Contract Mistakes in Vietnam: 7 Traps for Foreign Firms
Nobody discovers a bad contract on the day they sign it. They discover it eleven months later, when the supplier stops answering emails, or when a tax inspector sits down with the general ledger and asks why a VND 4.2 billion service fee was booked without a withholding declaration.
That gap — between signing and finding out — is where most of the damage happens. And in Vietnam the gap is wider than foreign managers expect, because a contract here has to survive two different audiences. It has to hold up in front of a court or an arbitral tribunal, which is the part everyone thinks about. It also has to hold up in front of the tax authority, which is the part almost nobody thinks about until the assessment letter arrives.
We review commercial agreements for foreign-invested enterprises in Vietnam most weeks of the year. The same seven problems keep coming back, and they are rarely exotic. They are ordinary clauses, copied from an ordinary head-office template, that behave differently under Vietnamese law than the drafter assumed.
What makes a contract mistake in Vietnam so expensive
Vietnamese contract law is not unusually hostile to foreign parties. The Civil Code 2015 and the Commercial Law 2005 give the parties broad freedom to agree terms, and Vietnam has been a CISG contracting state since 2017. On paper, a competent English-language commercial agreement should function.
The friction comes from a different direction. Vietnam layers mandatory administrative rules on top of contract law — foreign exchange controls, invoicing rules, withholding tax rules, non-cash payment requirements — and those rules do not care what the parties agreed. A clause that is perfectly valid between the two of you can still trigger an administrative fine, disqualify an expense, or leave you unable to prove anything to a court. That is the shape of a typical contract mistake in Vietnam: not illegality, but a mismatch between private agreement and public compliance.
Below are the seven we see most often, roughly in the order they cost money.
Mistake 1: Signing with someone who cannot bind the company
An enterprise in Vietnam can register more than one legal representative, and the charter can split their powers — one for banking, one for commercial contracts, one for HR. It can also cap a representative's authority by value, so the general director who signed your USD 800,000 supply agreement may only have been authorised up to USD 200,000 without a board resolution.
Then there is the representative office problem, which catches a lot of first-time entrants. A rep office of a foreign trader is not a trading entity. Its chief representative generally cannot conclude commercial contracts on behalf of the parent unless there is a specific, valid power of attorney behind it. Plenty of foreign suppliers have signed with the "Vietnam office" of a group, only to find that the entity holding the assets never became a party to anything.
None of this makes an unauthorised contract automatically void. Vietnamese law allows the principal to ratify it, expressly or by silence over a reasonable period, and there are protections where the counterparty was genuinely misled. But ratification is an argument, not a document, and you do not want to be making that argument from the claimant's chair.
The fix is unglamorous and takes about an hour. Pull the counterparty's record from the National Business Registration Portal, match the enterprise code and registered name against the contract preamble, ask for the charter extract on signing powers, and take a copy of the signatory's ID plus the power of attorney or board resolution if they are not the registered representative. Keep all of it in the contract file.
Who can actually bind a Vietnamese company — and what to collect
Signatory | Where the authority comes from | Documents to keep on file |
Registered legal representative | Enterprise registration certificate, read together with the company charter | ERC extract, charter clause on signing powers, ID copy |
Second or third legal representative | Charter, which may divide authority by function or by value | Full charter extract showing the split, ID copy |
Deputy director or department head | Power of attorney from the legal representative | Original POA with scope, value cap and expiry date |
High-value or related-party deal | Members' Council or shareholders' resolution | Certified copy of the resolution, dated before signing |
Chief representative of a rep office | Specific authorisation from the foreign trader — cannot be assumed | Rep office licence plus express POA covering the transaction |
Mistake 2: Pricing a domestic contract in US dollars
This one surprises people, because it feels so normal. Two companies both located in Vietnam agree a price in USD, or agree a VND price "converted at the USD rate on the invoice date". Everyone signs happily.
Vietnam restricts the use of foreign exchange inside its territory. Under the Ordinance on Foreign Exchange and Circular 32/2013/TT-NHNN, transactions, quotations, advertisements, pricing and prices written into contracts between parties in Vietnam are generally not permitted to be denominated in foreign currency, unless the transaction falls within one of the specific exceptions the State Bank has carved out. Those exceptions are real and reasonably broad — export processing enterprises, certain on-spot export sales, some duty-free and border-gate activity, internal capital transfers — but they are exceptions, and your deal has to actually fit one.
The downside is twofold. There is an administrative fine exposure under Decree 88/2019/ND-CP for illegal foreign currency transactions. More importantly, the pricing clause itself sits on shaky ground, which is a bad place to be if you are later trying to enforce it or trying to explain the number to an auditor.
If exchange-rate risk is the real concern — and it usually is — say so in VND. Price the contract in dong and include an adjustment mechanism referencing a published rate, rather than denominating the obligation in dollars. It achieves the same commercial outcome without the regulatory question mark.
Mistake 3: Importing a penalty clause Vietnamese law will cut down
Head-office templates love liquidated damages. Twenty percent of contract value for late delivery, thirty percent for termination for cause. In Vietnam, the contractual penalty for breach of a commercial contract is capped at 8% of the value of the breached portion of the obligation under the Commercial Law, with narrow statutory exceptions such as construction consultancy. Anything above that is not a stronger deterrent. It is an unenforceable number that you will be arguing about.
Worse, penalty and damages are two separate mechanisms in Vietnamese law, and companies routinely conflate them. A penalty only applies if the parties expressly agreed one in writing — no clause, no penalty, full stop. Damages are a different claim, they are not capped at 8%, and they cover direct loss and lost direct profit. But you have to prove all of it: the breach, the actual loss, the causal link between the two, and the amount. You also have to show you took reasonable steps to mitigate.
So the sensible structure is a compliant penalty clause at or below the cap, sitting alongside an express right to claim damages in addition to the penalty. And then the boring part that actually decides cases: an evidence habit. Inspection reports, acceptance certificates, delivery notes, the email where they admitted the delay. A tribunal will pay more attention to a thin file of dated documents than to an aggressive number in Article 12.
Mistake 4: A bilingual contract with no governing language
Most contracts we see are English on the left, Vietnamese on the right. Sometimes they say the two versions are equally authentic, which sounds diplomatic and is close to useless. When the versions diverge — and after a translator has handled forty pages of commercial terms, they will diverge — an "equally authentic" clause gives the tribunal no way to resolve the conflict except by interpretation, which means both sides get to argue for whichever version favours them.
Pick one. State plainly which language prevails in the event of inconsistency. Then be honest with yourself about the consequence: if you name Vietnamese as the governing language, someone on your side who reads Vietnamese properly needs to have reviewed it, because that is now the contract. If you name English, remember that a Vietnamese court will work from a translation anyway, and the tribunal may still ask why the Vietnamese version your counterparty relied on said something different.
The second half of this mistake is confusing governing law with dispute resolution. They are separate clauses answering separate questions. Article 683 of the Civil Code generally lets parties choose the governing law for a contract with a foreign element, subject to limits around immovable property, consumers and employees. That choice tells you nothing about where the dispute is heard. A dispute clause needs to name the forum — court or arbitration, and which one — plus the seat, the procedural rules, the language of the proceedings and how arbitrators are appointed. Half-drafted arbitration clauses generate a preliminary fight about jurisdiction before anyone gets near the actual claim.
Mistake 5: Payment terms that quietly kill your tax deduction
This is the one that costs the most and gets the least attention at drafting, because it lives in the seam between the legal team and the finance team.
Since the VAT Law 48/2024/QH15 took effect on 1 July 2025, together with Decree 181/2025/ND-CP, input VAT is only creditable where there is non-cash payment evidence for purchases from VND 5 million including VAT — down from the old VND 20 million threshold. The corporate income tax rules moved in the same direction shortly afterwards. In practice this means routine transactions that used to be settled in cash without consequence now put both the VAT credit and the CIT deduction at risk.
The contract angle is that Decree 181 recognises alternatives to a straight bank transfer — offsetting mutual debts, payment by an authorised third party, instalment arrangements, settlement in shares or bonds — but generally on the condition that the arrangement is properly documented, which in practice means it needs to be provided for in the contract. A common pattern illustrates the point. Two companies agree informally to net off what they owe each other and settle the balance. Commercially sensible, legally fine, and then the auditor disallows the input VAT on the offset portion because the contract said nothing about offsetting and there is no written agreement recording it. The tax was never in dispute. The paperwork was.
The same logic applies to third-party payment. If your Singapore parent will pay a Vietnamese supplier on behalf of your Vietnamese subsidiary, that arrangement belongs in the contract before the first payment, not in an email afterwards.
Contract clause vs. the tax consequence it triggers
What the contract says (Or omits) | What happens at audit | Drafting fix |
Silent on payment method; parties settle in cash | Input VAT non-creditable and the expense may be non-deductible for CIT from the VND 5 million threshold | Require settlement by bank transfer to a named account and prohibit cash above the threshold |
Silent on offsetting; parties net mutual debts | Credit and deduction challenged on the offset portion for want of documentation | Express offsetting clause plus a signed netting statement for each settlement |
Payment made by a group company, no clause | Payment evidence does not match the contracting party; deduction questioned | Authorised third-party payment clause naming the payer and the mechanism |
Price stated in USD between two Vietnam-resident parties | Foreign exchange exposure under Decree 88/2019/ND-CP; invoicing mismatch | Price in VND with an indexation formula tied to a published rate |
No invoicing schedule tied to acceptance | Timing differences between revenue recognition, e-invoice issuance and the VAT period | Link e-invoice issuance to a defined acceptance event with a fixed deadline |
Cross-border service fee, no tax clause | Foreign contractor tax withheld from the payment or absorbed as an unbudgeted cost | State gross, net or split treatment expressly (see below) |
Mistake 6: Saying nothing about foreign contractor tax
When a Vietnamese entity pays an overseas supplier for services, royalties, interest, or goods supplied with obligations inside Vietnam, foreign contractor tax under Circular 103/2014/TT-BTC is usually in play. It bundles a deemed VAT component and a deemed CIT component, and the Vietnamese payer generally withholds and remits it. For general services the deemed rates commonly land around 5% VAT and 5% CIT, though the rate depends entirely on the nature of the transaction.
The contract decides who absorbs that cost, and the difference between the three standard treatments is not small.
Under a gross contract, the stated price includes FCT and the Vietnamese party withholds it, so the foreign supplier receives less than the headline figure. Under a net contract, the supplier receives the stated amount in full and the Vietnamese party grosses up to calculate the tax base — meaning the real cost to the buyer is materially higher than the contract price. Split treatment allocates the VAT and CIT components between the parties. All three are legitimate. What is not legitimate is a contract that says nothing, because then the first payment run becomes a negotiation, and one party is going to be unpleasantly surprised on a ten percent swing they never budgeted.
Write it down. One sentence stating whether the price is inclusive or exclusive of Vietnamese withholding taxes, which party bears each component, and who is responsible for registration and declaration, removes an entire category of argument.
Mistake 7: A termination right you cannot actually use
Commercial dissatisfaction is not a legal basis for termination, however justified it feels. Vietnamese law distinguishes between suspending performance, stopping performance and cancelling the contract, and each generally requires either a breach the parties expressly agreed would trigger that remedy, or a substantial breach that defeats the purpose of the contract.
Unilateral termination under Article 428 of the Civil Code rests on a serious breach, an agreed termination right, or another statutory basis — and the terminating party has to give notice. Skip the notice and you may be liable for the resulting damage. Terminate without adequate grounds and you can find yourself recharacterised as the breaching party, which is a spectacular way to lose a dispute you started.
Supreme People's Court Precedent No. 21/2018/AL makes the point concretely. A company leasing vessels gave three days' notice that it no longer needed them, under a fixed-term agreement with no applicable early-termination right. The court found the lessee at fault: three days gave the lessor no realistic chance to find replacement work, and rent for the remaining term could be taken into account in assessing the loss.
A termination clause that works specifies the triggering events, whether the breach must be material, the cure period and when it starts, the form and delivery of notices, when termination takes effect, what happens to work already performed, and which obligations survive. Then, before you use it, confirm the trigger has actually occurred, gather the evidence, issue the cure notice if one is required, and follow your own procedure to the letter.
What to do if you have already signed
Most companies reading this are not at the drafting stage. They have a drawer of live agreements signed over several years by people who have since left.
Start with exposure rather than volume. Rank the portfolio by contract value and by how hard the counterparty
would be to enforce against, and review the top tier properly rather than skimming everything. For each one, four questions cover most of the risk: did the person who signed have the authority to sign, is the price denominated in a currency you are allowed to use, do the payment mechanics generate the evidence the tax rules now require, and can you actually exit if you need to.
Where a live contract fails one of these, an amendment or an addendum usually fixes it, and a counterparty who wants the relationship to continue rarely objects to a clause that regularises tax treatment. The clauses that cannot be fixed by agreement — a signature that was never authorised, for instance — at least become known risks you can price and monitor instead of surprises.
How Vinex reviews a contract in Vietnam
Most of the problems above sit on a line that firms are not organised to see. A law firm reads the agreement and asks whether the obligations are enforceable. An accounting firm reads the invoices twelve months later and asks whether the expense is deductible. Neither one is looking at the clause that connects the two, which is precisely where the money leaks out.
Vinex was built for that seam. We are an English-language legal and accounting practice working with foreign investors and foreign-invested enterprises in Vietnam, which means the same team that drafts your payment clause is the team that will later file the VAT return it produces. When we mark up an agreement, a Vietnamese-qualified lawyer and a tax accountant go through it together, and the comments come back as one document rather than two opinions you have to reconcile yourself.
A review normally runs to four things. We verify the counterparty and the signatory against the business registry and the charter, so you know the person signing can bind the entity that holds the assets. We check the commercial architecture — price, currency, acceptance, remedies, termination, dispute resolution — against Vietnamese mandatory rules rather than against a generic template. We trace the payment mechanics through to their VAT, CIT and foreign contractor tax consequences and flag anything that will not produce the evidence an inspector expects. And where the contract is bilingual, we compare both language versions line by line, because "equally authentic" is a clause we would rather delete than argue about.
For companies with a live portfolio, we usually start with a triage of the highest-value agreements and work down, then handle the addenda needed to regularise the ones that can be fixed by agreement. Most of that work is quick. It is almost always cheaper than the alternative, which is discovering the problem during an audit or a dispute, when your options have narrowed to whichever ones your counterparty is willing to accept.
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Contact Vinex today at +84 98 1111 811 or contact@vinex.com.vn to launch your business with confidence.
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