Vietnam’s rapid integration into global supply chains has made it a premier destination for foreign direct investment. As Vietnam enters 2026, the implementation of the Law on Investment 2025, the global minimum tax, and significant adjustments to the tax incentive regime are reshaping the investment and tax landscape. Against this backdrop, foreign investors should carefully manage the following key areas of tax exposure:
Permanent establishment (PE) risk;
Foreign contractor tax (FCT);
Transfer pricing (TP) regulations; and
Exit/capital assignment taxation.
Permanent establishment risk
PE risk in Vietnam is primarily determined under Vietnam’s tax regulations. Under the applicable tax framework, the provision of services in Vietnam, including consulting services, through employees or other personnel may give rise to a service PE.
Unlike certain double taxation agreements (DTAs), which may provide a 183-day threshold or other safe harbour for determining a service PE, Vietnam’s domestic tax regulations do not generally provide for an equivalent minimum time threshold. Where no applicable and effective DTA is in force – as is the case for US-based investors, since no bilateral tax treaty currently exists between the US and Vietnam – a service PE can potentially be triggered on the commencement of activities in Vietnam, regardless of duration.
Foreign contractor tax
For cross-border commercial engagements that lack a physical establishment, the FCT is the primary withholding regime, combining corporate income tax (CIT) and value added tax (VAT) components. Under the deemed direct method:
Standard goods supplied together with local delivery services attract a combined FCT rate of 2% (1% VAT plus 1% CIT);
Cross-border loan interest attracts 5% CIT, with VAT exempted;
General services attract an effective combined rate of 10% (5% VAT and 5% CIT); and
Royalty and licensing fees incur a flat 10% CIT, again with VAT exempted.
Under Circular No. 69/2025/TT-BTC, effective from July 1 2025, the VAT component of FCT is determined based on the specific nature of the goods or services supplied. In particular, certain digital services and services provided via e-commerce platforms may be subject to a 10% VAT rate. Therefore, where the relevant digital service falls within the 10% VAT category and is subject to the 5% CIT rate, the combined FCT rate would be 15%. The applicable rate should, however, be determined on a case-by-case basis according to the specific nature of the transaction.
Transfer pricing regulations
Vietnamese TP regulations strictly enforce arm’s-length standards and related-party definitions. Pursuant to Decree No. 255/2026/ND-CP, while certain debt-financing relationships may trigger related-party status (such as when loans exceed 25% of equity and 50% of medium/long-term debt), independent credit institutions acting purely as lenders or guarantors are now explicitly exempted from this rule. In terms of compliance, taxpayers must submit transfer pricing disclosure forms (specifically, Appendix I, II, and III) contemporaneously with their annual CIT finalisation filings. However, the three-tier TP documentation comprising the local file, master file, and country-by-country report is not automatically submitted with the CIT return; rather, it must be prepared and retained by the taxpayer prior to the CIT finalisation deadline and presented to the tax authorities upon written request.
Exit/capital assignment taxation
Foreign corporate sellers transferring capital or equity in a Vietnamese entity (whether directly or indirectly) are no longer subject to a tax on net capital gains. Vietnam has transitioned to a flat CIT of 2% calculated on the gross transfer proceeds, regardless of whether the transaction results in a profit or a loss. Furthermore, this 2% gross tax explicitly extends to indirect capital transfers involving offshore holding companies with underlying Vietnamese assets, although there is a notable safe harbour available for qualified internal corporate reorganisations that meet strict non-ownership-change and net-value criteria.
Final thoughts
Vietnam’s evolving tax framework marks a decisive shift towards gross-basis withholding and rigorous compliance management. With domestic rules eliminating the temporal safe harbour for service PEs, non-DTA foreign investors face immediate local tax exposure the moment they begin service activities in Vietnam. At the same time, heightened withholding on digital and software-as-a-service business models, combined with a mandatory flat 2% tax on gross proceeds from both direct and indirect capital transfers, underscores the need for upfront contract and transaction design.
To protect investment returns and avoid costly tax disputes, foreign investors should proactively align their cross-border commercial terms, ensure transfer pricing documentation is prepared contemporaneously, and test any restructuring route against the statutory safe harbour conditions before executing a transaction.
