Permanent establishment in Vietnam: when a foreign company's activities create a taxable presence

A foreign company has a permanent establishment (PE, in Vietnamese cơ sở thường trú) in Vietnam when it carries on business through a fixed place in Vietnam, runs a construction or installation project here beyond the relevant duration, provides services through staff present in Vietnam beyond the relevant period, or acts through a person in Vietnam who habitually concludes contracts in its name. When a PE exists, Vietnam may tax the profits attributable to it, not just a withholding on each payment.

Both Vietnamese domestic law and each tax treaty define a PE, and where a treaty applies its definition limits the domestic one. The exact thresholds — how long a project or a service team must be present — vary between treaties and must be read in the specific text. This guide explains the tests in principle, the situations in which foreign companies most often create a PE without intending to, and the steps that keep the position under control.

Why the question matters

Without a PE, a foreign company earning income from Vietnam is usually taxed through foreign contractor tax: a CIT component on gross revenue, withheld by the Vietnamese customer, which a treaty may reduce or remove for business profits. With a PE, the analysis changes. Profits attributable to the PE are taxable in Vietnam, the business profits article of a treaty no longer shelters them, and the foreign company may have registration, bookkeeping and filing obligations of its own.

The CIT rules follow Law 67/2025/QH15, applied from the 2025 tax year, which includes a definition of permanent establishment for foreign enterprises. Procedures follow the Law on Tax Administration (Law 38/2019/QH14) and its 2026 guidance (Decree 252/2026/NĐ-CP, Circular 89/2026/TT-BTC). Where a treaty applies, its PE article sets the outer limit.

Four ways a PE arises

Treaties typically exclude activities of a preparatory or auxiliary character — storage, display, purchasing, collecting information — and independent agents acting in the ordinary course of their own business. Whether an activity is truly auxiliary depends on its role in the company's overall business, not on the label given to the office.

Situations that create a PE without anyone intending it

• The representative office that does more than represent. A foreign company's representative office in Vietnam is licensed for liaison and market research, not for business. If its staff negotiate prices, sign contracts or manage customers, the office may be a PE in substance, whatever its licence says.
• Project teams that stay. A commissioning team, a supervision team or a maintenance crew whose visits add up across the project may pass the treaty's duration test, especially where several contracts are in fact one project.
• Service consultants on repeated visits. A consulting firm sending staff for many short trips to the same client can reach the service threshold without anyone noticing, because each trip looks short.
• Local "coordinators". An individual in Vietnam, hired as a consultant or seconded from the group, who in practice negotiates and closes sales for the foreign company can be a dependent agent.
• Remote workers. An employee of a foreign company who moves to Vietnam and works from home for its regional business raises PE questions if the home becomes, in substance, a place through which the business is carried on, particularly for senior staff who sign contracts.

What follows if a PE exists

If the tax office concludes that a foreign company has a PE, three things usually follow. First, Vietnam may tax the profits attributable to the PE, which requires a basis for measuring them — either books kept in Vietnam or a method the tax office accepts. Second, the foreign company may need to register for tax, file returns and keep records, possibly for several past years. Third, amounts already withheld as foreign contractor tax on payments to the company have to be reconciled with the PE assessment, to avoid tax being counted twice or not at all.

A PE also has consequences outside Vietnam. The foreign company's home jurisdiction will have to give relief for the Vietnamese tax under the treaty's elimination article, and disputes about how much profit belongs to the PE are a typical case for the mutual agreement procedure.

Late-payment interest runs on tax assessed for past periods — long calculated at 0.03% per day on the amount paid late; check the rate in force. The earlier the question is examined, the smaller the exposure.

When a PE is the plan rather than the risk

Not every PE is an accident. A foreign contractor that registers a project office in Vietnam for a long construction contract, or a foreign bank or law firm operating through a licensed branch, has a PE by design. In those cases the questions shift from "do we have one?" to "how are its profits measured and reported?"

• Which revenue and costs belong to the Vietnamese PE, and which to head office.
• How head office charges to the PE are documented, since they are scrutinised in the same way as intercompany charges.
• Whether the contractor uses the declaration or hybrid method for foreign contractor tax, and how that interacts with PE accounting.
• How the registration will be closed when the project ends, so that no tax code is left open without anyone responsible for it.

Planning these points at the start costs far less than reconstructing them after an audit notice.

A worked example

Hypothetical example. Suppose a foreign machinery maker sells a production line to a Vietnamese manufacturer under one contract for the equipment and a separate contract for supervising installation and commissioning. Its engineers are on site in several visits over many months. The Vietnamese buyer withholds foreign contractor tax on the supervision fee and, relying on the treaty's business profits article, lodges a notification for relief.

The claim depends on whether the supervision activity is a PE under the treaty. That turns on the treaty's construction or services clause, how the treaty counts time, whether the two contracts are treated as one project, and how long the engineers were actually present. If the threshold is passed, the business profits article no longer shelters the income attributable to the PE. The buyer, which filed the notification, should have checked the site records before relying on the exemption — and should build a record of days on site into the contract from the start.

Managing the risk before it arises

1. Map presence. For each foreign group company or supplier active in Vietnam, record who is present, for how long, doing what, under which contract.
2. Read the treaty clause. Identify the construction and services thresholds and how the treaty counts time for the jurisdiction concerned.
3. Keep authority where it belongs. People in Vietnam who are not employees of a Vietnamese entity should not negotiate or conclude contracts for a foreign company unless a PE is intended and managed.
4. Align the representative office with its licence. If the business needs local selling, consider whether a Vietnamese entity or a branch is the right vehicle rather than stretching the representative office.
5. Keep evidence. Travel logs, site sign-in records and job descriptions are what an auditor will ask for; they are hard to rebuild years later.

Where to check

The treaty text for the jurisdiction concerned, published by the Ministry of Finance and the tax authority, gives the PE definition and thresholds. For a foreign company that is registered in Vietnam, the taxpayer information lookup shows its registration status and managing tax office. For the Vietnamese customer, the company's e-tax account shows the foreign contractor tax returns filed on payments to the foreign party, which should be consistent with whatever position is taken on the PE. Since 1 July 2025 the tax administration works in three tiers across 34 provinces and centrally run cities; confirm the managing office before corresponding.