With the rapid development of the construction industry, many foreign subcontractors are seeking opportunities to access the Vietnamese market. NPLaw is here to turn your aspirations into reality by providing insights into the conditions and procedures for foreign subcontractors to operate in Vietnam.

I. The influence of foreign subcontractors in the current context

At present, under the trend of globalization and deep economic integration, numerous large-scale investment projects in Vietnam have been attracting the participation of foreign contractors, including subcontractors. The involvement of these foreign entities has had varying impacts on the domestic economic development environment.

First and foremost, it is worth noting the crucial role of foreign subcontractors in technology and technical know-how transfer in fields such as construction. This has made significant contributions to ensuring both the quality and progress of project implementation in Vietnam.

On the other hand, the participation of foreign subcontractors also raises various legal issues that require proper regulation, such as operational conditions and legal procedures. These developments present opportunities for Vietnam’s legal system to identify shortcomings and introduce timely improvements.

In summary, the emergence of foreign subcontractors not only affects domestic economic development but also has an impact on the body of legal instruments governing this matter.

II. What is a foreign subcontractor?

To properly determine the applicable entities for this article, readers must understand the definition of a foreign subcontractor. However, not all stakeholders can easily access this information within the existing legal framework.

Therefore, NPLaw’s analysis below will clarify the concept and fundamental requirements for foreign subcontractors to legally operate in Vietnam.

1. Definition of a foreign subcontractor

Pursuant to Clause 27 Article 4 of the Law on Bidding 2023, a subcontractor is defined as an organization or individual entering into a contract with a contractor to perform works such as construction, consulting, non-consulting, related services of a goods supply package, or works within a mixed package.

In addition, Clause 28 Article 4 of the same Law defines a “special subcontractor” as a subcontractor performing significant portions of the package as proposed by the contractor in the bid dossier or proposal dossier, based on capacity and experience requirements stipulated in the invitation to bid or request for proposals.

Meanwhile, Clause 29 Article 4 provides that a foreign contractor means an organization established under foreign laws or an individual of foreign nationality participating in bidding activities.

From the above, a foreign subcontractor can be understood as an organization established under foreign laws or an individual of foreign nationality that enters into a contract with a contractor to participate in the performance of works within a package.

2. Is registration required for foreign subcontractors to operate in Vietnam?

Pursuant to Point a Clause 1 Article 5 of the Law on Bidding 2023, a foreign subcontractor is deemed legally qualified when meeting statutory conditions, including the requirement that the foreign contractor be duly established and operate under foreign laws.

Accordingly, foreign subcontractors are not required to register business establishments in Vietnam. However, to ensure proper management and supervision by the State, foreign subcontractors must comply with the registration obligations under Clause 2 Article 119 of Decree No. 175/2024/ND-CP, including:

  • Establishing an executive office at the project location after obtaining the construction operation permit;
  • Registering, canceling, and returning the seal specimen upon contract completion in accordance with law;
  • Registering and fulfilling tax obligations under Vietnamese tax laws.

Thus, to facilitate their participation in bidding packages in Vietnam, the law does not require foreign subcontractors to establish a legal entity in Vietnam. Nonetheless, foreign subcontractors must still undertake certain registration procedures (e.g., applying for a Construction Operation Permit) to ensure lawful performance of subcontracting agreements.

III. Legal provisions governing foreign subcontractors

1. Licensing procedures for foreign subcontractors to participate in construction projects in Vietnam

Under Clause 1 Article 113 of Decree No. 175/2024/ND-CP, foreign contractors may only engage in construction activities in Vietnam upon being granted a Construction Operation Permit by the competent construction authority.

Accordingly, for a foreign subcontractor to participate in a construction project in Vietnam, it must first be selected by the main contractor and subsequently apply for a Construction Operation Permit in compliance with Vietnamese regulations.

Based on Articles 115 and 117 of Decree No. 175/2024/ND-CP, the licensing procedure is as follows:

Step 1: Preparation of Application Dossier

The foreign subcontractor prepares one (01) dossier including:

  • Application for Construction Operation Permit (Forms No. 01 and 04, Appendix III of Decree 175/2024/ND-CP);
  • Certified copy/electronic copy of lawful bidding results or contractor selection decision;
  • Certified copy/electronic copy of establishment license or business registration certificate of the foreign organization, and practicing certificate (if any);
  • Report on relevant experience and certified copy/electronic copy of consolidated financial audit reports for the past three (03) years (or since establishment if less than 3 years);
  • Certified copy/electronic copy of joint venture contract with a Vietnamese contractor or official/conditional contract with a Vietnamese subcontractor (as included in the bid dossier);
  • Valid power of attorney for a person not being the legal representative of the contractor.

Step 2: Submission of Application

The dossier is submitted to the competent licensing authority:

  • Department of Construction: where activities are limited to one province;
  • Department of Construction in the locality of the proposed executive office: where activities span two or more provinces.

Step 3: Permit Issuance

  • The licensing authority reviews the dossier and issues the Construction Operation Permit within 20 days of receiving a complete and valid application. If the permit is denied, a written response with reasons must be provided.

In essence, upon completing these steps, a foreign subcontractor may participate in construction projects in Vietnam.

2. Conditions for foreign subcontractors to be recognized in bidding projects in Vietnam

According to Article 5 of the Law on Bidding 2023, the conditions vary for organizations, household businesses, and individuals. These include requirements such as lawful establishment, independent accounting, no insolvency or dissolution proceedings, proper registration on the National Bidding Network System, compliance with competition rules, absence of prohibition from bidding, and not being subject to criminal prosecution.

Additionally, under the Law on Construction 2014 (as amended in 2020), foreign subcontractors must enter into subcontracting agreements with the main domestic contractor to be recognized.

3. Applicable tax regulations

Pursuant to Article 5 of Circular No. 103/2014/TT-BTC:

  • Foreign subcontractors that are organizations are subject to Value Added Tax (VAT) and Corporate Income Tax (CIT);
  • Foreign subcontractors that are individuals are subject to VAT and Personal Income Tax (PIT).

Understanding tax obligations is critical for foreign subcontractors to fulfill their responsibilities and minimize legal risks.

IV. Questions on foreign subcontractors

1. Can foreign subcontractors contract directly with project owners, or must it be through the main contractor?

Pursuant to Point b Clause 3 Article 3 of Decree No. 37/2015/ND-CP, a subcontract is defined as a construction contract between the main contractor/general contractor and a subcontractor. Hence, foreign subcontractors must contract through the main contractor.

2. Do foreign subcontractors have the right to claim damages from the main contractor?

Under Article 360 of the Civil Code 2015, where damages arise from breach of obligation, the breaching party must compensate the aggrieved party unless otherwise agreed or provided by law. Thus, foreign subcontractors may claim damages from the main contractor.

3. Can foreign subcontractors employ Vietnamese workers?

According to Point d Clause 2 Article 119 of Decree No. 175/2024/ND-CP, foreign contractors, including subcontractors, must employ Vietnamese and foreign workers in compliance with Vietnamese labor laws.

4. How are disputes between foreign subcontractors and main contractors typically resolved?

Dispute resolution methods are usually specified in subcontract agreements. Common methods include negotiation, mediation, commercial arbitration, or litigation before the People’s Courts.

5. What legal risks might foreign subcontractors face in Vietnam?

Common risks include violations of tax or labor obligations, contractual disputes with the main contractor, lack of legal compliance, and difficulties in dispute resolution due to legal or language barriers.

V. Should foreign subcontractors seek legal counsel?

Given the complexity and inherent risks of the current regulations on foreign subcontractors, seeking professional legal advice is advisable.

At NPLaw, our team of experienced lawyers can assist with:

  • Assessing and advising on legal conditions and required documentation;
  • Drafting and reviewing subcontract agreements;
  • Handling administrative and tax procedures;
  • Protecting subcontractors’ rights in case of disputes.

Engaging NPLaw’s legal services will help foreign subcontractors mitigate risks, save time and costs, and ensure lawful operations in Vietnam.