1. Background
A recent official letter issued by the Ho Chi Minh City Tax Department has brought renewed attention to a fundamental legal question in the practical application of tax incentives in Vietnam:
Do foreign-invested enterprises (FDI) fall within the scope of the “private sector” for the purpose of incentives under Resolution 198/2025/QH15?
The tax authority appears to rely on the classification framework set out in Circular 07/2025/TT-BKHĐT—originally designed for statistical purposes—to distinguish the foreign-invested sector from the domestic private sector. On this basis, FDI enterprises may be considered outside the scope of certain incentives intended to support the private economy.
2. Legal Gap: No Statutory Definition of the “Private Sector”
A key issue lies in the fact that Vietnamese law currently provides no formal statutory definition of the “private sector.”
The Law on Enterprises defines a “private enterprise” as a specific business form owned by an individual, which is distinct from the broader concept of the “private sector.” Meanwhile, the Law on Investment does not employ or define the term, and tax legislation offers no clear criteria for determining its scope.
However, policy instruments such as Resolution 198/2025/QH15 refer to the “private sector” as a basis for designing incentives, without clarifying whether foreign-invested enterprises are included. This creates a significant legal gap and leaves room for divergent interpretations in practice.
3. Interpretative Issue: Can FDI Be Excluded Based on Statistical Classification?
Circular 07/2025/TT-BKHĐT classifies the economy into three sectors:
(1) the state sector,
(2) the non-state sector, and
(3) the foreign-invested sector.
It is important to emphasize, however, that this circular serves a statistical function and is not intended to regulate tax policy or determine eligibility for fiscal incentives.
The use of such a statistical classification framework to conclude that FDI enterprises fall outside the “private sector”—and consequently to deny them access to tax incentives—may extend beyond the intended regulatory scope of the instrument.
4. Policy Implications and Legal Risks
If this interpretation is applied more broadly, several important implications may arise.
First, it may lead to unequal access to incentives between domestic enterprises and foreign-invested enterprises, even where both operate as profit-oriented business entities.
Second, this approach may raise concerns regarding consistency with Vietnam’s investment principles, which emphasize a fair, transparent, and non-discriminatory business environment, as reflected in the Law on Investment and international commitments.
Third, from a practical perspective, FDI enterprises may face increased risks of denial of incentives, tax reassessment, or disputes with tax authorities.
5. Legal Perspective
From a legal standpoint, a fundamental principle should be emphasized:
Any limitation on tax incentives should be clearly grounded in applicable legislation and should not be inferred from instruments designed for statistical classification.
In the absence of explicit legal provisions excluding FDI enterprises from the “private sector,” such exclusion remains an interpretative position rather than a firmly established legal rule.
6. Conclusion
This development does not represent a formal change in law, but rather an emerging interpretative approach at the administrative level. Nevertheless, if adopted more widely, it could have significant implications for the application of tax incentives and the structuring of foreign investment in Vietnam.
In this context, proactive monitoring and legal risk management are increasingly important for foreign investors operating in Vietnam.
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