Vietnam offers tax breaks to boost long-term open-end fund investment

Vietnam's revised Personal Income Tax Law, which takes effect on July 1, introduces significant tax incentives for investors in open-end funds. The measures are designed to reduce investment costs and steer capital towards more sustainable, long-term strategies in the country's capital market.

Under the new legislation, investors who hold fund certificates for more than two years will be fully exempt from personal income tax on any gains from the transfer of those certificates. This replaces the current 0.1 per cent tax levied on the transaction value at the point of sale. The change is expected to encourage investors to commit capital for longer durations by clearly distinguishing between long-term investment and short-term trading.

The law also halves the tax on dividends distributed by investment funds, reducing the rate from 5 per cent to 2.5 per cent. The previous 5 per cent rate was widely considered high, leading many funds to limit dividend payouts to maximise investor returns. The lower tax is anticipated to provide fund managers with greater flexibility to make more regular distributions, offering investors a more consistent income stream.

According to Vietcombank Fund Management (VCBF), the new rules represent more than a simple tax adjustment. The fund manager stated that the incentives convey a clear policy message that prioritises long-term and professional investment. VCBF expects the measures will strengthen confidence among retail investors and promote more disciplined investment through fund products.

These policy changes are also aimed at fostering a more balanced and sustainable investor base for Vietnam's capital market. The stock market has historically been dominated by retail investors, who account for approximately 85 per cent of total market liquidity. While this has driven trading volumes, it has also been a factor in the market's heightened volatility, especially during significant corrections.

Data from the Ministry of Finance showed that as of the end of September 2025, Vietnam had 43 licensed fund management companies. Their total assets under management (AUM) reached approximately VNĐ806 trillion (US$30.6 billion), a substantial increase from VNĐ435 trillion in 2020, reflecting an average annual growth rate of about 20 per cent.

Despite this growth, Vietnam's AUM-to-GDP ratio is only around 6 per cent. This is significantly lower than regional peers such as Thailand, with a ratio of over 20 per cent, and Malaysia, at approximately 60 per cent, indicating substantial potential for the expansion of the domestic asset management industry.

The tax incentives are intended to support this development by encouraging retail investors to transition from direct stock trading to holding fund certificates. This aligns with the goals of Vietnam's Stock Market Development Strategy to 2030, which emphasizes the need to build a more balanced investor structure by expanding the role of institutional investors.