EOR vs subsidiary in Vietnam: how to choose your market entry model

Key Takeaways

• An EOR and a subsidiary solve different problems: an EOR suits a market test or pre-incorporation hiring, while a subsidiary suits selling, invoicing, investing, holding assets and building a lasting team.
• In Vietnam, EOR is a commercial label, not rather than a distinct legal category, so it must be assessed against the labour-dispatch framework for licence, permitted roles and duration.
• An EOR does not automatically remove permanent-establishment tax risk; the employees’ actual activities decide it.
• The strongest choice is often a sequence: use a compliant EOR to start, then move to a subsidiary as commitment grows.

Many foreign companies choose an entry model on speed and cost alone, then discover tax, licensing and labour-compliance risk only once they are operating. This article defines Employer of Record and subsidiary accurately under Vietnamese law, then offers a decision framework rather than reducing the choice to fast versus cheap.

Why this decision matters now

Vietnam’s investment framework has changed. The Law on Investment No. 143/2025/QH15 and its guiding Decree No. 96/2026 are now in force, so any current analysis of establishing an entity should rest on the operative framework rather than older guidance under the 2020 Law on Investment.

At the same time, the way EOR is marketed often does not match the legal reality in Vietnam. Global providers frequently present “no entity required” as a complete answer, while Vietnam’s rules on labour dispatch limit that model by licence, permitted job category, purpose and duration. The choice between an EOR and a subsidiary should therefore rest on objective legal criteria rather than marketing, because the wrong model can create tax, licensing and labour-compliance risk that only surfaces after operations begin.

What an EOR and a subsidiary actually are

An Employer of Record is a model in which a provider is named as the legal employer and handles contracts, payroll, tax withholding, statutory insurance and HR administration, while the client company still runs the day-to-day work. It lets a foreign company put people to work in Vietnam quickly, before establishing a legal entity.

A subsidiary is a legal entity that a foreign investor establishes in Vietnam. It directly employs its workforce and retains employer obligations, even when HR and payroll are outsourced. More importantly, a properly licensed subsidiary can generate revenue, issue invoices, sign local contracts and hold assets, which an EOR does not automatically permit.

The key point is that the two models do not sit on the same axis to be ranked against each other. An EOR is a way to put people to work; a subsidiary is a way to operate a commercial presence. Many wrong decisions start by treating these two questions as one.

The legal reality in Vietnam

This is the part most often missed. In many markets EOR is marketed as a tidy, no-entity product. In Vietnam, EOR is a commercial label rather than a distinct legal category. The arrangement actually implemented must be mapped to a structure the law recognises, in many cases labour dispatch.

Labour dispatch in Vietnam is a conditional activity. Under the Labour Code 2019 and Decree 145/2020, it requires a licence, applies only to certain job groups listed in the accompanying appendix, may be used only in specific circumstances such as meeting a sudden spike in demand or a temporary replacement, and carries a limit on how long one worker may be dispatched. It cannot be assumed that any foreign company can place any role through an EOR indefinitely.

A further difference from the US model matters here: Vietnam does not apply the concept of co-employment. It follows a single-legal-employer model, which affects how responsibility is allocated between provider and client, so terms should be set under Vietnamese law rather than copied from a contract used in another market.

Finally, permanent-establishment risk. An EOR does not automatically remove it. If Vietnam-based staff carry out the parent’s core business or act as its commercial presence, for example holding sales authority, negotiating contracts, owning revenue responsibility or serving as a country manager, permanent-establishment tax risk can arise regardless of what the employment contract says. A Vietnam-qualified tax opinion should be a decision gate, not an afterthought.

Nine dimensions to compare

Three business scenarios

A software company wants to test demand with a small group of implementation specialists doing non-commercial work for a short period. This suits an EOR, provided the legal structure and roles are confirmed compliant and the parent’s activities do not create unwanted tax or licensing exposure.

A company needs to hire a regional sales leader for the Vietnamese market. An EOR looks fast, but someone who negotiates and develops business can raise permanent-establishment risk regardless of the employment contract. The company should take tax advice and may need a subsidiary earlier than headcount alone would suggest.

A manufacturer needs land or premises, machinery, import arrangements, licences, supply contracts, local invoicing and a large, permanent workforce. A subsidiary is the more coherent model, because for manufacturing the entry extends well beyond employment administration and needs a full legal entity to invest, invoice and hold assets.

When an EOR should become a subsidiary

An EOR is a bridge, not a destination. A company should reassess the model when one or more signals appear: the team begins selling, negotiating, contracting or generating revenue locally; the parent needs invoices, banking relationships, assets, licences or investment incentives; headcount and provider fees make a subsidiary more sensible on cost; roles no longer fit a lawful labour-dispatch structure; the arrangement approaches a statutory or contractual duration limit; a country leader or fixed location strengthens taxable-presence indicators; or the company commits to a multi-year plan in Vietnam.

A checklist for leaders

Before choosing a model, a company should pass a few decision gates. On activity, clarify whether the Vietnam team will research, support, manufacture, sell, negotiate, invoice or hold assets. On each role, record the title, duties, decision authority, customer contact, location and expected duration. On the EOR structure, confirm the contracting entity, applicable licence, permitted job group and duration. On tax, take advice based on actual conduct, not just contract wording. On cost, compare EOR and subsidiary across several time horizons rather than one recurring fee against one incorporation fee. Both models also process significant employee data, so obligations under the Personal Data Protection Law No. 91/2025/QH15 and its guiding Decree No. 356/2025/ND-CP belong in the model design from the start.

Talentnet’s integrated path

The strength of a partner that offers both models is not having to pick a side. Talentnet provides both PEO/EOR and full HR outsourcing, plus corporate services that support establishing, operating and scaling an entity. Its EOR scope covers the legal-employer role, HR documentation and payroll, compliance, benefits and expense reimbursement. So instead of framing the story as “EOR is faster,” a company can weigh three paths together: use an EOR, establish a subsidiary, or follow an EOR-to-entity sequence, building a controlled route from putting people to work toward durable operations.

Frequently asked questions

How does EOR differ from an entity? An EOR puts people to work through a provider named as the legal employer, while establishing an entity creates the company’s own subsidiary that can sell, invoice and hold assets.

Can you hire in Vietnam without an entity? It is possible through a lawful structure such as labour dispatch, but only within the permitted job groups, purposes and duration.

Does an EOR avoid permanent-establishment risk? Not automatically. If staff carry out the parent’s core business, risk can still arise and needs a tax opinion.

Does Vietnam require a fixed minimum capital? Most common sectors have no general minimum, but capital must credibly support the intended operations, and some conditional sectors set their own thresholds.

Conclusion

An EOR lets a company learn before it locks in; a subsidiary lets it operate and scale with direct control. In Vietnam, the right choice depends not only on headcount and speed, but on permitted activity, role structure, taxable presence, investment commitment and the point at which a temporary bridge should become a durable business. For a company that wants to weigh EOR, subsidiary and the transition path on one table, Talentnet’s PEO/EOR and corporate services are a starting point to consider.