An expatriate director’s salary is usually the largest personnel cost of an FDI enterprise, and the first item the tax authority examines at finalisation: a missing work permit, an unclear contract, or salary routed through the parent without a secondment file can get the entire cost disallowed. This article sets out the conditions for the salary to stand, and how to handle each typical disallowance situation.
Conditions for an expat director’s salary to be deductible
The general principle of the Corporate Income Tax Law 67/2025/QH15: a cost is deductible when actually incurred for production and business activities, supported by invoices and documents and — above the prescribed threshold — paid by non-cash means. Applied to an expat director’s salary, the enterprise must prove four layers: a valid employment or appointment relationship (labour contract, appointment decision, charter and business registration recording the title); actual work (job description, evidence of management); actual payment through the bank; and full personal income tax finalisation for that individual in Vietnam.
One disallowance ground to know in advance: salary of a private business owner and of members or founders who do not directly participate in running production and business sits in the non-deductible group. Where the director is also a shareholder or member, the file must therefore show the actual executive role clearly — appointment decision, duty assignment, governance traces — to separate a lawful executive salary from what is in substance a distribution of profit to the owner.
Missing work permits and salary routed through the parent
A foreign employee working in Vietnam must hold a work permit or fall within a category not subject to a work permit under Decree 219/2025/ND-CP (replacing Decree 152/2020/ND-CP from 7 August 2025), save for exemptions under treaties and sector rules. Without a permit, the enterprise faces two stacked risk layers: administrative penalties in the labour field under Decree 283/2026/ND-CP, and the tax authority disallowing the salary on the argument that the cost is unlawful and fails the deductibility conditions. In finalisation practice this is the most frequently used disallowance ground for the director position, because appointments often precede completion of the labour file.
Where the parent company pays the salary and recharges it through internal invoices, the risk is classification of the recharge: if the Vietnamese company holds the labour contract and the parent merely pays on its behalf, there must be a pay-on-behalf agreement and transfer records matching each payroll period. If in substance the parent supplies personnel with management services, the recharge is examined as service income of a foreign contractor — 5% VAT under the Circular 103/2014 framework and 5% corporate tax under Decree 320/2025/ND-CP — and the cost is deductible only when the related-party file and actual benefit are proven. Mixing the two natures in a single recharge invoice is the fastest way to lose the whole amount.
Conclusion and the defensive dossier
The enterprise should keep a dedicated file for the expat director position: appointment decision and title registration, labour contract, work permit or confirmation of non-requirement, payroll and bank payment records, PIT withholding returns and annual finalisation, plus the secondment or pay-on-behalf agreement if salary runs through the parent. Reconciling these four document layers once before finalisation costs far less than explaining after the cost has been disallowed and late-payment interest has started to run.
Frequently asked questions
1. What conditions must be met for the director’s salary to be deductible?
Four core conditions: a valid employment or appointment relationship with the title recorded in the enterprise’s legal documents; the foreign employee holding a work permit or falling within a non-permit category under Decree 219/2025/ND-CP; salary actually paid through the bank per the payroll registered in the regulations or contract; and the enterprise having withheld and finalised personal income tax in full on this income. Missing any one of the four layers gives the tax authority grounds to disallow part or all of the cost at finalisation.
2. Does a missing work permit get the cost disallowed?
The risk is high. A missing work permit does not automatically mean disallowance in every case, but in finalisation practice it is the most common disallowance ground for foreign employees’ salary, because the tax authority argues that pay for labour not lawfully entitled to work fails the lawful-cost condition. Beyond the tax risk, the enterprise faces labour administrative penalties under Decree 283/2026/ND-CP. If the director falls within a permit exemption (for instance short-term work in the statutory cases), the exemption confirmation file must be made and retained to present instead of a permit.
3. Is salary paid through the parent company deductible?
Only where the structure makes the payment’s nature clear. If the director holds a labour contract with the Vietnamese company and the parent merely pays on its behalf, there must be a pay-on-behalf agreement, a period-by-period schedule and matching transfer records — the cost is then the Vietnamese company’s salary. If in substance the parent seconds personnel with management services, the recharge is treated as income of a foreign contractor, subject to contractor tax withholding (5% VAT, 5% service corporate tax) and deductible only when the actual service and a reasonable price are proven through the transfer pricing file. Lumping everything into one generic internal fee line is the error that gets the whole amount disallowed.
4. What dossier should be prepared?
The dossier comprises: the appointment decision, charter and enterprise registration certificate showing the title; the labour contract and job description; the work permit or the file confirming the position is not subject to a permit; salary regulations, payrolls and bank payment vouchers; PIT withholding returns, payment receipts and the individual’s annual finalisation; and, where the parent is involved, the secondment contract or pay-on-behalf agreement and recharge invoices detailed by component. Assemble this file by fiscal year; do not wait for an audit notice to start collecting it.
This article has been quality-reviewed by the FLAW AI Legal Council