FAQ - Operating a Company in Vietnam
Latest Update: August 11, 2021
This is relevant for: Foreign companies running subsidiaries in Vietnam
We are receiving a lot of enquiries regarding the establishment and operation of subsidiaries in Vietnam. These mostly revolve around setting up and running entities to support sales functions. But there are also companies looking to set up manufacturing or IT outsourcing operations. Some are furthermore planning to establish sourcing offices. Here are some of the frequently asked questions (FAQs) that we receive:
🤔 How can we finance our entity?
To our knowledge there are three major ways mother companies provide financing to their entities in Vietnam.
Intra-company service contracts: The mother company closes a service contract with its subsidiary abroad. Content may reach from agreements on forward service contracts (e.g. in ITO) or administrative support to licensing agreements (e.g. for brands or know-how). Regulations on transfer pricing should be observed. It should be noted that the services rendered by the mother company abroad will likely be subject to Foreign Contractors Tax.
Intra-company loans: It is generally possible for the mother company to provide interest-free intra-company loans to its subsidiary. This can be a cost-effective alternative to receiving loans locally (note: Interest rates in Vietnam may well exceed 10% p.a.). It should be observed that loans only will be granted by authorities based on according permissions in the company registrations. Furthermore, the authorities may apply a debt-equity ratio which is however not mandated by law.
Contributing additional equity: Also possible based on content of company registrations.
🤔 What are relevant taxes applied to our subsidiary?
There are no real surprises for taxes in Vietnam. Their form does not deviate from international standards. Here are three of the most important taxes applied to local enterprises.
Corporate Income Tax (CIT): Will be leveraged on the taxable profits of the subsidiary. Standard rate is 20%. For certain investments (e.g. in manufacturing) preferential taxes and/or tax holidays may apply. Vietnam provides one of the lowest CIT rates in SEA (only Singapore being lower at 17%).
Value Added Tax (VAT): Will be leveraged on most services and products sold by the subsidiary. For services, it should be noted that they will mostly even be subject to VAT if they are sold to entities outside of Vietnam. The standard rate is 10%.
Import Tariffs: Tariffs are less and less relevant for international trade to and from Vietnam because the country has closed FTAs with almost 60 countries and territories worldwide; including its most important trading partners except for the US. Still, some tariff reductions are not yet fully effective. Enterprises should therefore evaluate if they can fully profit of certain FTAs. Regarding the EU-Vietnam FTA, we have prepared an overview of tariff reductions here as well as guidelines to rules of origin here.
🤔 Can we repatriate profits from Vietnam?
If the subsidiary is profitable and has fulfilled its tax obligations in Vietnam a dividend may be transferred to the mother company abroad. There are no further taxes or fees applied to such dividend payments.
🤔 How can we secure our IP in Vietnam?
While Vietnam certainly has its fair share of IP issues (e.g. piracy of apparel brands) we generally hear of very few instances of serious IP breaches. Nevertheless, companies should get informed about this topic. For European enterprises, we recommend getting into touch with the EU SME IPR Helpdesk in HCMC. Their contact details are available here.
🤔 How do we organize payroll and accounting?
Most investors will externalize these functions at least at the start of a company's activities. In our experience, payroll and accounting are typically awarded to one contractor. There are numerous service providers in the market. Local firms generally offer lower pricing but might be a bit more difficult to work with. International companies are often more expensive but are usually able to better accommodate their clientele from abroad. Investors may ask their lawyers for advise on payroll and accounting providers.
Please consider this information without liability for any data with respect to content, completeness or up-to-datedness. For legally valid information you should turn to a lawyer.
Further information can be obtained from the following sources: