The Vietnamese government has officially issued Decree 398, effective as of October 29, marking a significant fiscal relief measure for the 2026 and 2027 fiscal years. This policy, designed to bolster economic resilience, allows businesses and individual business households with annual revenues not exceeding 10 billion VND to benefit from a 30% reduction in income tax. As the nation navigates the complexities of a shifting global economy, this strategic intervention aims to provide liquidity and operational support to the backbone of the domestic market: small and medium-sized enterprises (SMEs) and individual proprietors.
Scope and Eligibility Requirements
Under the provisions of Decree 398, the tax reduction applies specifically to income tax liabilities for the years 2026 and 2027. The primary eligibility criterion is a revenue threshold of 10 billion VND. This cap is inclusive of all revenue streams, including sales of goods, service provisions, financial income, and other miscellaneous earnings. For entities with multiple branches, representative offices, or various business locations, the revenue calculation must be aggregated across all units to determine if the enterprise remains within the qualifying bracket.
For individual business households, the reduction is calculated based on the total personal income tax payable from all business activities, regardless of whether the tax is calculated based on revenue or net profit. For entities paying tax on behalf of others, the reduction is applied to the tax payable on the revenue portion subject to such arrangements.
Chronology of Implementation and Administrative Compliance
The policy requires meticulous adherence to tax declaration procedures. Taxpayers are expected to calculate the 30% reduction during their quarterly, six-monthly, or annual tax filings. If a business discovers through their actual annual revenue that they have exceeded the 10 billion VND threshold, they are legally obligated to declare and pay the full amount of the previously reduced tax.
Crucially, the government has introduced a "safe harbor" provision for administrative penalties: if a business exceeds the revenue threshold and must pay back the tax that was initially reduced, they will not be charged late payment interest, provided the correction is made within the designated tax period.
For businesses that have already filed taxes without accounting for the reduction, the regulation permits supplemental declarations or adjustments during the annual tax finalization process. If a taxpayer has already paid the full amount and finds themselves with a tax surplus due to this policy, they are entitled to credit this amount against future tax liabilities or request a formal tax refund at the end of the fiscal year.
Structural Nuances and Corporate Restructuring
The decree includes specific anti-abuse provisions to prevent the fragmentation of larger corporations to access the tax break. Enterprises that have undergone division, separation, or structural reorganization after August 24—the date marking the effectiveness of the National Assembly’s Resolution 43—are prohibited from claiming the reduction if the total combined revenue of the newly formed legal entities exceeds the 10 billion VND annual limit. This measure ensures that the fiscal relief is directed strictly toward entities that genuinely operate on a smaller scale, rather than large corporations attempting to bypass the intent of the law.
Economic Impact and Government Projections
The Ministry of Finance has projected that this tax relief measure will result in a temporary reduction in state budget revenue of approximately 6.7 trillion VND over the two-year period. However, this figure is framed as a necessary investment in private sector vitality. According to internal data provided by the Ministry, approximately 99.86% of individual business households and 81.1% of domestic enterprises fall under the 10 billion VND revenue threshold. By targeting this segment, the government is providing direct relief to the vast majority of economic units, which collectively sustain significant employment levels across the country.
Broader Economic Context
This policy is part of a broader, ongoing strategy to mitigate the impact of rising operational costs and volatile market conditions. Historically, Vietnam has utilized similar tax relief packages during periods of economic turbulence to stimulate domestic demand. By reducing the tax burden on SMEs, the government aims to encourage reinvestment, digitalization, and the maintenance of workforce stability.
Economists observing the policy note that while the individual impact per business may be modest, the cumulative effect of injecting billions of VND back into the hands of small business owners is likely to stimulate local consumption. By lowering the cost of doing business, the state is effectively lowering the barrier to entry for micro-enterprises and incentivizing formalization among those who might otherwise remain in the informal economy.
Implications for Future Tax Policy
The implementation of Decree 398 also reflects an evolving approach to tax administration in Vietnam, moving toward a system that balances revenue collection with proactive fiscal support. The specific exclusion of Value Added Tax (VAT) from this reduction highlights that the focus of this particular decree is exclusively on income tax, ensuring that consumption-based tax revenue remains steady while direct corporate and personal income tax burdens are eased.
Furthermore, the requirement for businesses to aggregate revenue across all branches serves as a reminder of the increasing digital integration of the tax authority’s systems. With real-time monitoring capabilities, the tax administration is now better equipped to ensure that relief is distributed equitably and that compliance is maintained without imposing excessive bureaucratic hurdles.
Strategic Considerations for Taxpayers
Businesses should take note of several critical administrative deadlines and practices:
- Accurate Record Keeping: Maintaining precise, up-to-date records of total revenue across all branches is paramount to avoiding future penalties.
- Proactive Adjustment: Taxpayers should not wait for the end of the year to address potential revenue threshold breaches. Utilizing quarterly filings to make adjustments ensures a cleaner audit trail.
- Professional Consultation: Given the complexity of the "total revenue" calculation—especially for entities with multiple income sources or those involved in recent corporate restructuring—consulting with a tax advisor is highly recommended to ensure compliance with the specific language of Decree 398.
Conclusion
As the 2026 and 2027 fiscal years approach, the 30% tax reduction stands as a pillar of the government’s support framework for the grassroots economy. By providing a clear, predictable, and accessible path to tax relief, the state is signaling its commitment to the long-term sustainability of the SME sector. While the 6.7 trillion VND budget trade-off is significant, the expected outcome—a more resilient, stable, and active small business sector—represents a strategic balancing act aimed at securing sustainable national growth in an increasingly competitive global environment. The success of this policy will ultimately be measured by the ability of these businesses to leverage the saved capital to innovate and expand, further anchoring Vietnam’s position as a robust regional economy.
