Service fees and royalties paid to the parent company: proving benefit to secure deductibility in Vietnam
The short answer
Management, technical support and IT service fees, and brand or technology royalties paid to a parent or related party, are deductible for CIT only if the business can show four things:
the service or intangible is real;
the business actually benefits;
the fee does not duplicate what the business does itself or pays others for, and is not a shareholder cost;
the fee is equivalent to an arm's length transaction.
This is a priority audit area. The Tax Department's Official Letter No. 1927/CT-KTr of 31 March 2026 calls for close review of intra-group costs such as interest, service fees and royalties at businesses with multi-year losses or thin margins. Businesses that cannot provide proof face disallowance, CIT collection and possible deemed related-party pricing.
Why does the tax authority focus on these costs?
Service fees and royalties are the simplest way to shift profit out of Vietnam. They appear as a single line on an invoice from the parent, with no goods attached, and their market price is very hard to establish.
A classic red flag is a business that makes losses for years yet still pays regular management fees and royalties calculated as a percentage of revenue.
Four tests for intra-group service fees
Test | Question | Example of failure |
1. The service is real | Is there evidence that the service was provided? | A contract referring vaguely to "management support", with no reports, emails or deliverables |
2. Actual benefit | Would an independent business be willing to pay for this service? | Services the business does not need or use |
3. No duplication, no shareholder costs | Does the business already do this itself or pay someone else? Does the activity serve the parent's interests as a shareholder? | Fees for preparing the group's consolidated accounts, the parent's board meetings or managing the parent's investment portfolio |
4. Arm's length price | What is the fee based on? Is the allocation reasonable? | A fixed percentage of revenue with no cost base or allocation key |
Royalties: three key questions
1. Who actually owns and develops the intangible? The recipient of the royalty should be the legal owner and should perform the functions of developing, maintaining and protecting the asset.
2. Does the Vietnamese business actually use and benefit from it? For example, a business that only manufactures and exports all its output to the parent will struggle to justify paying a brand royalty, because the brand does not help it sell to the market.
3. Is the rate reasonable relative to the value created? The royalty rate should be compared with similar independent agreements. It should also be considered in light of the profit retained in Vietnam.
In addition, technology transfer and IP licence agreements must meet the procedural requirements of the laws on technology transfer and intellectual property, and foreign contractor tax must be declared and paid correctly.
Benefit evidence pack
Detailed service and licence agreements: a specific description of each service, quality standards and the fee basis.
Evidence of service delivery: reports, documents, emails, meeting minutes, lists of personnel involved and time spent.
Evidence of benefit: concrete results achieved through the service, such as systems implemented, costs saved or sales growth.
Fee and allocation basis: the group service centre's total costs, allocation keys (headcount, revenue, number of users) and the mark-up.
Transfer pricing analysis: arm's length assessment in the TP documentation.
Foreign contractor tax and payment records.
Illustrative case
Company CC, an Asian-invested manufacturer selling in the domestic market, made losses for four consecutive years. Each year it paid its parent a management fee of 4% of revenue and a brand royalty of 3% of revenue.
In an audit, the tax authority asked for proof of benefit. The company had only a framework agreement and invoices. As a result, most of the management fee was disallowed.
The royalty was examined more closely. The company was able to show that Vietnamese consumers recognised the brand, that the parent invested in promoting and protecting it, and that the rate was comparable with independent agreements. Most of the royalty was therefore accepted.
From the following year, Company CC restructured its service arrangement:
it listed the services specifically;
it charged on actual cost plus a reasonable mark-up;
it kept monthly evidence;
it removed items that were shareholder activities.
Checklist for foreign-invested businesses
List every fee paid to related parties: services, royalties and cost allocations.
Assess each against the four tests.
Collect evidence of service delivery and benefit monthly, not when an audit begins.
Ask the parent for its cost base and allocation keys.
Review foreign contractor tax obligations and technology transfer and IP procedures.
Take particular care if the business is loss-making: consider adjusting fees to reflect business results.
FAQs
Are management fees paid to the parent deductible for CIT?
They can be, if the business proves that the services are real, provide benefit, do not duplicate other costs, are not shareholder activities and are priced at arm's length.
Can a loss-making business pay royalties to its parent?
It can, but the risk of disallowance is very high. The business must show the real value of the intangible and the reasonableness of the rate relative to the profit retained.
What are "shareholder activities"?
Activities the parent carries out for its own benefit as owner, such as preparing consolidated financial statements, holding the parent's shareholder and board meetings, and managing its investment portfolio. Their cost should not be charged to the subsidiary.
If foreign contractor tax has been paid, is the cost definitely deductible?
No. Paying FCT is a necessary condition. The cost must still meet the arm's length principle and the general deductibility conditions.
Legal basis
Decree No. 255/2026/ND-CP on tax administration of related-party transactions.
CIT Law No. 67/2025/QH15 and Decree No. 320/2025/ND-CP.
Official Letter No. 1927/CT-KTr of the Tax Department dated 31 March 2026.
Laws on technology transfer and intellectual property, and current rules on foreign contractor tax.
OECD Transfer Pricing Guidelines, Chapters VI and VII (for reference).
How W&A can help
Intra-group service fees and royalties can be fully deductible, provided they are properly designed and evidenced. W&A supports foreign-invested businesses with:
Review of all fees paid to related parties against the four tests, identifying those at risk of disallowance.
Redesigning intra-group service and licence agreements: scope, fee basis and allocation keys.
Systems for keeping monthly benefit evidence.
Technology transfer and IP licensing procedures, and foreign contractor tax.
Defending these costs in audits focused on related-party transactions and loss-making businesses.
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