Ms. Hanh’s company makes electronic components in Bac Ninh, with customers across Thailand, Malaysia and Indonesia. Her logistics partner suggests: “Set up a hub in Singapore — faster delivery everywhere, cleaner payments.” She wonders: is adding a Singapore company purely as a middleman worth it, and how is it taxed? This regional distribution puzzle faces hundreds of Vietnam-based manufacturers.
Four models, four degrees of “needing a hub”
| Model | Essence | Best fit |
|---|---|---|
| Direct export | The Vietnamese company sells straight to customers in each country | Few customers, large orders, no regional warehouse needed |
| Singapore principal | The Singapore company buys from Vietnam and resells region-wide, bearing inventory and credit risk | Need for a finance centre, centralised risk management, regional price negotiation |
| Limited-risk distributor (LRD) | The Singapore company only distributes; key risks stay with the Vietnamese principal, earning a stable low margin | Want a Singapore commercial presence while keeping control and main profits in Vietnam |
| Agent / service hub | The Singapore company handles logistics and marketing support for a service fee | Need warehousing and fast delivery without transferring goods ownership |
The tax lens: every model must answer three questions
One — does profit allocation match substance? Decree 255/2026/ND-CP (effective 1 July 2026) requires related-party pricing to follow the arm’s length principle, allocated by functions, assets and risks. If the Singapore company merely re-signs orders — no inventory risk, no pricing power — yet earns a principal’s margin, both countries’ tax authorities have grounds to adjust. Whichever model is chosen, contracts, people and cash flows must match it.
Two — cross-border service fees attract contractor tax. If the Singapore company charges the Vietnamese company logistics or marketing fees, those fees face foreign contractor tax: 5% CIT on taxable revenue for services under Decree 320/2025/ND-CP (the new framework replacing the CIT part of Circular 103/2014 from 12 March 2026 via Circular 20/2026/TT-BTC), plus VAT under VAT Law 48/2024. One miscalculated line wipes out the hub’s entire margin.
Three — does the tax treaty cover it? The Vietnam–Singapore double tax agreement (signed 2 March 1994, in force 9 September 1994, MLI-updated from 1 September 2023) allocates taxing rights over business profits and other income — but it does not remove Vietnamese filing duties. Businesses must still determine permanent establishment and tax obligations in each country.
The commercial lens: what a Singapore hub gives beyond tax
The legitimate reasons for a hub are rarely tax: the port and bonded-warehouse system, multi-currency settlement capability, a contract law framework international partners trust, and a time zone bridging Asia and Europe. For high-value electronics, cutting delivery by two days can outweigh any tax optimisation.
A decision framework for one meeting
Answer four questions: (1) Do customers require delivery from a regional warehouse, or accept shipment from Vietnam? (2) Who bears inventory and credit risk — if Vietnam does, an LRD or agent model suffices; do not build a fake principal; (3) Have cross-border service fees been modelled with contractor tax? (4) What real work does the Singapore team do — if the answer is “nobody yet”, the hub is pure cost.
Frequently asked questions
Can a Vietnamese company distribute goods abroad directly?
Yes, within its export rights under the investment registration certificate and consistent with WTO commitments and the Investment Law 143/2025 (effective 1 March 2026). The question is not permission but which model optimises tax and operations.
Is an LRD model treated as transfer pricing abuse?
Not automatically. An LRD is legitimate where the distributor’s margin matches its limited functions and low risk, supported by independent comparables under Decree 255/2026.
Does the Singapore hub pay tax in Vietnam?
It depends on actual activity. If the hub has a permanent establishment or derives Vietnam-source income (e.g., services to the Vietnamese company), that income is taxable in Vietnam under domestic law and the treaty — analyse each revenue line.
How often should the distribution model be reviewed?
At every major change: new markets, a shift in who bears inventory risk, or tax policy changes (like the new 2026 contractor tax framework). An annual review alongside transfer pricing documentation is a sensible rhythm.
FLAT Law Firm designs regional distribution models for Vietnam-based manufacturers: comparing principal, LRD and agent structures, modelling contractor tax and preparing transfer pricing files under Decree 255/2026. Contact us to model your option.
This article has been quality-reviewed by the FLAW AI Legal Council