled or supported by a contract/invoice by the time the annual CIT finalization is due (usually the end of the third month of the following year). If an accrual remains unpaid and un-invoiced for a long period, it must be added back to the taxable income. Regular reconciliation between accounting profit and taxable profit is non-negotiable.
Through the Above Article
It is clear that maximizing corporate tax deductions in Vietnam is a matter of proactive management rather than reactive accounting. By addressing these seven common pitfalls, you can enhance your cash flow, minimize audit risks, and ensure your business remains on a path of sustainable growth.
The complexities of the Vietnamese legal system can be daunting, but you do not have to navigate them alone. Whether you are starting your FDI business in Vietnam or managing an established corporation, BLaw Vietnam is here to provide the highly qualified expertise you need.
Are you ready to optimize your 2026 tax strategy?
We invite you to explore our Legal Blog for more insights or contact our team today. Let us help you streamline your compliance and protect your bottom line. We are thrilled to partner with you in achieving your business objectives in Vietnam.
Warm regards,
The BLaw Vietnam Team
Your Trusted Partner in Vietnamese Legal Excellence