2025-10-12 · 9 min read

Practical Solutions for a Vietnamese Subsidiary Paying Salary to a Foreign Employee Under an Intra-Company Transfer and Deducting It as an Expense

At present, Japanese-affiliated subsidiaries in Vietnam commonly host foreign managers, engineers, and other staff—particularly those at the president or managerial level—who are seconded from the parent company under an "intra-company transfer." Under this arrangement, however, the subsidiary is not legally permitted to conclude a labor contract with the foreign employee or to pay their salary directly. As a result, salary paid by the subsidiary is not recognized as a deductible expense for corporate income tax purposes, creating a tax-cost problem. This is an issue commonly faced across many subsidiaries of Japanese companies. This article explains, from the standpoint of Vietnamese law and tax practice, practical solutions that allow the salary cost to be properly deducted as an expense while preserving the exemption from social insurance contributions.

01 - Forms of Employment for Foreign Workers

Since August 7, 2025, Vietnam has been enforcing Decree No. 219/2025/ND-CP on foreign workers (the "Decree"). This Decree sets out clearer and more detailed rules than before regarding the forms of employment under which foreigners may work in Vietnam.

Under the Decree, a foreigner may work in Vietnam under one of the following forms of employment:

a) Conclusion of a labor contract

b) Intra-company transfer

c) Performance of a contract or agreement in the economic or social field

d) Provision of services under a contract

e) Offer to provide services (a service proposal)

f) Volunteer activity

g) Person responsible for establishing a commercial presence

h) A person dispatched to Vietnam from an overseas institution, organization, or company, other than under an intra-company transfer

i) Participant in a bidding project or tender in Vietnam

j) A family member of a member of a foreign diplomatic mission in Vietnam who is permitted to work under an international treaty

k) Chairperson of the board of directors of a joint-stock company, a director, or a capital-contributing member of a limited liability company with capital contribution of less than VND 300 million

l) A person performing a labor contract with a foreign diplomatic mission or foreign organization in Vietnam

[Differences from the Old Decree and Their Practical Impact]

Under the former Decree No. 152/2020/ND-CP, the wording left room for interpretation that a foreign worker in Vietnam could select from multiple forms of employment in combination. Under the new Decree, however, it is now clearly stated that "a foreigner may work under only one of the above forms." This point has drawn considerable attention and discussion among practitioners and specialists.

Some have taken the view that "foreign workers will no longer be able to combine multiple forms of employment going forward."

In practice, however, when a foreigner works in Vietnam, they must obtain a Work Permit (WP) or apply for an exemption, and the WP records only a single form of employment. It has never been possible to apply for or obtain a WP based on a combination of multiple forms.
Accordingly, the change introduced by this Decree is considered to be a codification of existing practice, with no major change expected in actual operation.

02 - The Insurance Regime for Intra-Company Transfers

Among the forms of employment introduced above is the "intra-company transfer."
This refers to an arrangement in which a foreign worker, having concluded a labor contract with the head office (parent company), is seconded for a defined period to a subsidiary or affiliated company in Vietnam—in other words, a time-limited personnel transfer within a corporate group (as illustrated in the relationship diagram below).

[Treatment of Insurance for Employees Under an Intra-Company Transfer]

In Vietnam, foreign workers may, under certain conditions, be exempted from the obligation to enroll in social insurance, unemployment insurance, and health insurance. In particular, in the case of an "intra-company transfer," such workers are excluded from the enrollment obligation under each of these insurance schemes, as follows.

(i) Social Insurance

Article 2(2) of the 2024 Social Insurance Law provides that a foreign worker is, in principle, subject to the social insurance enrollment obligation where they conclude a definite-term labor contract of 12 months or more. However, the following cases are excluded:

Intra-company transfer (as in this case)
Where the employee has already reached the statutory retirement age at the time the labor contract is concluded
Where an international treaty provides otherwise

Accordingly, a foreign worker under an intra-company transfer is not subject to the social insurance enrollment obligation.

(ii) Unemployment Insurance

Article 3(1) of the 2013 Law on Employment clearly limits unemployment insurance to Vietnamese workers. Accordingly, foreign workers, including those under an intra-company transfer, are not subject to the unemployment insurance enrollment obligation.

(iii) Health Insurance

Article 12(1)(c) of the Health Insurance Law provides that a foreign worker is, in principle, subject to health insurance enrollment. However, the following are excluded:

Intra-company transfer
Where the employee had already reached retirement age at the time the labor contract was concluded
Where an international treaty provides otherwise

Accordingly, in the case of an intra-company transfer, the obligation to enroll in health insurance is likewise exempted.

03 - Points to Note on Labor Contracts and Salary Payment in the Case of an Intra-Company Transfer

Official Document No. 1099/CVL-QLLD, issued on October 17, 2024 by the Employment Department of Vietnam's Ministry of Labor, War Invalids and Social Affairs, together with a response published by the Ministry of Home Affairs on the government portal Chinhphu.vn on September 16, 2025, make clear the following points regarding foreign workers employed under an intra-company transfer.

(i) Concluding a Labor Contract Is Prohibited in the Case of an Intra-Company Transfer

Where an intra-company transfer applies, the local entity (subsidiary) hosting the secondment is not permitted to conclude a labor contract with the foreign worker.
The labor contract remains, in all cases, one concluded with the parent company (the sending head office).

(ii) Direct Salary Payment by the Local Entity Is Also Prohibited

Likewise, the local entity is prohibited from directly paying salary to the foreign worker.
The entity responsible for paying salary remains the parent company that sent the worker; the local entity does not become the payer of salary.

(iii) Tax Treatment Where the Local Entity Pays Salary

Even if the local entity does pay the salary, that salary remains subject to personal income tax (PIT).
At the same time, however, that salary is not permitted to be deducted as an expense of the local entity (subsidiary) for corporate income tax (CIT) purposes.
In other words, if the local entity bears the salary cost, a PIT liability arises, while the deduction of the expense for CIT purposes is disallowed—an unfavorable tax outcome.

04 - Practical Solutions for Salary Payment in an Intra-Company Transfer

As discussed above, in the case of an intra-company transfer:

The labor contract relationship continues to exist between the Japanese head office (parent company) and the foreign worker, with the Vietnamese subsidiary merely serving as the place of work—this arrangement is consistent with the true nature of an "intra-company transfer" under the law.
On the other hand, for the subsidiary to pay the salary directly and have that cost recognized as a deductible expense for CIT purposes, the subsidiary would need to conclude a labor contract with the employee. This, however, runs counter to the essential nature of an intra-company transfer, and also entails additional costs, such as triggering the mandatory obligation to enroll in social insurance.

Against this background, the following two solutions are commonly considered in practice.

[Solution 1] Concluding a Secondment Agreement Between the Parent Company and the Subsidiary

Under this approach, the Japanese head office (parent company) and the Vietnamese subsidiary conclude a secondment agreement, clearly setting out the following matters.

1. Content of the personnel transfer
Clearly state that the parent company is seconding its own employee to the subsidiary on a full-time basis.

2. Maintaining the labor contract relationship
The labor contract continues to exist between the parent company and the employee, and the parent company bears the salary cost.

3. Advance payment of salary
The subsidiary advances the salary on behalf of the parent company; while the subsidiary is the actual payer, it is made clear that the parent company is the party that ultimately bears the economic burden.

4. Setting a management fee (consideration for services rendered)
Given that the parent company is dispatching managerial personnel to the subsidiary, a clause is included under which the subsidiary pays the parent company a management fee (consideration for the services provided).

5. Offsetting against the advance payment
The agreement clearly states that the salary advanced by the subsidiary is to be offset against the management fee payable to the parent company.

Where this scheme is adopted, careful consideration must be given to legal and tax questions such as:

Whether the content of the secondment agreement is consistent with the parent company's scope of business and the services it can provide
Whether the subsidiary satisfies the requirements for deductibility as an expense

It is strongly recommended that specialized legal and tax counsel be consulted before entering into such a contract.

[Solution 2] Utilizing an Executive Remuneration Scheme
For expatriates or seconded staff at the managerial level, another approach is for the subsidiary to make use of a scheme under which it pays them as officers.
Specifically, based on the subsidiary's charter and related internal regulations, payment is made as remuneration for a managerial position such as director or executive officer.

In this case, the amount paid by the subsidiary is categorized not as "salary or wages" but as "director's remuneration/executive remuneration," and therefore does not fall within the scope of concluding a labor contract or paying salary, allowing consistency with the restrictions applicable to intra-company transfers to be maintained.

However, adopting this scheme requires:

Amending the charter
Developing internal regulations on executive remuneration

Here too, prior confirmation by a lawyer or specialist before implementation is important.

Practical Summary

In an intra-company transfer, unless the "party paying the salary" and the "party bearing the economic cost" are clearly distinguished, risks arise such as disallowance of the expense deduction for CIT purposes, breach of labor contract rules, and excessive social insurance costs.
Both of the solutions described above are commonly used in practice, but the optimal approach should be considered in light of each company's organizational structure and business content.