Tax Considerations Regarding Advance Expenses Before And After Company Establishment


  • Masaya Sakasai


In the case of a company starting new production or business activities in Vietnam, it is common to incur costs such as market research, advisory support fees for establishment procedures, construction of management systems, marketing, and recruitment of human resources before and after establishment. Such expenses are often paid in advance by a third party such as a parent company or investor. As this transaction involves many parties, care must be taken in gathering documentation to meet Corporate Income Tax (hereinafter called as “CIT”) and Value Added Tax (hereinafter called as “VAT”) regulations. This article summarizes the details of points to note for foreign companies as follows.

A. Payment before company establishment (before obtaining company registration certificate)

1. The founders may enter into contracts for operational purposes before and during the company formation and company registration process¹.

Foreign investors can form a contract directly or delegate it to another individual or legal entity and pay pre-establishment costs in advance. (The investor or the person entrusted with the advance payment is hereinafter referred to as the “individual or organization making the advance payment.”) When making the advance payment, the following procedures must be carried out.

  • -Create a power of attorney between individuals and organizations authorized to conclude contracts with foreign investors and pay in advance for pre-establishment expenses.
  • -Individuals and organizations making advance payments can voluntarily open a non-resident deposit account in Vietnam.
  • -Individuals and organizations that make advance payments contract with suppliers and remit money directly from overseas or from non-resident deposit accounts to the supplier.

After obtaining a business registration certificate, a Vietnamese corporation must continue to implement the rights and obligations arising from the concluded contract. Additionally, the Vietnamese legal entity and its parties are required to transfer the rights and obligations of the contract in accordance with the concluded agreement.

2. CIT and VAT considerations

Under current CIT and VAT regulations², pre-establishment expenses paid in advance by another legal entity are considered deductible for CIT purposes and are allowed as deductions for VAT purposes if all of the following conditions are met:

  • ・Costs related to business activities of Vietnamese corporations, namely costs related to company establishment and pre-establishment expenses to support business activities after establishment (employee training, advertising, etc.).
  • ・There is a legitimate invoice with information on the individual/organization making the advance payment.
  • ・For payments over 20,000,000 VND (VAT included), payment must be made through the bank account of the individual/organization making the advance payment.
  • ・There is a power of attorney from the party establishing the company to the individual or organization that will make the advance payment.
  • *In practice, the investor is the one making the advance payment, that is, in many cases, the delegator and the trustee are the same person. In order to minimize tax risks, we recommend that you prepare the following power of attorney.
  • -If the investor is an individual:
  • +The delegate is an individual/investor.
  • +The fiduciary is the individual who directly makes the advance payment.
  • -If the investor is an organization:
  • +The delegator is the chairman/member of the board of directors of the parent company
  • +The fiduciary is the individual who directly makes the advance payment.

3. Points to note regarding payment accounts of foreign organizations/individuals (parent companies, foreign investors, etc.) that make advance payments³

According to the current regulations, before the issuance of an investment registration certificate, investment, share purchase, notification that the conditions for purchase of investment from foreign investors are met, and establishment and operation license based on specialized laws are issued, foreign investors must may pay legitimate expenses for carrying out investment preparation activities in Vietnam from abroad or from a VND-denominated foreign currency account opened in Vietnam.

Based on the above provisions, foreign organizations and individuals making advance payments may make advance payments for pre-establishment expenses in one of the following ways:

  • +Send money directly from overseas
  • +Open a non-resident deposit account and conduct transactions in Vietnam

4. Procedures for settling the advance amount for individuals/organizations making advance payments

In order to settle the advance amount to individuals/organizations making advance payments, Vietnamese corporations are required to prepare the following documents:

  • +Power of attorney from the person/organization that established the company to the person/organization making advance payment
  • +Advance payment agreement between the Vietnamese corporation and the individual/organization making the advance payment
  • +Invoices, contracts, invoices, and proof of payment to suppliers
  • +For payments over 20,000,000 VND (VAT included), evidence showing that the remittance was made through the bank account of the individual/organization making the advance payment.

If the individual or organization making the advance payment is located in a foreign country, the Vietnamese corporation is recommended to check with the bank whether the transaction is possible or not before remittance when settling the advance amount. In addition, if a Vietnamese corporation offsets pre-establishment expenses with the charter capital and the method of payment is specified in writing, it will be considered a non-cash payment, so prepare minutes to refer to and confirm data between both parties.

Furthermore, when a Vietnamese corporation settles an amount to an individual or organization that makes an advance payment in a foreign country, the amount is considered an advance amount and the foreign organization or individual does not generate income through this transaction, so it is not subject to Foreign Contractor Tax (FCT) will not occur.

B. Payment after establishment (after obtaining company registration certificate)

After incorporation, a company can carry out transactions as a legal entity (concluding economic contracts, buying and selling goods and services), but at that point it may not yet have opened a bank account or may not have sufficient funds. In this case, the question arises as to how to continue trading without interrupting the originally planned preparation plan for production and business activities.

1) If the company is to continue to be used in accordance with the contract concluded by the fiduciary (office rental contract, advisory service contract, etc.) after the establishment of the company, an agreement/contract to transfer the contractual rights and obligations to the Vietnamese corporation is required. You need to prepare. In addition, regarding the new contract, Vietnamese corporations, individuals, organizations, and suppliers who make advance payments shall comply with the following paragraph 2.


2) For tax purposes, the expenses are recognized as a deductible expense for CIT purposes and a deduction for VAT purposes, so the conditions set out in Part A, Paragraph 2 above must be met. However, if the parent company or a third party continues to make advance payments, they must do so in one of the following ways:

  • a. Prepare a three-party contract/agreement between the supplier, the individual/organization making advance payments, and the Vietnamese corporation.
  • b. Prepare the following two contracts.
  • i. Contract between the Vietnamese corporation and the supplier (this contract must clearly state that the Vietnamese corporation will authorize the supplier to pay the costs incurred in this contract through a bank as a payment method).
  • ⅱ. Contract between a Vietnamese corporation and an individual or organization making advance payment

Information about the Vietnamese corporation must be included on the invoice after obtaining the company registration certificate. Therefore, in order to ensure that invoices are issued accurately and to avoid future risks, Vietnamese companies are recommended to notify their suppliers as soon as they obtain the business registration certificate.

3) Procedures for settling the advance amount for individuals/organizations making advance payments
Basically, the settlement procedure is the same as Section 4 of Part A above. However, since Vietnamese corporations will conclude invoices and contracts with suppliers after establishment (obtaining a business registration certificate), it is necessary to collect evidence more actively.

¹Enterprise Law No. 59/2020/QH14 Article 18
²Notification No. 219/2013/TT-BTC dated December 31, 2013 issued by the Ministry of Finance on the principles of input value added tax deduction, Article 14, Clause 12 b Point;
Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015 issued by the Ministry of Finance (Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014 issued by the Ministry of Finance) corrections/supplements)
³ Article 8 of Circular No. 06/2019/TT-NHNN dated June 26, 2019 issued by the State Bank of Vietnam

*This article was translated by Yarakuzen.

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