Labor outsourcing beyond the permitted list: Risk of non-deductible input VAT and disallowed CIT expenses

On 5 June 2026, the Tax Department (Ministry of Finance) issued Official Letter No. 3705/CT-CS in response to the Phu Tho Provincial Tax Office (Official Letters No. 2025/PTH-QLDN5 and No. 2931/PTH-QLDN1) regarding tax policies applicable to labor outsourcing (labor subleasing) activities.

Key takeaway: the activity of "manufacturing electronic components" is determined to fall outside the list of jobs permitted for labor outsourcing, giving rise to risks concerning the credit and refund of input VAT and the deductibility of expenses for Corporate Income Tax (CIT) purposes for the enterprises involved.

1. Legal framework on labor outsourcing

• Under Articles 52 and 53 of the Labor Code No. 45/2019/QH14 dated 20 November 2019: labor outsourcing is a conditional business line, which may only be conducted by enterprises holding a Labor Outsourcing License and only for certain specified jobs.
• Decree No. 145/2020/ND-CP dated 14 December 2020 of the Government provides detailed regulations on labor outsourcing enterprises, labor-hiring parties, and license revocation.
• Appendix II issued together with Decree No. 145/2020/ND-CP limits the list to only 20 jobs eligible for labor outsourcing, which includes the job of "manufacturing and installing television and telecommunications equipment".

2. "Manufacturing electronic components" is not on the list

• The issue arises from distinguishing between the jobs on the permitted list and the enterprise's actual activities.
• Cross-referencing the Vietnam Standard Industrial Classification (Appendices I and II issued together with Decision No. 27/2018/QD-TTg dated 6 July 2018 of the Prime Minister):
  • "Manufacture of electronic components": level-3 industry code 261.
  • "Manufacture of communication equipment": level-3 industry code 263.
  • The two activities belong to the same level-2 industry but are different level-3 industries.
• Before responding, the Tax Department consulted the specialized authorities (Official Letter No. 1543/CT-CS dated 17 March 2026). The results:
  • The Department of Wages and Social Insurance (Ministry of Home Affairs), in Official Letter No. 515/CTL&BHXH-CSLD dated 31 March 2026, confirmed that the manufacture of electronic components is not included in the list of jobs eligible for labor outsourcing under Decree No. 145/2020/ND-CP.
  • The Ministry of Science and Technology, in Official Letter No. 1990/BKHCN-KHTC dated 2 April 2026, affirmed that the list of 20 jobs does not contain "manufacturing electronic components"; therefore, there is insufficient basis to determine that this activity falls within the scope of permitted labor outsourcing.

3. Tax and invoice treatment

Based on the opinions of the two authorities above, the Tax Department requested the Phu Tho Provincial Tax Office:

• Regarding invoices: to rely on the laws applicable in each period, the contracts, and the actual supporting documents to guide taxpayers on the appropriate treatment.
• Regarding VAT and CIT: to rely on the opinions of the Ministry of Science and Technology and the Department of Wages and Social Insurance (Ministry of Home Affairs), together with the laws applicable in each period, the contracts, and the actual supporting documents, in order to:
  • Assess whether the enterprise satisfies the conditions for crediting and refunding input VAT.
  • Determine the deductible and non-deductible expenses for CIT purposes in accordance with regulations.
• The Tax Department further noted:
  • Related expenses that violate specialized-sector laws shall not be treated as deductible expenses when determining CIT taxable income.
  • The declaration and crediting of input VAT must comply with the conditions and principles under the Law on VAT and its current guiding documents.

4. Official Letter 3705/CT-CS is used as the common basis for responses

The position set out in Official Letter 3705/CT-CS has been used by the Tax Department as the common basis for its responses to the business community (for example, in Official Letter No. 6304/CT-QLNT dated 25 August 2026 responding to the Vietnam Association of Foreign Invested Enterprises, and Official Letter No. 5200/CT-CS dated 24 July 2026 responding to the Korea Chamber of Business in Vietnam — KoCham), indicating that this is the tax authority's consistent approach to labor outsourcing activities - a point particularly noteworthy for FDI enterprises in electronics manufacturing.

💡 Recommendations for enterprises

1. Labor outsourcing enterprises and labor-hiring parties (especially in electronic components manufacturing) should review their existing contracts and cross-check the actual jobs performed against the list of 20 permitted jobs in Appendix II of Decree No. 145/2020/ND-CP.
2. Reassess tax risks: expenses for outsourced labor beyond the permitted list may be excluded from deductible expenses for CIT purposes and may be ineligible for input VAT credit/refund.
3. Consider restructuring the arrangements (for example, converting to service or processing contracts consistent with the substance of the transactions) and prepare complete supporting documentation for past periods.
4. Proactively engage with the supervising tax authority when issues arise, rather than waiting for a tax audit or inspection.

>>> Download Official Letter 3705/CT-CS

This newsletter is prepared by Crowe Vietnam for general information purposes only and does not constitute professional advice for any specific case. Enterprises should refer to the original legal instruments and consult professional advisors before applying the contents to their actual circumstances.