Decree No. 320/2025/ND-CP and the Turning Point in Corporate Income Tax Management in Vietnam

For many years, corporate income tax in Vietnam has largely been perceived as a procedural obligation, with compliance efforts concentrated primarily at the year-end finalization stage. In practice, many enterprises have focused on optimizing accounting figures, adjusting expenses, and managing taxable profits after the accounting period has closed, while fundamental factors such as cash flow, payment methods, and the economic substance of transactions have not always been given sufficient attention within corporate governance frameworks.

Decree No. 320/2025/ND-CP marks a clear shift in this approach. Rather than focusing solely on the formal validity of documentation, tax authorities are increasingly steering tax administration back to the economic substance of business operations, where actual cash flows, transactional relationships, and the true scale of enterprise activities play a decisive role. As a result, corporate income tax is no longer merely an issue for the accounting department, but has become an integral component of broader financial management and legal compliance strategies.

This article examines the key changes introduced under Decree No. 320/2025 from a practical perspective, with the aim of helping enterprises understand the implications, identify potential compliance risks, and proactively adjust their operating models in line with the evolving legal environment.

Decree No. 320/2025/ND-CP: From Accounting Expenses to Substance-Based Cash Flow Management

One of the most fundamental changes introduced by Decree No. 320/2025 lies in the determination of deductible expenses for corporate income tax purposes. Whereas enterprises previously focused primarily on ensuring the formal validity of invoices and supporting documents, payment methods have now become an independent and decisive legal condition for expense deductibility.

Under the current regulations, expenses are only deductible when they simultaneously satisfy several conditions, including that they are incurred for business purposes, supported by lawful invoices and documents, and settled through non-cash payment methods for purchases of goods and services exceeding the prescribed monetary threshold. The reduction of the non-cash payment threshold from a higher level to VND 5 million represents a significant change, particularly for small and medium-sized enterprises, where cash transactions have historically remained common.

In practice, many enterprises continue to recognize expenses at the time of transaction while subsequently settling payments in cash for convenience or based on agreements with suppliers. From the perspective of Decree No. 320, this approach entails substantial risk, as an expense is only considered deductible when the payment method complies with statutory requirements. Notably, where payment is made in a non-compliant manner, the consequence is not limited to the disallowance of the expense; enterprises are also required to adjust and reduce the deductible expense in the tax period in which payment occurs, even if tax filings have already been submitted or prior tax finalizations have been completed.

This shift reflects a clear transition by tax authorities from scrutinizing invoices to scrutinizing cash flows. In this context, tax management is no longer a purely accounting function, but requires direct involvement from chief financial officers and senior management in designing payment procedures, approving expenses, and controlling cash flows from the outset.

Research and Development Expenses and a Conditional Approach to Tax Incentives

Decree No. 320/2025 introduces a significant opportunity for enterprises engaged in research and development activities by allowing qualified R&D expenses to be deducted at up to twice their actual amount when determining taxable income. However, this incentive is not universal in nature and is not intended as a short-term remedy for loss-making enterprises.

The underlying purpose of the R&D tax incentive regime is to encourage investment in innovation within the framework of science and technology legislation. Only expenses that genuinely fall within the scope of research and development activities, supported by appropriate substance, documentation, and records, are eligible for consideration. More importantly, the additional deductible portion of R&D expenses may only be applied within limits that do not result in the enterprise incurring a tax loss. This reflects a consistent legislative position that tax incentives are designed to support enterprises capable of generating value, rather than to offset operating losses.

From an advisory perspective, Green NRJ has observed numerous cases in which enterprises misinterpret this policy, assuming that the mere incurrence of R&D expenses automatically results in tax benefits. In reality, without careful consideration of profit thresholds and cost structures, the application of R&D incentives may fail to deliver the expected financial advantages and may even increase the risk of being assessed as incorrectly applying preferential tax policies.

Accordingly, R&D expenses under Decree No. 320 should be regarded as a long-term strategic instrument aligned with financial planning and growth objectives, rather than as a short-term tool for optimizing tax liabilities in individual periods.

Depreciation, Provisions, and Interest Expenses as High-Risk Areas in Tax Finalization

Although Decree No. 320/2025 does not alter the existing limitations applicable to interest expenses, the continued enforcement of interest deductibility caps underscores that this remains a high-risk area in corporate income tax management. Under the prevailing rules, interest expenses are deductible only within a specified limit, determined based on operating profits before interest expenses, corporate income tax, depreciation, and amortization. Any portion of interest expenses exceeding the permitted threshold is non-deductible in the relevant tax period and may only be tracked and carried forward to subsequent years if statutory conditions are satisfied.

In practice, interest expenses are not the only items that frequently give rise to tax finalization risks. Depreciation of passenger vehicles with original costs exceeding statutory limits, provisions for major repairs of fixed assets that lack specific implementation plans or are not fully utilized and must be reversed, as well as interest expenses exceeding deductible thresholds, are all areas commonly subject to disallowance by tax authorities. In the current legal environment, flexible treatment or aggregation of such costs within accounting expenses is no longer appropriate and carries significant compliance risks.

As a result, enterprises are required to establish dedicated tracking mechanisms for each category of excess expenditure from the outset, ensuring that adjustments and exclusions are made accurately, consistently, and in a timely manner when determining taxable income. This, in turn, imposes higher standards on accounting systems, internal control procedures, and coordination among finance, accounting, and asset management functions.

Preferential Corporate Income Tax Rates Based on Revenue and the Principle of Self-Assessment

Another notable feature of Decree No. 320/2025 is the introduction of preferential corporate income tax rates based on enterprise revenue thresholds. Eligible enterprises may apply reduced tax rates compared to the standard rate, depending on their annual revenue level. However, the revenue used to determine eligibility is not limited to sales revenue, but encompasses total revenue of the preceding year, including service income, financial income, and other taxable income.

Furthermore, enterprises that are subsidiaries or have relationships with larger affiliated entities that do not meet the prescribed conditions fall outside the scope of these preferential regimes. The application of preferential tax rates operates entirely under a self-assessment mechanism, meaning that enterprises bear full responsibility for determining their eligibility. Any errors in identifying revenue, related-party relationships, or qualifying conditions may result in tax reassessments, back taxes, and penalties.

In this context, tax incentives are no longer an inherent advantage, but rather an opportunity accompanied by heightened compliance obligations and the need for transparent revenue tracking and legal structuring.

Overall Impact on Corporate Governance and Compliance Frameworks

From a broader perspective, Decree No. 320/2025 does not increase the complexity of tax regulations per se, but significantly raises expectations regarding compliance discipline and the quality of internal governance. Corporate income tax is no longer a matter of accounting adjustments alone; it directly reflects how enterprises structure cash flows, enter into contracts, execute payments, and allocate costs.

For enterprises with foreign investment elements or those undergoing expansion, these changes are particularly consequential. Failure to standardize processes at an early stage may result in accumulated compliance risks that only surface during tax audits, inspections, or corporate restructuring processes.

Green NRJ’s Perspective: Tax as a Component of Long-Term Growth Strategy

From a legal and tax advisory standpoint, Green NRJ considers Decree No. 320/2025 a meaningful step toward aligning Vietnam’s tax administration with international practices, where taxation is assessed based on the economic substance of transactions rather than purely on formal documentation.

Enterprises that correctly interpret and proactively standardize their tax management frameworks can not only mitigate legal risks, but also capitalize on lawful and sustainable tax optimization opportunities. Conversely, continued reliance on outdated practices may lead to significantly higher compliance costs in the future.

Green NRJ supports enterprises in interpreting regulatory developments accurately, identifying material risks, and implementing compliant solutions from the outset, enabling corporate income tax to function not as a passive burden, but as an integral element of long-term business strategy in Vietnam.