Each year the Vietnamese subsidiary pays its parent 2–3% of revenue as “management fees” — but when auditors ask “what exactly were the services?”, no answer comes. Result: the entire fee disallowed as deductible.
Conditions for deductible management fees
Under CIT Law 67/2025/QH15, deductible expenses must simultaneously: be actually incurred for production/business; carry proper invoices and documents; and be paid cashless (for amounts from VND 5 million). For parent-company fees, auditors add further tests: were real services rendered, is the allocation method reasonable, and did the subsidiary receive commensurate economic benefit?
Red flags for disallowance on audit
- Only a generic framework agreement/invoice (“management service agreement”) with no work reports, timesheets or deliverables.
- Fees as a fixed % of revenue regardless of actual services.
- Shareholder activities (investment oversight, parent-board reporting) — not services to the subsidiary.
- Duplication with the subsidiary’s own staff/service costs (e.g. own CFO plus parent “financial advisory” fees).
- No proven benefit: the subsidiary neither used nor needed the service.
Building a defensible fee file
Itemized service contracts; periodic work reports with performance evidence; grounded cost-allocation keys (revenue, headcount, time…); run the benefit test: each fee mapped to a concrete benefit. Fees that cannot be defended should be voluntarily disallowed at finalization rather than disallowed with fines later.
Frequently Asked Questions
Are parent management fees subject to contractor tax?
Yes. Service fees to foreign organizations attract foreign contractor tax (withheld VAT + CIT) — a withholding risk on top of the disallowance risk.
Parent-seconded staff — how are related costs treated?
Secondments are booked by nature: salary and secondment costs — with clear secondment contracts and documents, not lumped into generic 'management fees'.
Fees disallowed last year — how to deduct this year?
Rebuild the service file from year-start: detailed contracts, work acceptance, benefit proof. Last year's thin file cannot carry this year.
This article has been quality-reviewed by the FLAW AI Legal Council
Related articles
- FDI Capital Transfer in Vietnam: When Tax Authorities Reassess the Price
- Vietnam: Processing Duty Exemption Revoked Over Norm Violations
- Customs Price Consultation in Vietnam: Defending Your Declared Value
- Wrong HS Code in Vietnam: Import Tax Gaps and Who Is Liable
- VAT on On-the-Spot Imports in Vietnam: Reassessment After Inspection