Mr. Teh’s manufacturing group has three subsidiaries: two in Malaysia, one in Binh Duong. Each runs its own accounting team, HR software and IT maintenance contract — the duplication pushed him to consolidate everything into a Shared Service Center (SSC) in Kuala Lumpur, then “sell” services to the Vietnamese company. The savings logic is clear; the tax questions are not.
Service fees from Kuala Lumpur to Binh Duong pass three tax gates
Gate one — Vietnamese contractor tax. Accounting, HR and IT fees charged by the Malaysian company to the Vietnamese company attract foreign contractor tax. Under Decree 320/2025/ND-CP, ordinary services bear 5% CIT on taxable revenue; VAT follows VAT Law 48/2024 and Decree 181/2025/ND-CP. This framework replaced the CIT part of Circular 103/2014 from 12 March 2026 (Circular 20/2026/TT-BTC). The Vietnamese company withholds and pays — every SSC invoice is clipped at payment.
Gate two — the Vietnam–Malaysia tax treaty. The 1995 treaty (in force 13 August 1996) allocates taxing rights over business profits on permanent establishment principles (Article 7): Malaysia taxes the SSC’s profits only if the SSC has a Vietnamese permanent establishment. But the treaty does not remove Vietnam’s withholding on each fee — the two mechanisms run in parallel.
Gate three — Malaysian tax. The fees are taxable revenue of the SSC in Malaysia under its domestic law. The total equation must add all three gates, not just Malaysia’s headline rate.
The biggest risk is not the rate but permanent establishment
An SSC is only cheap while it stays outside Vietnam. If SSC staff deploy software, train or run internal audits in Vietnam for extended periods — or habitually conclude contracts for the Vietnamese company — the tax authority may find a Vietnamese permanent establishment. Then all profits attributable to the PE are taxed in Vietnam like a domestic enterprise, and the original savings collapse.
Prevention is operational, not paperwork: cap SSC staff days in Vietnam, clarify who signs contracts with Vietnamese customers, and keep travel logs — PE disputes are always settled on factual evidence.
Intra-group management fees must pass the benefit test
This is where many SSCs stumble. Under Decree 255/2026/ND-CP (effective 1 July 2026), related-party service fees must meet the arm’s length principle — and for management fees, tax authorities apply the benefit test:
- Does the Vietnamese company genuinely need the service, or is the SSC “selling” something the subsidiary could do cheaper itself?
- Is there duplication — e.g., the Vietnamese company keeps its own accountants while paying the SSC for accounting?
- Does the fee reflect actual cost plus a reasonable margin, with comparables?
The file should contain: an intra-group service agreement (SLA) defining scope, per-head or per-hour pricing, and a cost allocation schedule from the SSC to each subsidiary. Without it, the fees risk disallowance as deductible expenses of the Vietnamese company.
A lean implementation roadmap
The right order: (1) model the three-gate total tax before signing; (2) draft the SLA and pricing methodology; (3) register the contractor tax code and withholding process at the Vietnamese company; (4) issue travel and signing rules to avoid a PE; (5) prepare transfer pricing documentation for the service fees from year one.
Frequently asked questions
Is Malaysia or Vietnam the better SSC location?
No universal answer. Malaysia offers bilingual talent and service infrastructure; Vietnam offers lower staff costs and no contractor tax on internal service fees. Decide on the total tax model and talent concentration, not a single tax.
How many on-site days trigger PE risk?
There is no absolute safe day-count for every case; risk turns on the nature of the work (signing contracts, managing operations), not just days. The rule of thumb: the more it looks like doing business in Vietnam, the higher the risk.
Are SSC fees deductible for Vietnamese CIT?
Yes, if the CIT Law 67/2025 deductibility conditions are met and the fees pass the benefit test and arm’s length test under Decree 255/2026. Fees for duplicative or benefit-less services may be disallowed.
Is transfer pricing documentation needed from year one?
Advisable immediately. Intra-group service fees are textbook related-party transactions under Decree 255/2026; documenting from year one costs far less than a reassessment after audit.
FLAT Law Firm designs cross-border SSC models: three-gate tax modelling, intra-group SLAs, contractor tax registration and transfer pricing files for service fees. Contact us to assess your group’s option.
This article has been quality-reviewed by the FLAW AI Legal Council
