Vietnamese Tax Incentives and Taiwan's CFC Rules: A Low-Tax Test Decided Case by Case

Late March in Bắc Ninh. The finance team of a connector maker, wholly owned by a Taiwanese listed group, has just signed off the audit for 2025. Its newer production line pays Vietnamese corporate income tax at a 10% preferential rate. Then the parent's tax department in Taipei emails a list: audited statements for the parent's financial year, the documents behind the 10% rate, the factory lease and the payroll records for local staff, all needed before the Taiwan return goes in at the end of May (an invented example).

Why would Taipei want a factory lease? Taiwan's controlled foreign company (CFC) rules can require the parent to include the subsidiary's profit in its own taxable income. Whether they do turns on a low-tax test, a control test and two exemptions. The preferential rate raises a question under the first. The lease and the payroll belong to an exemption.

The 14% line and the clause on special regimes

Taiwan's corporate CFC rule, Article 43-3 of the Income Tax Act, has applied since tax year 2023 under an Executive Yuan order of January 14, 2022 (amendment history). Where it applies, the Taiwan company recognizes its share of the CFC's profit for the year, by holding ratio and holding period, whether or not a dividend is paid. A dividend paid later is not taxed again up to the amount already recognized. Control, the exemptions and filing are covered in When a Taiwan company must recognize its overseas subsidiary's profits, and withholding on payments from Taiwan to Vietnamese companies in Vietnamese Companies with Taiwan Income.

Under Article 4, paragraph 1 of the CFC regulation, a jurisdiction is low-tax in either of two cases. In the first, its statutory corporate income tax rate is no more than 70% of the rate in Article 5, paragraph 5, item 2 of the Income Tax Act, which is 20%. The Ministry of Finance (MOF) puts that line at 14%. In the second, the jurisdiction taxes only domestic-source income, and foreign income is untaxed or taxed only when remitted. The MOF's CFC FAQ adds, in question 11, that the test uses the statutory rate and not the affiliate's effective rate.

Paragraph 2 is where a Vietnamese incentive raises a question. It reads: 「關係企業所在國家或地區對特定區域或特定類型企業適用特定稅率或稅制者，以該特定稅率或稅制依前項規定判斷之。」 Where a jurisdiction applies a specific rate or regime to a specific region or a specific type of enterprise, the 14% and territorial tests are applied to that specific rate or regime. The official English translation says only that the specific rate "shall be considered", and the same page states that the Chinese version prevails. When the regulation was first issued in 2017, its explanatory note gave the purpose: to stop foreign enterprises from using such regimes to avoid Article 43-3.

Vietnam's rates as of October 2026

Vietnam's corporate income tax law is Law 67/2025/QH15. The National Assembly adopted it on June 14, 2025. It has been in force since October 1, 2025 and applies from the 2025 tax period (government record). Later laws have amended it; the figures below follow the official consolidated text, 113/VBHN-VPQH of May 20, 2026.

Holidays run on top of the preferential rates. Income on the 15-year 10% rate can be exempt for up to four years, with the tax halved for up to nine further years. Income on the 10-year 17% rate gets up to two years' exemption and up to four years at half. Article 12 grants these incentives by listed sector and by location.

That is where Article 4(2) comes in. Is a 10% project rate a specific rate for a specific type of enterprise or region? If so, does the test look at the 10%, at the 0% of an exemption year, or at the 20% standard rate? Neither the statute, the regulation and its explanatory notes, nor the MOF's announcement and FAQ answer that.

What the ministry has said, and what it has left open

On February 4, 2026, the MOF announced an updated reference list of low-tax jurisdictions: 31 under the 14% rate test and 48 under the territorial test. Vietnam is on neither (the list). The announcement calls the list a reference only. Whether a jurisdiction applies a specific rate or regime under Article 4(2), it says, is judged on the facts of each case (「依個案事實個別判斷之」). In question 10, the FAQ adds that the list leaves such regimes out and that the jurisdiction's actual tax system in the year concerned decides.

That gap is deliberate. When the regulation was re-issued in full on December 21, 2023, the MOF's comparison table explained that special regimes take many forms and information about them is not always public, so they are better judged case by case. Vietnam's absence from the list therefore tells a parent nothing about a project incentive. Equally, no official text treats an incentive by itself as deciding the outcome.

So the low-tax point cannot be closed by pointing at the list. The group should be able to show, year by year, which Vietnamese rate applied to which income and why: the standard 20%, a preferential rate, or an exemption or reduction year. Mixed incentive and ordinary income needs a split.

Control and the two exemptions

Low tax is one gate of several. The Vietnamese company is a CFC only if the Taiwan company and its related parties together hold 50% or more of it, directly or indirectly, or have significant influence over it (regulation, Article 2). Even then, Article 5 lifts the recognition duty in two cases.

One is substantive operations. The company needs a fixed place of business where it is registered, with employees actually running the business there. Its passive income must also be below 10% of net operating revenue plus total non-operating income. Both limbs are required. The other covers a CFC whose earnings for the year are NT$7 million or less, subject to an aggregate rule for directly held CFCs without substantive operations.

Passive income here means investment income, dividends, interest, royalties, rental income and gains on asset sales. Interest on a plant's bank deposits counts. The FAQ (question 17) adds that these items are in principle positive amounts, with no netting of losses.

From the Vietnamese ledger to the Taiwan return

The parent files its return from May 1 to May 31 for the previous year (Income Tax Act, Article 71). Article 10 of the regulation requires it to attach a structure chart with year-end holdings and the CFC's financial statements, audited by a qualified accountant in Vietnam or Taiwan unless the tax office accepts other evidence. Those statements must cover the same reporting period as the parent's return. A subsidiary whose books close on another date therefore needs statements for the parent's period. If the audit will be late, the parent can apply once, with reasons and before the filing deadline, for an extension of up to six months.

More records stay on file. They must be produced within one month from the day after a written request from the tax office is served, with one extension of up to a month. The evidence of substantive operations is among them, and the FAQ's question 51 gives examples: an accountant's opinion, the title deed or the lease and rent receipts for the premises, payroll vouchers for the local staff, and proof of the business carried on locally. An exempt CFC still appears in the return. Question 52 says the parent attaches the documents showing the exemption applies.

For the special-regime question, useful records let someone in Taipei trace the rate. That means the basis on which the incentive was granted, the Vietnamese tax return showing the rate applied, and where the project stands in its preferential period or holiday. A short note in English or Chinese, filed with each year's papers, saves rebuilding it in May.

Vietnam's 15% minimum tax for large groups

Large groups have one more layer. Vietnam's Resolution 107/2023/QH15, adopted on November 29, 2023 and applied from fiscal year 2024, imposes a qualified domestic minimum top-up tax (QDMTT) and an income inclusion rule at a 15% minimum rate. They apply, with some exclusions, within multinational groups whose consolidated revenue reached EUR 750 million in at least two of the four preceding years. Decree 236/2025/NĐ-CP, in force since October 15, 2025, details the resolution. No official Taiwan text addresses how a Vietnamese top-up relates to the CFC low-tax test. That stays an open point.

With a Vietnamese subsidiary on an incentive rate and the May return ahead, you can send the structure chart and the incentive papers to Hovering International Law Firm at wei@hoveringlaw.com.tw.

Back in Bắc Ninh, each line of the Taipei email has a reason. The 10% rate is what Article 4(2) asks about. The lease and the payroll go to the substantive-operations exemption. And the audited statements have to cover the parent's year.

Official sources

Checked October 7, 2026.

• Income Tax Act (所得稅法, last amended September 11, 2026; Article 43-3 unchanged since July 27, 2016): Art. 5, Art. 43-3, Art. 71; amendment history
• Regulations Governing Application of Recognizing Income from Controlled Foreign Company for Profit-Seeking Enterprise (營利事業認列受控外國企業所得適用辦法, re-issued in full December 21, 2023, in force from tax year 2023): Art. 2, Art. 4, Art. 5, Art. 10, Art. 11; official English translation; amendment history
• Explanatory notes to the regulation: 2017 article notes, 2023 comparison table
• Ministry of Finance, announcement of the updated low-tax reference list (February 4, 2026) and the list
• Taxation Administration, Ministry of Finance (財政部賦稅署), 營利事業受控外國企業（CFC）制度疑義解答 (updated April 7, 2026), questions 8, 10, 11, 17, 51 and 52
• Vietnam, Law 67/2025/QH15 on Corporate Income Tax: government record; consolidated text 113/VBHN-VPQH (May 20, 2026), Articles 10, 12, 13, 14 and 19
• Vietnam, Resolution 107/2023/QH15 and Decree 236/2025/NĐ-CP on the global minimum tax