When a Vietnamese subsidiary pays its overseas parent or another group company for management services, the use of a brand or technology, or interest on a loan, the payment is generally subject to foreign contractor tax (FCT), withheld by the subsidiary. Being in the same group does not change the regime. What changes is the scrutiny: intercompany payments are also tested under the related-party rules, and a payment that fails either test can be both taxed through FCT and disallowed as an expense.
That double exposure is why group charges deserve a different routine from ordinary supplier invoices. This guide takes the three most common flows — management and service fees, royalties, and interest — and sets out for each how FCT applies in principle, what makes the expense defensible and where the paperwork usually fails.
The rules in play
Three sets of rules meet on an intercompany payment. The FCT regime collects VAT and CIT from the foreign recipient, with the CIT component under Law 67/2025/QH15 and the VAT component under Law 48/2024/QH15, and procedures under the Law on Tax Administration (Law 38/2019/QH14) and its 2026 guidance (Decree 252/2026/NĐ-CP, Circular 89/2026/TT-BTC). The deductibility of the expense in the subsidiary's own CIT return follows the new CIT law. And the pricing of the transaction follows the related-party framework, now under Decree 255/2026/NĐ-CP on tax administration for enterprises with related-party transactions, in effect from 1 July 2026.
We name the 2026 decree so you know where to look; we do not summarise its articles. If the group's transfer pricing documentation was drafted under the previous framework, have it reviewed against the new decree before the next filing season. Where a double tax treaty applies, it may reduce the CIT component on royalties or interest — but only through the treaty notification procedure, covered in our tax treaties section.
Management and service fees
Fees for group management, shared IT, finance, HR, procurement or regional support services are payments for services supplied from abroad and used in Vietnam. Both FCT components usually apply, at the percentages set for services in the current guidance.
The harder question is deductibility. Tax auditors apply what is often called a benefit test: did the Vietnamese company actually receive a service, did it need that service, would an independent company have paid for it, and is it not simply a shareholder activity of the parent — such as preparing group consolidated accounts or managing the parent's own investors? Costs of that last kind belong to the parent and are not deductible in Vietnam, however they are invoiced.
Evidence that holds up:
- A written agreement signed before the services started, describing each service.
- An allocation key that can be explained — headcount, revenue, users, hours — and applied consistently.
- Records of what was delivered: reports, system access logs, meeting minutes, named people who provided support.
- A check that the same service is not also performed, and paid for, locally.
Royalties and licence fees
Payments for the right to use a trademark, patent, technology, know-how or software are royalties for FCT purposes. The CIT component applies at the percentage set for royalties. On the VAT side, certain transfers of technology and intellectual property rights, and some software, may fall outside VAT or be non-taxable; whether your specific payment does depends on what is being licensed and how the current VAT law and guidance describe it. Do not assume that "licence" on an invoice settles the question in either direction.
Deductibility turns on use and substance. A royalty for a brand the Vietnamese company does not actually use in its sales, or for technology it does not apply in production, is hard to defend. So is a royalty calculated on revenue that includes sales of goods bought from the same group and resold without any added contribution of the licensed rights. Technology transfer contracts may also have registration or notification requirements under technology transfer law; check whether yours does, because a missing registration can undermine the deduction.
Interest on group loans
Interest paid to a foreign parent or group finance company is subject to the CIT component of FCT. Lending is generally outside the scope of VAT, so the VAT component usually does not arise on interest, but confirm this for the particular arrangement, especially where fees are charged alongside interest.
Three further points matter for foreign-invested enterprises:
- Related-party interest cap. The related-party rules cap the deductible interest expense of a company with related-party transactions by reference to a measure of its earnings. Interest above the cap is not deductible, even if FCT was withheld correctly. Check the current cap and any carry-forward rule in the related-party regulations in force.
- Foreign exchange rules. Offshore loans to Vietnamese enterprises are subject to foreign exchange management rules of the State Bank of Vietnam, including registration requirements for certain loans. Tax and foreign exchange compliance are checked separately; a gap in one weakens the position on the other.
- Capital versus loan. Where a parent funds the subsidiary with loans that behave like capital — never repaid, rolled over indefinitely, interest accrued but not paid — expect questions on whether the interest is an arm's-length cost at all.
Reimbursements and seconded staff
Two flows are often left out of the FCT review because they do not look like fees. The first is reimbursement of costs the parent paid on the subsidiary's behalf — travel, software seats bought centrally, insurance premiums. A pure pass-through at cost, backed by the third-party invoices, is treated differently from a service; a "reimbursement" that includes a margin, or that covers the parent's own staff time, is a service charge and should be classified as one.
The second is seconded employees. When the parent sends staff to work in Vietnam and recharges their salary cost, the recharge may be a payment for services to a foreign contractor, and the employees themselves may be taxable in Vietnam on their employment income. Whether the arrangement is a secondment where the Vietnamese company is the real employer, or a service provided by the parent, depends on the contracts and on who directs and bears the risk of the work. Settle this before the first recharge, because it affects FCT, personal income tax and possibly the parent's permanent establishment position at the same time.
One payment, three tests
| Payment | FCT in principle | Deductibility focus | Transfer pricing focus |
|---|---|---|---|
| Management or service fee | VAT and CIT at service percentages | Benefit test, no shareholder activity, evidence of delivery | Cost base, mark-up and allocation key |
| Royalty or licence fee | CIT at royalty percentage; VAT depends on the item | Actual use of the rights in Vietnam | Royalty rate and base against comparables |
| Interest | CIT; VAT generally not applicable to lending | Related-party interest cap | Interest rate and terms against market |
Hypothetical example. Suppose a Vietnamese distributor pays its regional headquarters an annual "support fee" calculated as a fixed share of Vietnamese revenue, invoiced once in December with the description "regional services". The subsidiary withholds FCT at the service percentages and pays it. In an audit, the tax office asks what services were received. The subsidiary has the invoice and the FCT return, but no agreement describing the services, no allocation key and no record of delivery. The FCT was paid, yet the expense is disallowed — and the tax paid on the fee does not come back.
A routine for the finance team, and where to check
- Map every flow. List all payments to group companies abroad by type, contract and recipient jurisdiction; keep it updated when agreements change.
- Classify before paying. Decide whether each payment is a service, a royalty, interest or a reimbursement at cost, and document the reason.
- Withhold in the same cycle. Declare FCT when the payment is made or the balance is netted, not at year end.
- Claim treaty relief properly. If the recipient is resident in a treaty country, prepare the notification file with a residence certificate for the right year before relying on a reduced CIT component.
- Tie it to the local file. The transfer pricing documentation should describe the same transactions, at the same amounts, as the accounts and the FCT returns.
To see what the tax authority holds, open the company's e-tax account and check that every FCT return on intercompany payments has a matching payment recorded. The taxpayer information lookup shows the managing tax office — since 1 July 2025 one of the provincial or grassroots offices in the three-tier structure across 34 provinces and cities — which is where related-party questions will come from.
Frequently asked questions
Are payments to our own parent company really subject to FCT?
Generally yes. FCT applies to income a foreign party earns from Vietnam under a contract, and a parent company is a foreign party for this purpose. Group membership affects the transfer pricing review, not the FCT scope.
If we withheld FCT correctly, is the expense automatically deductible?
No. FCT compliance and deductibility are separate tests. A management fee can be fully taxed through FCT and still be disallowed if the benefit test or transfer pricing rules are not met.
Is VAT charged on royalties?
It depends on what is licensed. Some technology and intellectual property transfers and some software may be outside VAT or non-taxable. Check the current VAT law for the specific item rather than relying on the invoice label.
Does FCT apply to dividends we remit to the parent?
Remitting after-tax profits to a foreign owner is a distribution, not a payment to a foreign contractor. Separate rules govern profit remittance; check them and your investment registration before transferring.
Can a treaty remove FCT on interest or royalties?
A treaty may reduce the CIT component on these flows, depending on its terms and the recipient's status as beneficial owner. It applies only through the notification procedure with a valid residence certificate.
What is the first thing an auditor asks about a management fee?
Usually: what service was received, and how do you know? An agreement, an allocation key and records of delivery answer it; an invoice alone does not.
