In-depth clarification on financial obligations of enterprise’s branches

Expanding business operations through the establishment of branches is a common strategy among enterprises. However, such expansion entails the responsibility to comply with a wide range of legal requirements, particularly financial obligations related to branches. A proper understanding and accurate fulfillment of these obligations help enterprises avoid legal risks, administrative sanctions, and ensure smooth business operations. To assist enterprises in grasping these main issues, NPLaw provides the following detailed overview of financial obligations of enterprise’s branches. 

I. Current situation regarding financial obligations of enterprise’s branches

The implementation of financial obligations by branches in Vietnam presents several challenges, primarily revolving around the distinction between independently accounted branches and dependently accounted branches.

Many enterprises still struggle to correctly determine the proper case to declare and pay various types of taxes, especially when branches are located in provinces or cities different from the head office. Common errors include the misallocation of Value Added Tax (VAT), Personal Income Tax (PIT) for employees working at the branch, and, most importantly, Corporate Income Tax (CIT) for dependently-accounted branches that engage in business activities generating revenue.

The lack of detailed guidance or frequent changes in tax regulations often lead enterprises to late submissions, incorrect declarations, and consequently, administrative sanctions or retrospective tax collection. Moreover, the unclear determination of the parent company’s joint liability when a branch violates its financial obligations remains a concern for many corporate managers.

In summary, the complexity of accounting models and the rules governing tax allocation represent major challenges to the accurate and lawful fulfillment of financial obligations for branches.

II. Legal provisions governing financial obligations of enterprise’s branches

To mitigate legal risks and ensure compliance throughout the business expansion process, enterprises must thoroughly understand the complex tax framework regulating branch operations. This section clarifies the key legal provisions on financial obligations of branches, particularly regarding the declaration and payment of Value Added Tax (VAT), Personal Income Tax (PIT), and Corporate Income Tax (CIT), depending on the branch’s accounting model.

1. Definition of financial obligations of enterprise’s branches

Financial obligations of an enterprise’s branch encompass all fees, charges, and taxes that the branch (or the parent company on its behalf) must declare and pay to the State budget, arising from the branch’s business activities, employment, and use of assets. These obligations include, but are not limited to:

• Corporate Income Tax (CIT): Depending on the accounting model (Article 13, Circular No. 80/2021/TT-BTC guiding the Law on Tax Administration).
• Value Added Tax (VAT): Arising from the sale of goods and provision of services.
• Personal Income Tax (PIT): Withheld and remitted on behalf of employees working at the branch.
• Other fees and charges: Such as business license fees, environmental protection fees, and resource taxes (if applicable).

2. Financial obligations upon branch establishment

Upon receiving its Certificate of Branch Registration, the branch (or the parent company) must fulfill the following obligations:

• Payment of business license fee: The branch must pay the business license fee, typically at the lowest rate depending on its registered capital or the previous year’s revenue.
• Tax registration: Independently accounted branches must register for tax, while dependently accounted branches must notify the tax authority of their establishment for tax allocation purposes.
• Initial tax declaration: The branch must complete initial tax declaration procedures with the local tax authority, including registration of its VAT calculation method (for independently accounted branches). 

In conclusion, compliance with these initial obligations upon establishment marks the first essential legal step for any branch.

III. Clarification of common issues regarding financial obligations of branches

Having outlined the fundamental legal provisions on branch financial obligations, especially concerning tax declaration and payment, this section addresses common questions and practical issues enterprises often encounter to ensure compliance and minimize legal and financial risks.

1. How do financial obligations differ between independently and dependently accounted branches?

The main distinction lies in the responsibility for declaring and paying Corporate Income Tax and Value Added Tax:

2. Where are financial obligations declared and paid when the branch is located in a different province from the head office?

• Corporate Income Tax (CIT): According to Clause 1, Article 12 of Circular No. 80/2021/TT-BTC:
  + Independently accounted branches declare and pay Corporate Income Tax directly to their local tax authority.
  + Dependently-accounted branches have their Corporate Income Tax declared by the head office but must allocate and remit the corresponding tax amount to the locality where the branch operates.

• Value Added Tax (VAT): Depending on the reporting method (centralized or separate). For centralized reporting, the branch must make provisional tax payments (temporary remittance) to the tax authority in its locality.
• Personal Income Tax (PIT): Personal Income Tax must be withheld and remitted to the tax authority directly managing the branch (Article 19, Circular No. 80/2021/TT-BTC).

3. What are the sanctions for late payment of financial obligations by a branch?

Late payment of taxes and other financial obligations is subject to sanctions under the Law on Tax Administration and related guiding documents. Sanctions include:

• Late payment interest: As provided in Clause 1, Article 42 of Decree No. 125/2020/NĐ-CP, late payment interest is calculated as:
• Late payment interest = 0.05% × Amount of unpaid fine per day.
• Sanctions for procedural violations: Fines for late submission of tax declarations or failure to comply with administrative requirements.
• Sanctions for incorrect declarations: Applied when late submission or incorrect reporting results in underpayment of

4. If a branch operates at a loss, can it be exempted or reduced from its financial obligations?

A branch’s loss does not automatically entitle it to exemptions or reductions in financial obligations.

• Corporate Income Tax (CIT):
  + Independently accounted branches may carry forward losses to subsequent years as permitted by law.
  + Dependently accounted branches may offset their losses against the parent company’s profits for consolidated Corporate Income Tax calculation.

However, other taxes (Value Added Tax (VAT), Personal Income Tax (PIT), business license fee) must still be paid in full.

• Tax Incentives:
• Exemptions or reductions may only apply if the enterprise (and its branch) meets eligibility criteria for Corporate Income Tax incentives (e.g., based on business sector or geographical location).

5. Is the parent company liable for the branch’s financial violations?

The parent company is directly liable for financial obligations arising from the branch’s operations.

Under Clause 1, Article 74 of the Civil Code 2015, a legal entity is an organization with independent property and takes liability with its own assets.

Meanwhile, according to Clause 1, Article 44 of the Law on Enterprise 2020 (as amended in 2025), a branch is not a legal entity but a dependent unit of the enterprise. Therefore, when a branch violates financial obligations (e.g., tax debt, contractual debt), the parent company must assume full liability with its own assets.

IV. Legal advisory services on financial obligations of corporate branches

Managing and complying with financial obligations of branches requires a thorough understanding of the Law on Enterprise, the Law on Tax Administration, and related implementing regulations. The complexity of determining the accounting model and tax declaration jurisdiction often exposes enterprises to errors and legal risks.

To ensure accurate and lawful compliance, NPLaw provides comprehensive legal advisory services, including:

• Consulting on the optimal accounting model (independent or dependent) to optimize tax obligations.
• Guiding enterprises through tax declaration and payment procedures for Value Added Tax (VAT), Personal Income Tax (PIT), and Corporate Income Tax (CIT) in the correct location and within legal deadlines.
• Assisting in verifying documents and evidence related to the fulfillment of financial obligations, especially in case of disputes or inspections.

Contact NPLaw to ensure your branch operations remain fully compliant with the law and minimize financial risks.