Foreign directors in Viet Nam: Key legal obligations on personal income tax and labor matters

In the context of Vietnam’s increasingly globalized economy, it is common for foreign nationals to be appointed as directors or legal representatives of subsidiaries in Vietnam. These positions often do not require the individual to reside in Vietnam or to receive remuneration directly from the Vietnamese entity. While commercially practical, such arrangements raise significant legal questions under Vietnamese law, particularly concerning obligations related to social insurance, personal income tax, and work permits, as compared to ordinary foreign employees (who typically sign labor contracts with Vietnamese entities and are remunerated in Vietnam). 

This article analyzes the principal legal obligations in this context, highlighting the key issues that foreign directors must be mindful of in contrast to ordinary foreign employees, thereby assisting both companies and individuals in shaping appropriate compliance structures. 

1. Compulsory Social Insurance Obligations 

The Law on Social Insurance 2024 extends its scope of regulation to include foreign employees. Specifically, Article 2.2 provides that foreign employees are subject to compulsory social insurance if they work in Vietnam under a labor contract with a term of at least 12 months, unless they fall within one of the exemption categories. Such exemptions include intra-corporate transferees, employees who have reached retirement age, and cases where applicable international treaties provide otherwise. 

In practice, where a foreign director is appointed pursuant to a resolution, does not receive remuneration from the Vietnamese subsidiary, and maintains an employment relationship with the foreign parent company, it is highly likely that no employment contract with the Vietnamese subsidiary will exist. In the absence of an employment contract, the director will not meet the conditions for compulsory social insurance participation. Moreover, if such foreign director has worked for the foreign parent company for at least 12 months and is temporarily seconded to the Vietnamese company, he may also qualify as an intra-corporate transferee under Decree No. 219/2025/ND-CP and, accordingly, be exempt from compulsory social insurance participation under Vietnamese law. 

Accordingly, in the absence of a formal employment agreement with the Vietnamese entity and/or where the individual qualifies as an intra-corporate transferee, there should be no legal obligation to participate in Vietnam’s compulsory social insurance regime. 

2. Personal Income Tax Obligations 

Vietnamese personal income tax (PIT) law applies the source-based principle to non-resident individuals. Accordingly, any foreign individual deriving income sourced in Vietnam is subject to Vietnamese PIT, regardless of their tax residency status or the place where the income is paid. 

This principle is also reflected in certain Double Taxation Agreements (DTAs) that Vietnam has concluded with numerous countries. As international treaties, DTAs prevail over domestic legislation in the event of a conflict. In practice, with respect to directors’ remuneration, most DTAs confirm that Vietnam retains taxing rights if the income arises from managerial or executive functions performed for a company resident in Vietnam. Specifically, Article 33 of Circular 205/2013/TT-BTC provides explicit guidance: where an individual is a tax resident of a country having a DTA with Vietnam and receives remuneration in the capacity of a member of boards of director, general director, chief executive or managerial position in a company resident in Vietnam, such income remains subject to Vietnamese PIT, regardless of whether the individual is physically present in Vietnam.  

Furthermore, Circular No. 111/2013/TT-BTC affirms that all income derived from work performed in Vietnam shall be regarded as Vietnam-sourced income. Accordingly, in the case of a non-resident individual, even if the remuneration is paid by a foreign legal entity, if such income relates to the individual’s role in a Vietnamese company (e.g., as a member of the board of directors, director, or general director), Vietnam retains the taxing right over such income. 

Under Vietnamese law, non-resident individuals earning employment income sourced from Vietnam but paid from abroad are required to register for tax within 10 business days from the date the tax liability arises (Article 19.3(a.2), Circular No. 80/2021/TT-BTC). Following registration, such individuals must declare and pay PIT either upon each occurrence of income or on a quarterly basis (Article 8, Decree No. 126/2020/ND-CP). The applicable tax rate for non-resident individuals is 20% of total taxable income (Article 18, Circular No. 111/2013/TT-BTC). 

Where an individual performs work both inside and outside Vietnam and the portion of income attributable to Vietnam cannot be separately determined, Circular No. 111 prescribes specific allocation methods: (i) If the individual is not present in Vietnam, the allocation formula is based on the number of working days attributable to Vietnam divided by the total number of global working days; and (ii) If the individual is present in Vietnam, the formula is based on the number of days present in Vietnam divided by 365 calendar days of the year. 

While the legal framework is relatively well established, implementation in practice often proves complex, particularly for non-resident directors, as the obligation to declare and pay tax rests directly with the individual. During tax audits or inspections, the tax authority may require supporting documents to substantiate income allocations. Non-compliance entails potential legal risks, including deemed tax assessments, administrative sanctions, and other consequences, which may adversely affect the individual’s ability to continue holding managerial positions in Vietnamese enterprises. 

3. Work Permit Requirements 

Vietnamese labor law stipulates that foreigners working in Vietnam must obtain a work permit unless exempted. One of the exemptions provided under Decree No. 219/2025/ND-CP applies to intra-corporate transferees, i.e., individuals who have worked for the foreign parent company for at least 12 months and are temporarily seconded to its subsidiary in Vietnam. 

In practice, non-resident directors who do not enter into an employment contract in Vietnam and are appointed solely for managerial or supervisory purposes will generally fall within the category of intra-corporate transferees eligible for a work permit exemption. Nonetheless, even where exempt, the Vietnamese company is still required to file a notification dossier with the labor authority and obtain official confirmation of the work permit exemption. 

4. Practical experiences 

Based on our practical experience, the appointment of foreign directors in Vietnam is generally structured under two distinct models, as outlined below:  

• Where the director remains employed by the foreign parent company and does not receive remuneration from its subsidiary in Vietnam, the Vietnamese company is, in principle, not required to fulfill social insurance obligations or obtain a work permit, provided the conditions for intra-corporate transferee exemption are met. However, the director remains personally responsible for tax registration and the declaration and payment of PIT in Vietnam. 

• Alternatively, some enterprises opt to execute a nominal employment contract with the director, typically with a symbolic salary. This arrangement enables the company to withhold and remit PIT on the director’s behalf. However, it may also give rise to obligations relating to social insurance contributions and the requirement to obtain a work permit, unless the conditions for a work permit exemption continue to be satisfied. 

Each approach carries compliance implications. The former limits the company’s administrative burden but places full tax compliance responsibility on the individual; the latter facilitates tax compliance but increases procedural requirements for the company. The optimal approach depends on the director’s level of involvement, duration of work in Vietnam, and the company’s internal management capacity. 

5. Conclusion 

The principal distinction between foreign directors and ordinary foreign employees in Vietnam lies in the fact that directors typically do not enter into employment contracts with the Vietnamese subsidiary and do not receive remuneration from such entity. Consequently, obligations relating to social insurance and work permits may not arise in many cases, while personal income tax obligations will, in principle, arise if the director receives remuneration from the foreign parent company for his/her role in the Vietnamese company. 

Date written: 20/09/2025

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