Tax Treatment of Foreign Exchange Gains and Losses During the Construction Investment Phase under Corporate Income Tax (CIT)
2026/04/09
- I-GLOCAL.CO.,LTD Ho Chi Minh City Office
- Assistant Manager
- Nguyen Thai Quoc Nam
Executive summary
① Exchange differences arising during the construction investment phase will no longer be deferred for up to 5 years; they must now be recognized immediately in the period they occur.
② As taxable income may be deemed to arise even during the construction phase, there is a risk that preferential CIT treatment could commence earlier than intended; written confirmation from the tax authority is recommended.
③ For deferred balances remaining as of January 1, 2025, companies should select either lump-sum recognition or continued allocation, and seek confirmation from the tax authority as necessary.
Introduction
During the construction investment phase, enterprises engage in numerous foreign currency transactions, including borrowings, payments to contractors, and purchases of machinery and equipment. Additionally, they revalue foreign currency monetary items when preparing financial statements at the end of each fiscal period. These transactions give rise to foreign exchange gains and losses, which directly affect the recognition of income and expenses and the determination of corporate income tax (CIT) liability.
In response to this situation, Decree No. 320/2025/ND-CP (hereinafter “the Decree”) was promulgated to clarify the CIT treatment of foreign exchange gains and losses arising during the construction investment phase. This report summarizes the key provisions and points of attention based on the Decree.
1. Treatment of Foreign Exchange Gains and Losses During the Construction Investment Phase Under Circular No. 78/2014/TT-BTC
Article 6, Clause 2.22 of Circular No. 78/2014/TT-BTC issued by the Ministry of Finance on June 18, 2014, provides the following regarding deductible and non-deductible expenses for CIT purposes:
“Foreign exchange gains and losses arising from the settlement of foreign currency monetary items, and from the revaluation of foreign currency monetary liabilities at the end of the fiscal year, during the pre-operational construction investment period for the purpose of constructing fixed assets of a newly established enterprise, shall be accumulated and separately presented on the balance sheet. From the time construction is completed and the fixed assets are placed into use, the foreign exchange gains and losses arising during the construction investment phase (after offsetting the net differences) shall be allocated to financial income or financial expenses over a period of no more than 5 years.”
Based on this provision, for newly established enterprises constructing fixed assets, foreign exchange gains and losses arising during the construction investment phase are not recognized in profit or loss immediately. Instead, they are deferred on the balance sheet and allocated to financial income or financial expenses over a maximum period of 5 years from the commencement of operations.
２.Treatment of Foreign Exchange Gains and Losses During the Construction Investment Phase Under the Decree
Article 10, Clause 16(a) of the Decree issued by the Government on December 15, 2025, stipulates the following regarding non-deductible expenses for CIT purposes:
“(a) Foreign exchange gains and losses arising from foreign currency transactions related to foreign currency monetary items, including those arising during the construction investment phase for the purpose of constructing fixed assets by enterprises in the production and business operation phase, shall be recognized as financial income or financial expenses in the relevant tax period.”
Under the Decree, the deferred allocation mechanism previously prescribed by Circular No. 78/2014/TT-BTC — whereby foreign exchange gains and losses arising during the construction investment phase of newly established enterprises were allocated over a maximum of 5 years from the commencement of operations — is abolished. In its place, foreign exchange gains and losses arising during the construction investment phase shall be recognized directly as financial income or financial expenses in the tax period in which they occur. As a result, the difference in treatment between accounting and CIT will no longer arise with respect to this matter.
３. Key Considerations in Transitioning to the New Decree
The following points should be noted regarding the application of preferential CIT regimes (preferential tax rates, tax exemptions, and tax reductions) where taxable income arises during the construction investment phase, as well as the treatment of foreign exchange gains and losses that were previously deferred.
3.1 Application of CIT Incentives Under Articles 19 and 20 of the Decree
Preferential Tax Rate: The period of preferential tax rate application for income arising from new investment projects of enterprises covered by this article (including projects specified in Article 18, Clause 2(g) of the Decree) commences from the first year in which the new investment project generates revenue.
Tax Exemption and Reduction: The tax exemption and reduction period commences from the first year in which the investment project generates taxable income. However, if no taxable income is generated within 3 years from the first year of revenue generation, the exemption and reduction period commences from the 4th year.
Under the Decree, where foreign exchange gains and losses are recognized as financial income or financial expenses during the construction investment phase, there is a risk that revenue and taxable income may be deemed to have arisen — even before the enterprise’s primary production or business activities have commenced — solely as a result of such recognition.
Furthermore, the Decree does not explicitly address whether such revenue and taxable income constitute the basis for determining the commencement of CIT incentives for new investment projects.
Our view is that revenue and taxable income attributable to foreign exchange gains and losses arising during the construction investment phase do not accurately reflect the actual commencement of production and business activities of a new investment project, and therefore should not serve as the basis for determining when CIT incentives begin to apply.
However, given that the Decree does not currently provide specific guidance on this matter, enterprises are advised to submit a written inquiry to the competent tax authority and obtain written guidance on the applicable commencement date of CIT incentives for their specific project circumstances, in order to ensure compliance and mitigate tax risk.
3.2 Transitional Measures for Foreign Exchange Gains and Losses Arising Before January 1, 2025
For foreign exchange gains and losses that were temporarily deferred under the previous regulations and for which balances remain as of January 1, 2025, transitional treatment becomes a concern when enterprises adopt the new regulations.
However, the Decree does not clearly specify the transitional treatment for such balances. In our view, enterprises may consider either of the following two approaches:
- Method 1: In accordance with the intent of the Decree, recognize the deferred balance carried forward from prior periods in full as financial income or financial expenses in the first year of applying the new regulations (i.e., fiscal year 2025).
- Method 2: Continue to allocate the deferred balance to financial income or financial expenses over a maximum period of 5 years from the year the enterprise commenced operations, in accordance with the previous regulations.
Where an enterprise requires a clear legal basis for consistent and appropriate application, it is advisable to submit a written inquiry to the competent tax authority and obtain written guidance.
Conclusion
This report has summarized the key points regarding the new provisions on the treatment of foreign exchange gains and losses during the construction investment phase, and has presented the approaches that enterprises should consider when applying the new regulations. Enterprises are encouraged to assess their individual circumstances and adopt the most appropriate course of action accordingly.
References
・Circular No. 78/2014/TT-BTC issued by the Ministry of Finance
・Decree No. 320/2025/ND-CP issued by the Government (dated December 15, 2025)
Related Reports
・Major Amendments to the Corporate Tax Law Effective October 1, 2025
・Overview of Corporate Tax in Vietnam
