Tax Considerations Regarding Payments and Reimbursements of Pre-Establishment Expenses for a Vietnamese Corporation
2025/09/22
- Mai Thi Dung
Introduction
When establishing a Vietnamese corporation, various expenses arise during the preparation phase, and in many cases, these are paid upfront by third parties such as the parent company or investors. Due to strict regulations in Vietnam regarding advance payments for pre-establishment expenses, it is important to have prepared evidence documents for these advance payments and to understand the latest tax-related points from the perspectives of Vietnamese corporate income tax (hereinafter “CIT”) and value-added tax (hereinafter “VAT”) in advance. This article practically organizes the methods of advance payment and repayment of pre-establishment expenses, as well as the tax considerations involved.
1. Documents required for the advance payment of pre-establishment expenses
Pre-establishment expenses refer to costs incurred during the preparation phase before a corporation is established in Vietnam (before acquiring the Enterprise Registration Certificate (ERC)). These mainly include expenses for market research, consulting fees related to establishment procedures, office rent, expenses for building internal systems (such as purchasing computers and supplies), recruitment costs, and marketing-related expenses. For the parent company or individuals to make these advance payments and then charge the Vietnamese entity, allowing the Vietnamese entity to include these expenses in its CIT deductible costs and VAT deductions, the following conditions must be met.
・There must be a relevance to the business activities of the Vietnamese entity: costs related to the establishment of the company, and pre-establishment expenses that support business activities after establishment (such as employee training, advertising, etc.)
・There must be a letter of authorization from the individual or organization establishing the company to the individual or organization making the advance payment.
* In practice, investors often advance payments where the principal and the agent are the same person. In such cases, it is recommended to prepare the following power of attorney to minimize tax-related risks.
| Principal | Agent | |
| When the investor is an individual | Individual Investor | Individual who makes advance payments directly |
| When the investor is an organization | Officers of the parent company’s chairman and board of directors | Individuals or organizations making direct advance payments. |
・There must be an appropriate invoice addressed to the individual or organization making the advance payment (including details such as the recipient)
※ In addition, invoices issued after the establishment of a corporation must include information such as the name, location, and tax code of the local corporation.
・For payments of 5 million VND (including VAT) or more, bank settlement in the name of the individual or organization making the advance payment is required, and this must be proven with bank settlement documents such as bank transfer statements or credit card usage statements.
Under the law, foreign investors can pay expenses related to investment preparation from accounts in their own name, either overseas or within Vietnam, even before obtaining the necessary permits and licenses. This allows advance payments to be made through remittances from overseas or transfers from domestic accounts.
Also, according to VAT regulations, in order for a Vietnamese company to deduct VAT as input VAT on payments for invoices of 5 million VND or more (including VAT), non-cash settlement (such as bank transfers, set-off of receivables and payables, etc.) is required. (See specific details in Article 26 of Decree No. 181/2025/ND-CP)
2. Methods of Repayment for Pre-Establishment Expenses and Tax Considerations
2.1 Direct Repayment Through Bank Account
Currently, many banks do not allow direct remittances of advance payment costs from Vietnamese corporations to foreign corporations (parent companies) accounts. Therefore, the parent company opens a non-resident deposit account in Vietnam, pays the pre-establishment expenses through that account, and the local corporation repays it through domestic remittance after the establishment.
Finally, the parent company makes the overseas remittance from the respective account to the foreign account.
2.2 Switch to Parent-Child Loan for Repayment
This method involves the parent company and the Vietnamese company entering into a loan agreement, processing the advance expenses as a loan, and then repaying via bank transfer. In practice, when one wishes to make direct repayment as in the above item 1, it is quite common for banks to suggest repayment through a loan agreement.
If the loan period exceeds one year, it must be registered with the State Bank of Vietnam. Additionally, even if related documents such as the loan agreement, invoice, and interest calculation statement are prepared, it should be noted that repayments of advances using this method are not eligible for deduction as expenses under CIT nor for VAT deduction.
Furthermore, an FCT is imposed on interest. Also, if the interest rate is set low, for example at 1-2%, there have been cases where the Japanese tax authorities have pointed out the inappropriate interest rate level during tax audits, resulting in donation tax being imposed. Since the appropriate interest rate level is considered to be the interest rate for loans taken out in Vietnam, it is advisable to consult with the bank and set it accordingly. In the case of an interest-free contract, there is a risk of being taxed based on the equivalent of the market interest rate in Vietnam, as well as the possibility of additional taxation.
2.3 Repayment through service contract
The parent company and the Vietnamese subsidiary enter into a service contract, and the amount advanced by the parent company is repaid as a service fee of the same amount. Although it is essentially the payment of advance costs, formally, records of service provision and the like are required, and documents such as a service provision contract, explanatory materials regarding the business content (email exchanges, reports, etc.), invoices, and payment vouchers are demanded. The local subsidiary can make bank transfers to the parent company based on this contract, but there are the following points to note.
・In the case of a large amount, it will be paid in installments, and the service fees for each installment must match the remittance amounts.
・It is regarded as provision of services within Vietnam, and FCT (Foreign Contractor Tax) applies.
・If considered a service without substance, there is a risk that deduction as an expense for CIT purposes will be denied.
・If the service fee deviates from the market price and evidence (such as the calculation method) demonstrating that it is an arm’s length price cannot be presented, there is a risk that it will not be recognized as an expense for CIT purposes from the perspective of transfer pricing rules.
2.4 Repayment by offsetting claims and obligations
This refers to a method whereby the Vietnamese subsidiary, after providing goods and services to the parent company and holding accounts receivable, repays by offsetting the parent company’s advanced expenses against the subsidiary’s accounts receivable (including anticipated future accounts receivable). For implementation, it is necessary to explicitly state the payment by offsetting in the sales contract or the advance agreement, and to prepare offset data, confirmation records, and related supporting documents such as invoices, billing statements, and delivery notes.
This method can be implemented relatively easily as an intercompany transaction between parent and subsidiary, does not incur FCT, and, as long as necessary documentation is prepared in accordance with laws and regulations, can be interpreted as allowing deduction of expenses for CIT purposes and VAT deductions. However, in practice, this scheme has not been recognized as a non-cash settlement, and as a result, there have been cases where the deduction of expenses for CIT purposes and VAT deductions were denied. This is due to differences in legal interpretations by tax authorities in each region. Therefore, it is recommended to confirm in advance with the competent tax authorities by an official letter before adopting this scheme.
2.5 Repayment by transfer to capital stock
The parent company transfers expenses incurred before the establishment of the corporation to paid-in capital stock and settles by remitting only the remainder of the paid-in capital stock to the local subsidiary. Regarding this transfer, it is necessary to clearly stipulate it in writing between both companies and to create and retain a confirmation document that describes the agreed contents regarding the reconciliation of amounts and offset processing.
However, since this scheme is not explicitly defined as a non-cash payment, there is a risk that the deduction as an expense for CIT purposes and VAT deduction will not be allowed.
Furthermore, because the full amount of the capital registered with the IRC has not been remitted, there is a practical risk that the relevant authorities will point out that the parent company’s capital payment is insufficient. Since the legal regulations are not clear on this matter and individual cases are handled based on the authorities’ views, prior confirmation with the local tax office, industrial park committee, the bank where the capital account was opened (DICA), and related parties such as auditing firms is indispensable when adopting this scheme.
Conclusion
Pre-establishment costs of Vietnamese corporations are one of the necessary and commonly incurred expenses in business activities. Therefore, each corporation is expected to consider appropriate measures tailored to its own circumstances and prepare the related documents, thereby reducing tax risks while also achieving cost savings.
References
– Corporate Law Article 18 (Law No. 59/2020/QH14)
– Decree No. 181/2025/ND-CP
– Decree No. 52/2024/ND-CP
– Circular No. 96/2015/TT-BTC (Amendment and Supplement to Circular No. 78/2014/TT-BTC)
– Corporate Tax Law No. 67/2025/QH15 (Effective October 1, 2025)
– Circular 06/2019/TT-NHNN
This article was translated by Yarakuzen.
