A foreign technology company approached Dilinh Legal last year with a straightforward goal: hire three senior software developers in Ho Chi Minh City without setting up a local entity. Their HR team had drafted individual employment contracts, and they were ready to sign. We stopped them before they did.

Vietnam has no legal framework permitting a foreign company without a local presence to hire Vietnamese employees directly under labour contracts. That gap creates real exposure — tax withholding obligations, social insurance liabilities, and labour dispute jurisdiction — all triggered the moment a contract with employment characteristics is signed. The penalties for non-compliance are not theoretical. They are assessed on inspection.

This guide sets out the three models foreign companies use to hire in Vietnam lawfully, the legal risks attached to each, and what to do, and avoid, when structuring each arrangement.

Why direct employment by foreign companies is not possible in Vietnam

Vietnamese labour law applies to employment relationships where the employee is based in Vietnam, regardless of where the employer is incorporated. Under the Labour Code 2019, an employer must be a legally registered entity in Vietnam to enter into a valid labour contract with a Vietnamese employee.

A foreign company with no registered presence in Vietnam cannot be a party to a Vietnamese labour contract. Attempting to contract directly, even using a foreign law choice-of-law clause, does not eliminate Vietnamese law from applying. It only removes the company's ability to rely on Vietnamese courts if a dispute arises.

Three models provide a compliant path: service contracts with individual contractors, maintaining a dedicated team at a Vietnamese service provider, or working through an Employer of Record (EOR).

Model 1: Service contracts with individual contractors

What this model is

Under the Civil Code 2015 (Article 513), a service contract is an agreement where an individual or entity performs services for a client in exchange for a fee. Service contracts are governed by the Civil Code and the Law on Commerce 2005, not the Labour Code. Foreign companies can engage Vietnamese individuals as independent contractors without assuming employer obligations under Vietnamese labour law.

This model is most commonly used for freelancers, consultants, and specialised professionals working on defined projects.

The reclassification risk

The Labour Code 2019 states that any agreement, regardless of what it is called, that involves paid work performed under the management, instruction, and supervision of one party is an employment contract.

If your service contract contains terms that look like employment, Vietnamese labour authorities can reclassify it on inspection. The consequences: retroactive social insurance liability, PIT withholding obligations, and potential fines.

Vietnamese law does not provide a bright-line test for distinguishing service from employment. The primary indicators authorities apply are:

What to do, and what to avoid

Structure the contract around deliverables, not hours. Use project-based or milestone payments. Avoid reimbursing routine expenses. Do not prescribe working hours or require the contractor to follow internal company policies as an employee would.

The contract should state explicitly that the individual is an independent contractor, not an employee; that they retain full control over how they deliver the work; and that they assume responsibility for the associated risks.

Where possible, require the contractor to hold a business registration certificate and operate as a household business under the Enterprise Law 2020. This strengthens the commercial nature of the arrangement. Obtain evidence of the contractor's tax compliance — this protects the foreign company if the contractor's PIT status is audited.

Avoid language in your contracts, internal systems, or communications that treats the contractor as a staff member. Job titles, internal email addresses, company policy acknowledgements, and attendance tracking are all reclassification indicators.

Model 2: Dedicated team at a Vietnamese service provider

What this model is

A foreign company engages a Vietnamese service company that assembles and manages a dedicated team to deliver specified services to the foreign company. The employees are on the service company's payroll. The foreign company receives the output, not the labour.

This model works well for software development, quality control, and other technical functions where the scope of work can be defined by deliverables.

The risks

This model carries less direct employment exposure than a service contract with an individual. The service company is the employer. However, if the foreign company exercises operational control over the team — setting hours, directing tasks, managing performance directly — authorities may look through the arrangement and treat it as a de facto employment relationship.

Data security is the other major risk. If the same team delivers services to multiple clients in the same sector, sensitive intellectual property, client data, and source code are all in the same environment.

How to structure it correctly

The service agreement should describe the scope of work in terms of outcomes and deliverables, not head count or time. Avoid clauses that give the foreign company authority to manage the team directly. Performance issues should be raised with the service company, not with individual team members.

Before signing, verify that the service company holds the appropriate business lines to legally provide the services contracted. An IT services company, for example, must hold a licence covering software development or technical consulting as applicable.

Build data protection obligations into the contract: data segregation, access controls, confidentiality undertakings, and IP assignment. Vietnam's Law on Personal Data Protection (Law No. 91/2025/QH15) imposes obligations on any entity processing personal data of Vietnamese individuals, including service providers processing data on behalf of a foreign client.

For more on Vietnam's data privacy obligations for foreign companies, including what the Law on Personal Data Protection requires of processors and cross-border data transfer rules, see Dilinh Legal's overview of the data privacy framework.

Model 3: Employer of Record (EOR)

What this model is

An Employer of Record (EOR) is an HR services company that formally employs Vietnamese workers on behalf of the foreign company. The EOR handles onboarding, payroll processing, PIT withholding, social insurance contributions, and benefits administration. The foreign company receives the work output and directs the day-to-day tasks.

The EOR concept has no standalone legal recognition under Vietnamese law. EOR services operate within the existing framework for HR outsourcing and related services.

The labour outsourcing risk

This is the most significant legal risk in the EOR model, and it is frequently misunderstood.

The Labour Code 2019 (Article 52) regulates labour outsourcing — an arrangement where an employee signs with an outsourcing company and is then assigned to a client company. Labour outsourcing requires a Labour Outsourcing Licence from the Ministry of Home Affairs. It is subject to three hard constraints:

(1) Outsourced assignments cannot exceed 12 months.

(2) Outsourcing is restricted to specific roles listed in the regulations (interpreters, bodyguards, sales assistants, and a limited number of others).

(3) Outsourcing must be justified by a specific operational need: temporary surge in workload, cover for employees on leave, or roles requiring specialist expertise.

Most EOR arrangements in Vietnam involve roles and durations that fall outside these restrictions. If an EOR arrangement is classified as labour outsourcing — which authorities may do on inspection — both the EOR and the foreign company face administrative penalties for operating without the required licence.

The termination problem

Because the EOR is the legal employer, the foreign company cannot unilaterally terminate an employee. Termination must follow Vietnamese labour law. Under the Labour Code 2019, legitimate grounds for termination are narrow: redundancy from a genuine restructuring within the employer entity, repeated poor performance following a formal performance improvement process, or specific disciplinary grounds.

A reorganisation within the foreign company, including headcount reductions at parent level, does not give the EOR grounds to terminate the employee. The foreign company may find itself locked into a payroll obligation it cannot exit without triggering unlawful dismissal claims.

How to structure the EOR arrangement correctly

Partner only with an EOR that has a demonstrable compliance track record. Ask for evidence of their social insurance registration, payroll tax standing, and how they handle labour disputes. This is a due diligence step, not a formality.

The service agreement with the EOR must not describe the arrangement as labour outsourcing. Define the EOR's obligations in terms of HR administration services, payroll processing, benefits management, and statutory compliance, and describe the work location as the EOR's premises.

Set out the commercial grounds for ending the service agreement clearly. This should include a right to remove a named team member for defined performance reasons, with the EOR responsible for managing the employment relationship within Vietnamese law.

Assign IP in the service agreement. Work product created by EOR employees for the foreign company — code, designs, reports, analyses — must be assigned to the foreign company at the point of creation. Without a clear IP assignment clause, the employee (as creator) may retain residual rights under Vietnamese IP law.

Build cybersecurity obligations into the contract. Remote working arrangements increase the attack surface for data breaches. The EOR must have the infrastructure to protect client data, trade secrets, and intellectual property. This links directly to obligations on data processors under the Law on Personal Data Protection (Law No. 91/2025/QH15).

For guidance on structuring labour agreements and compliance obligations under the 2019 Labour Code, see Dilinh Legal's labour and employment practice area.

What changes in 2026

Two developments are relevant to foreign companies managing cross-border employment this year.

First, the Law on Personal Data Protection (Law No. 91/2025/QH15) is now in force. Any EOR or service provider processing the personal data of employees on behalf of a foreign company is a data processor under Vietnamese law. The service agreement must include a data processing agreement that meets the Law's requirements. Foreign companies transferring Vietnamese employee data overseas must comply with cross-border transfer rules, including impact assessments and, in some cases, regulatory approval from the Ministry of Public Security.

Second, the Ministry of Labour has signalled increased enforcement of labour outsourcing rules in 2025–2026, following a period of relatively light scrutiny during the post-COVID economic recovery. Foreign companies using EOR arrangements that have not been reviewed since 2022 or 2023 should have those arrangements assessed against current enforcement posture before the end of Q3 2026.

About the author

Diep Hoang is the Founding Partner of Dilinh Legal, a business law firm in Ho Chi Minh City. She founded the firm in 2010 and has built it into one of Vietnam's leading practices in Corporate and M&A. Diep has been ranked by Chambers as a leading lawyer in Corporate & M&A since 2020.

This article is for general information only and does not constitute legal advice. For further information, please contact Dilinh Legal at contact@dilinh.com | +84 (28) 73000864 | dilinh.com