Scenario: Parent Company Charges Management Fees — Is Foreign Contractor Tax Due?

Company V is a 100% foreign-owned FDI enterprise operating a factory in Binh Duong. Every quarter, its Singapore parent sends across a document headed "management fee" — charges for group management services: strategic planning, finance and accounting support, senior-level human resources management, and in-house legal counsel. At year-end, Company V's chief accountant asks two questions that sound simple but are anything but: when remitting the management fees, must the company withhold foreign contractor tax (FCT) on behalf of the parent, and may the fees be treated as deductible expenses in the corporate income tax (CIT) finalization?

The short answer: to the first question, in most real-world cases yes — management fees paid to a foreign parent company are subject to FCT at a combined rate of 10% (5% value-added tax plus 5% CIT). But the withholding obligation is only half the story. The other half — and the ground where FDI enterprises most often fall during tax audits and inspections — is the second question: whether the management fee survives the tests of expense reasonableness and related-party transfer pricing. This article follows a management fee through its entire life cycle, from the moment it arises to finalization, under the legal framework in force as of late September 2026.

1. Why Parent-Company Management Fees Are Usually Caught by Foreign Contractor Tax

Foreign contractor tax applies to income earned by foreign organizations and individuals that do business in Vietnam or earn income arising in Vietnam under contracts or agreements with Vietnamese organizations or individuals. Management fees that a parent company charges its Vietnamese subsidiary are service income arising in Vietnam and therefore fall, as a matter of principle, within the scope of FCT.

The current legal basis to remember is the new framework in place from 2026. This obligation used to be guided by Circular 103/2014/TT-BTC (Thông tư 103/2014/TT-BTC), but that instrument has expired: its provisions on CIT for foreign contractors were abolished with effect from 12 March 2026 by Circular 20/2026/TT-BTC (Thông tư 20/2026/TT-BTC), and the entire Circular 103/2014 was abolished with effect from 1 July 2026 by Circular 89/2026/TT-BTC (Thông tư 89/2026/TT-BTC). Today, CIT for foreign contractors is governed by Article 12(3) of Decree 320/2025/ND-CP (khoản 3 Điều 12 Nghị định 320/2025/ND-CP) and Article 7 of Circular 20/2026/TT-BTC (Điều 7 Thông tư 20/2026/TT-BTC), while tax administration procedures follow Circular 89/2026/TT-BTC. Businesses relying on the old texts for the 2026 tax year will cite the wrong basis.

The only way out of the FCT net is for the services to be performed and consumed entirely outside Vietnam. For management fees, this argument almost never holds in practice, because the direct beneficiary of management services is the subsidiary operating in Vietnam. The tax authority looks at substance: whoever enjoys the economic benefit of the services is treated as the place of consumption.

2. Current Rates: 5% Value-Added Tax Plus 5% Corporate Income Tax

Management fees fall into the ordinary-services group, with two taxes withheld at source. On value-added tax, the deemed VAT rate for services of foreign contractors is 5% under Decree 181/2025/ND-CP (Nghị định 181/2025/ND-CP) guiding the Law on Value-Added Tax 2024 (Luật Thuế giá trị gia tăng 2024). On CIT, the rate is 5% of taxable revenue under Article 12(3) of Decree 320/2025/ND-CP and Article 7 of Circular 20/2026/TT-BTC. Combined, every dong of management fees paid to the parent carries 10% foreign contractor tax.

One classification caveat applies. If the "management fee" in the contract in substance includes royalties or license fees for the use of the group's trademarks, software, or technical know-how, that portion may be carved out and subjected to 10% CIT while being exempt from VAT. Likewise, restaurant, hotel, and casino management services carry CIT of up to 10%. How the fee is named in the contract and how the work is described therefore directly affects the applicable rate — this is not a matter of wording alone.

On taxable revenue, Circular 20/2026/TT-BTC provides that CIT taxable revenue is the entire revenue the foreign contractor receives, before deducting payable taxes, including any costs borne by the Vietnamese party. This differs from the old rule under Circular 103/2014, so businesses cannot carry the computation method of previous years straight into 2026.

An illustration: Company V pays management fees of VND 1 billion per quarter on a tax-inclusive (gross) price basis. The VAT to be paid on its behalf is VND 1 billion × 5% = VND 50 million; the CIT to be paid on its behalf is VND 1 billion × 5% = VND 50 million. Total tax withheld each quarter is VND 100 million, and the parent company actually receives VND 900 million. Where the contract states a tax-exclusive (net) price of VND 1 billion with the Vietnamese party bearing all taxes in its place, taxable revenue is grossed up to VND 1 billion ÷ 0.9 ≈ VND 1.111 billion, yielding each tax of approximately VND 55.6 million.

3. Who Withholds, When, and How to File

The Vietnamese party — the subsidiary paying the management fees — bears the obligation to withhold foreign contractor tax before remitting funds abroad. The withholding point is the moment of payment to the parent. This is a duty of the payer, not a voluntary one: if the full amount is remitted without withholding, the tax authority will assess the tax that should have been withheld, plus late-payment interest, against the subsidiary itself.

On filing, from 1 July 2026 FCT returns follow the form system in Appendix I of Circular 89/2026/TT-BTC (Phụ lục I Thông tư 89/2026/TT-BTC), which includes the foreign-contractor return forms. Businesses must register the FCT obligation and file returns for each payment event or by period, depending on the method applied. Step-by-step filing is covered in a separate procedural checklist, which businesses may consult to make sure no form or deadline is missed.

Two financial consequences of the tax paid on behalf of the contractor also need correct treatment. On VAT, the tax paid on behalf of the foreign contractor may in principle be declared and credited as input VAT where a tax payment voucher exists and the crediting conditions under VAT law are met. On CIT, the tax paid in place of the contractor counts as a deductible expense in determining taxable income where the contract provides that the foreign contractor's revenue excludes CIT — that is, the net-price case where the Vietnamese party bears the tax. Conversely, where the contract already states a tax-inclusive price, the tax paid on behalf is treated as part of the service price and may not be deducted a second time. This principle is reflected in the non-deductible-expense rules of Decree 320/2025/ND-CP, and businesses should state the net-or-gross price term expressly in the contract with the parent.

4. Is the Management Fee Deductible in the Subsidiary's CIT Computation?

This is the front where many FDI enterprises lose during tax audits, even where foreign contractor tax was withheld in full. Article 9 of the Law on Corporate Income Tax 2025 (Điều 9 Luật Thuế thu nhập doanh nghiệp 2025) requires deductible expenses to be actually incurred, related to the enterprise's business operations, and supported by sufficient invoices, documents, and non-cash payment vouchers as prescribed. Decree 320/2025/ND-CP provides the details, including the current non-cash payment threshold of VND 5 million or more per purchase of goods or services.

For intra-group management fees, the "related to business operations" condition is interpreted very strictly by tax authorities through the benefit test. The tax authority will ask: what services did the parent actually provide, with what resources, and what specific economic benefit did the Vietnamese subsidiary receive? A fee allocated under the group's internal formula, unlinked to specific work and unable to demonstrate benefit, faces a very high risk of being disallowed. Audit practice shows tax authorities typically strike out fees where the parent cannot show personnel, time, and expertise commensurate with the amount charged.

For a management fee to stand, the file must answer four questions. First, were the services real: a service contract describing the scope of work, term, fee calculation method, and payment periods. Second, were the services performed: work reports, expert timesheets, meeting minutes, email exchanges, and delivered advisory documents. Third, did the subsidiary benefit: the benefit must be specific and tied to operations in Vietnam — for example, an internal control system actually implemented, a recruitment process demonstrably improved — not general statements about "strategic support." Fourth, is the fee reasonable: the allocation methodology must have an economic basis, such as allocation by revenue, headcount, or each member company's actual use of the services, supported by a comparability analysis against equivalent independent transactions.

A parent company and its subsidiary are plainly related, so the management fee is a related-party transaction governed by the framework on tax administration of related-party transactions. From 1 July 2026, Decree 255/2026/ND-CP (Nghị định 255/2026/ND-CP) replaces Decree 132/2020/ND-CP (Nghị định 132/2020/ND-CP), taking effect from 1 July 2026 and applying from the 2026 CIT year. Citing Decree 132/2020 for the 2026 tax year means citing an expired instrument.

The thread running through this framework is that related-party pricing must follow the arm's-length principle, and the substance of the transaction determines tax obligations — not the form of the contract. Applied to management fees, this means the tax authority may look through the contract to assess: whether the parent performed business activities commensurate with the fees received; whether the asset scale, headcount, and functions of the service provider are commensurate; and whether the subsidiary received benefit and economic value from the expense. A negative answer may see the corresponding expense disallowed in determining taxable income.

Enterprises with related-party transactions must also prepare and retain transfer pricing documentation (Hồ sơ xác định giá giao dịch liên kết) as prescribed, comprising materials describing the group's pricing policy and an analysis of the Vietnamese entity's transactions. For management fees, the most important part of the file is the methodology for allocating the group's common service costs and evidence of the benefit the subsidiary received. Decree 255/2026/ND-CP is a new instrument, and detailed guidance and application practice continue to develop, so when preparing files for the 2026 tax year businesses should check the original text directly and track the latest guidance.

6. Can a Double Tax Agreement Reduce the 5% CIT?

If the parent company is a resident of a country that has signed a double tax agreement (DTA) with Vietnam, the 5% CIT portion of foreign contractor tax may be exempted or reduced. The basis for this is how treaties classify income: pure management fees are typically grouped with business profits, which under the common treaty model are taxable in Vietnam only where the foreign enterprise has a permanent establishment in Vietnam. A parent that merely provides management services remotely, with no regular presence in Vietnam, may meet this condition.

Three cautions are in order, however. First, treaty relief is not automatic: the enterprise must file a treaty exemption/reduction dossier with the tax authority together with the first tax filing, under Article 78 of Circular 89/2026/TT-BTC (Điều 78 Thông tư 89/2026/TT-BTC). The dossier comprises the request form 01/HTQT, a Certificate of Residence issued by the foreign tax authority with consular legalization, a certified copy of the contract, and a power of attorney if one is used. No filing, no relief — however eligible the case is in substance. Second, no two treaties are identical: some contain special articles on technical service fees or classify income differently from the common model, so the specific bilateral treaty between Vietnam and the parent's country of residence must be read. Third, a double tax agreement governs only income tax — the 5% VAT remains payable in full in all cases.

7. A Full-Lifecycle Checklist for One Management Fee

The eight items below follow the exact chronology of a management fee, each stating why it must be done, how, and the legal basis.

1. Sign a written management services contract before the fee arises. Why: the contract is the first evidence that the services are real and the basis for the tax authority to accept the expense. How: the contract describes the scope of work, completion standards, fee calculation method, payment periods, and the net-or-gross price term. Basis: the deductible-expense conditions in Article 9 of the Law on Corporate Income Tax 2025.

2. Collect evidence of performance and of benefit received. Why: this is what tax authorities examine most closely when auditing intra-group management fees. How: keep periodic work reports, expert timesheets, meeting minutes, email exchanges, and deliverables tied to the subsidiary's operations in Vietnam. Basis: the requirement that expenses relate to business operations and the benefit test in related-party tax administration.

3. Build and document the cost allocation methodology. Why: group management fees are typically common costs to be allocated, so the allocation key must be shown to have an economic basis. How: choose a key reflecting actual benefit — such as revenue, headcount, or operating expenses — and keep the group's allocation policy document. Basis: the arm's-length principle in related-party tax administration under Decree 255/2026/ND-CP.

4. Fix the net-or-gross price term in the contract. Why: this term determines how foreign contractor tax is computed and whether the CIT paid on behalf of the contractor is deductible. How: state in the contract that the parent's revenue excludes CIT where the Vietnamese party bears the tax. Basis: the taxable-revenue rule in Article 7 of Circular 20/2026/TT-BTC and the non-deductible-expense rules in Decree 320/2025/ND-CP.

5. Withhold foreign contractor tax before each payment and file on time. Why: the withholding obligation belongs to the Vietnamese party; failure to withhold still leads to assessment and late-payment interest. How: compute 5% VAT and 5% CIT on taxable revenue, and file the returns using the forms in Appendix I of Circular 89/2026/TT-BTC. Basis: Article 12(3) of Decree 320/2025/ND-CP, Decree 181/2025/ND-CP, and Circular 89/2026/TT-BTC.

6. Pay by non-cash means and keep complete vouchers. Why: without non-cash payment vouchers, an expense of VND 5 million or more may be disallowed. How: transfer each fee payment through a bank, keeping the remittance slips and the tax payment vouchers. Basis: Decree 320/2025/ND-CP guiding Article 9 of the Law on Corporate Income Tax 2025.

7. Review the availability of a double tax agreement. Why: it may save 5% CIT where the conditions are met, but the dossier must be filed with the very first tax filing. How: compare the bilateral treaty, obtain a Certificate of Residence with consular legalization, and prepare the dossier under Article 78 of Circular 89/2026/TT-BTC. Basis: the double tax agreement between Vietnam and the parent company's country of residence.

8. Prepare transfer pricing documentation for the tax year. Why: management fees are large related-party transactions and a priority audit target. How: prepare transfer pricing documentation focused on the reasonableness analysis of the fees and evidence of benefit. Basis: Decree 255/2026/ND-CP, effective from 1 July 2026 and applying from the 2026 CIT year.

8. Frequently Asked Questions

The parent only sends a year-end debit note, with no detailed services contract — what is at risk?

Short answer: A very high risk that the entire expense will be disallowed in the CIT finalization.

Legal basis: Article 9 of the Law on Corporate Income Tax 2025 requires deductible expenses to be actually incurred, related to business operations, and supported by sufficient invoices and documents.

Explanation: A debit note only proves money moved; it proves nothing about what services were provided or what benefit the subsidiary received. During an audit, the tax authority has grounds to treat it as an internal allocation conferring no real benefit.

What to do: supplement with a services contract describing the work in concrete terms, gather performance evidence during the year, and complete the file before the tax finalization.

May management fees be computed as a percentage of the subsidiary's revenue?

Short answer: It may be accepted, but its reasonableness under the arm's-length principle must be demonstrated.

Legal basis: The related-party pricing principle in Decree 255/2026/ND-CP and the deductible-expense conditions in Article 9 of the Law on Corporate Income Tax 2025.

Explanation: A revenue-percentage method is convenient for the group but is easily viewed by tax authorities as disguised profit distribution, especially where a uniform rate is applied to every member company without reflecting actual use of the services.

What to do: prepare a comparability analysis against equivalent independent transactions and record the basis for the chosen allocation key in the transfer pricing documentation.

The Singapore parent charges management fees — can CIT be exempted under the double tax agreement?

Short answer: It is possible, but not automatic, and a dossier must be filed.

Legal basis: The Vietnam–Singapore double tax agreement and Article 78 of Circular 89/2026/TT-BTC on treaty exemption/reduction dossiers.

Explanation: If the fees are classified as business profits and the parent has no permanent establishment in Vietnam, the 5% CIT may be exempted or reduced; however, the 5% VAT falls outside treaty coverage and remains payable.

What to do: compare the specific terms of the Vietnam–Singapore treaty, prepare a Certificate of Residence with consular legalization, and file the exemption/reduction dossier together with the first tax filing.

FCT was withheld at payment but the return was never filed — how to fix it?

Short answer: File a supplementary return immediately and pay late-payment interest as prescribed by tax administration law.

Legal basis: The Vietnamese withholding party's filing and payment obligations under Circular 89/2026/TT-BTC and the administrative-violation rules in the tax field.

Explanation: Having kept back the tax without filing or remitting it to the state budget is still treated as a breach of tax obligations, and late-payment interest runs from the original filing deadline.

What to do: prepare a supplementary return using the forms in Appendix I of Circular 89/2026/TT-BTC, pay the outstanding tax with late-payment interest, and review prior payment periods to avoid repeat violations.

How do management fees and technical service fees differ in FCT obligations?

Short answer: The basic rate framework is the same, but the reclassification risk differs.

Legal basis: Article 12(3) of Decree 320/2025/ND-CP distinguishes CIT rates between ordinary services at 5%, royalties at 10%, and certain special groups.

Explanation: Technical service fees tied to technology transfer, technical know-how, or the use of intellectual property may be carved out as royalties subject to 10% CIT and VAT exemption, while pure management fees stay at 5% plus 5%.

What to do: when drafting the contract, describe the substance of each work item accurately and separate service fees from royalty components where both exist, to avoid a higher rate being applied to the entire fee.

Conclusion: Three Things to Do Before the Next Management Fee Payment

First, compute correctly and withhold the full 10% foreign contractor tax on each payment, on the current legal basis of Decree 320/2025/ND-CP, Circular 20/2026/TT-BTC, and Circular 89/2026/TT-BTC — not on expired instruments. Second, complete the file proving the services are real and confer real benefit, because full withholding does not guarantee the fee will be accepted as a deductible expense. Third, bring management fees into the related-party compliance program under Decree 255/2026/ND-CP from the 2026 tax year, rather than scrambling to supplement materials only after an audit decision arrives.

Each group structures its management fees differently, and each double tax agreement has its own terms, so the analysis above should be checked against the enterprise's specific file before being applied. If your company is paying, or plans to pay, management fees to its parent company, FLAT's lawyers can review the existing contracts, assess the risk of expense disallowance, and redesign the fee structure to fit the new legal framework — contact FLAT Law Firm on hotline 0988424851 for advice on your company's specific situation.

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References

Decree No. 320/2025/ND-CP (Nghị định 320/2025/ND-CP) guiding the Law on Corporate Income Tax 2025 — full text at thuvienphapluat.vn
New points of Circular 20/2026/TT-BTC (Thông tư 20/2026/TT-BTC) guiding Decree 320/2025/ND-CP on CIT — thuvienphapluat.vn
Circular 89/2026/TT-BTC (Thông tư 89/2026/TT-BTC) guiding the Law on Tax Administration and Decree 252/2026/ND-CP — thuvienphapluat.vn
Circular 103/2014/TT-BTC (Thông tư 103/2014/TT-BTC) abolished by Circular 89/2026/TT-BTC from 01/7/2026 — thuvienphapluat.vn
Decree 132/2020/ND-CP (Nghị định 132/2020/ND-CP) expired, replaced by Decree 255/2026/ND-CP on related-party transactions — thuvienphapluat.vn
2026 foreign contractor tax rate lookup table — thuvienphapluat.vn