A foreign manufacturer wants a production line in Vietnam without funding it up front, so its offshore affiliate offers to lease the machinery. It sounds simple, yet cross-border equipment leasing touches five regimes at once: lessor licensing, foreign contractor tax, customs, import VAT and foreign-exchange control. A misstep on any of them can turn a tidy lease into a tax assessment or a regulatory breach.
This article explains how cross-border equipment leasing works for FDI companies in Vietnam, where the risks sit, and how a local leasing vehicle can reduce them.
Table of Contents
- Why Cross-Border Equipment Leasing Matters for FDI Companies in Vietnam
- Finance Lease vs Operating Lease: Why Characterisation Drives Everything
- Lessor Licensing: Can an Unlicensed Foreign Lessor Lease into Vietnam?
- Foreign Contractor Tax on Lease Rentals
- Customs: Temporary Import and Re-Export vs Permanent Import
- SBV Foreign-Currency Rules for Rental Payments
- Tax Depreciation and Accounting Treatment
- Structuring Through a Vietnam Leasing Subsidiary
- Frequently Asked Questions
Why Cross-Border Equipment Leasing Matters for FDI Companies in Vietnam
Capital equipment is one of the largest outlays in a typical FDI project. Cross-border equipment leasing lets an investor spread that cost over the useful life of the assets and draw on the balance sheet or specialist lessors of the group abroad.
Commercial drivers behind cross-border equipment leasing
Investors turn to cross-border equipment leasing to preserve cash during ramp-up, access equipment not available locally, match rentals to production revenue, and use funding cheaper offshore than domestic bank credit. Affiliate lessors are common in cross-border equipment leasing because a group leasing arm already holds or can finance the asset.
Why legal structure decides the economics
The same machine can be taxed, licensed and reported very differently depending on how the arrangement is documented and who the lessor is. In cross-border equipment leasing, a lease from an offshore affiliate, a lease from a Vietnamese lessor and a deferred-payment sale may deliver identical capacity but different withholding tax, duty, VAT cash flow and regulatory exposure. Cross-border equipment leasing therefore rewards early legal structuring.
Finance Lease vs Operating Lease: Why Characterisation Drives Everything
Almost every downstream question in cross-border equipment leasing, from licensing to depreciation, starts with whether the arrangement is a finance lease or an operating lease. Vietnamese law and accounting standards look at substance, not the contract label.
How a finance lease Vietnam analysis works
Under the Law on Credit Institutions 2024 (Law No. 32/2024/QH15) and the finance-leasing regulations that sit beneath it, a finance lease is a medium- or long-term credit arrangement: the lessor buys the asset on the lessee’s instruction and leases it for a term covering most of its useful life, with rentals that substantially repay the asset’s cost and often a purchase option at the end.
In a finance lease Vietnam analysis, regulators and tax inspectors test the term, the present value of rentals, the allocation of risk and the end-of-term option against these indicators. Meeting enough of them pushes the transaction into finance-lease territory whatever the contract is called.
Operating leases and why they are attractive
An operating lease leaves the principal risks and rewards of ownership with the lessor, who expects to recover the asset and re-let or sell it. The lessee records rental expense over the term. Operating leasing is an ordinary commercial activity rather than a licensed financial one, which is why many cross-border equipment leasing structures are deliberately built as operating leases.
The trade-off is that a contract labelled “operating” but carrying a nominal purchase option or a full-payout rental schedule invites recharacterisation for tax, customs and licensing at once. Accounting follows Vietnamese Accounting Standard 06 (VAS 06), as IFRS 16 is not yet mandatory for most companies.
Lessor Licensing: Can an Unlicensed Foreign Lessor Lease into Vietnam?
This question most often catches groups by surprise: their offshore leasing company is licensed at home, so a Vietnamese customer feels routine.
The licensing perimeter for finance leasing
Under the Law on Credit Institutions 2024, financial leasing is a licensed activity reserved for credit institutions, in practice financial leasing companies licensed by the State Bank of Vietnam (SBV) or banks permitted to carry on the activity.
We are not aware of a mechanism that lets a foreign lessor without a Vietnamese licence provide a finance lease directly to a Vietnamese lessee as a regular business; doing so risks being characterised as unlicensed credit activity. Operating leases do not require a financial-leasing licence, although cross-border equipment leasing of any kind must still respect the customs, tax and foreign-exchange rules below.
The foreign-loan overlay and permanent establishment risk
Where an offshore affiliate funds equipment through a deferred-payment sale or a finance-style lease, the SBV and banks may look at the arrangement through the lens of foreign borrowing. Circular 03/2016/TT-NHNN and its amendments treat certain deferred-payment imports and medium- or long-term foreign loans as arrangements that must be registered, reported or documented through a loan account. Whether a particular lease falls inside that perimeter is fact-specific and worth confirming with the SBV before signing.
A separate risk is that a lessor sending personnel to install or supervise the equipment may create a permanent establishment, exposing lease profit to CIT rather than withholding.
Foreign Contractor Tax on Lease Rentals
Foreign contractor tax on lease rentals is withheld by the Vietnamese lessee and is usually the largest recurring tax cost of cross-border equipment leasing.
Deemed VAT and CIT under Circular 103
Circular 103/2014/TT-BTC, the main guidance on foreign contractor tax, applies to foreign organisations that earn income in Vietnam under a contract with a Vietnamese party. Under the deemed (declaration-based) method, which most foreign lessors in cross-border equipment leasing use, VAT and CIT are computed as percentages of gross rental. For machinery and equipment leases the deemed rates have generally been 5% for VAT and 5% for CIT, with different treatment for aircraft, engines and vessels.
The VAT Law 2024 and the Corporate Income Tax Law 2025 have reshaped the underlying rules, so the current rates and procedures should be confirmed against the latest guidance before a transaction is priced. Contracts commonly shift the tax to the lessee through a gross-up clause, so the real cost of cross-border equipment leasing should be modelled gross.
Treaty relief for cross-border equipment leasing
Many of Vietnam’s double tax treaties treat payments for the use of industrial, commercial or scientific equipment as royalties, which can reduce the CIT portion of the withholding to a treaty rate, often in the 5% to 15% band depending on the treaty. Relief is not automatic.
The parties must follow the notification procedure under Decree 126/2020/ND-CP and Circular 80/2021/TT-BTC, supported by a tax-residence certificate and evidence that the lessor is the beneficial owner of the income. The VAT element is generally not reduced by a treaty.
The finance-lease element deserves separate attention. Where part of each rental is clearly an interest component, tax authorities may treat it like loan interest, which is typically taxed at a lower deemed CIT rate and is generally outside VAT for credit-type services. That favourable treatment depends on a clean separation of principal and interest in the contract and on the lease being accepted as a financing arrangement.
Customs: Temporary Import and Re-Export vs Permanent Import
Customs is where cross-border equipment leasing most often fails in practice, because the declaration, the lease contract and the accounting records must tell the same story.
Temporary import re-export for operating leases
Where equipment under cross-border equipment leasing is leased for a defined period and must return to the lessor, it can be handled as temporary import re-export under the Law on Customs 2014 and its implementing decrees and circulars. The attraction is that duty and import VAT are generally not payable if the goods are re-exported within the permitted time, although the importer may need to provide a guarantee or deposit.
The risks are procedural: strict time limits, extension requests and the need to account for equipment that is scrapped, damaged or retained. Equipment not re-exported on time can be assessed to duty and VAT, plus penalties.
Permanent import for finance leases and buy-out structures
In cross-border equipment leasing, if the lessee will keep the equipment, or the lease is a finance lease with a purchase option, the goods are in substance permanently imported. The importer declares the goods, applies the tariff classification and origin, and pays import duty and VAT on the customs value.
Customs valuation for leased goods follows the valuation circular (Circular 39/2015/TT-BTC as amended) and is a recurring audit point, because the customs value must reflect the price of the goods and not only the periodic rentals. Under the Law on Export Duty and Import Duty 2016, machinery imported to form fixed assets of an incentivised project may qualify for duty exemption, subject to registering the duty-free list with customs.
Leased equipment should be checked specifically against these conditions.
Import VAT on leased equipment
Import VAT on leased equipment is payable at the border at the applicable rate, which for most machinery has been the standard 10%, subject to the VAT Law 2024 rate schedule and any temporary reductions. For the importer, it is generally recoverable as input VAT if conditions on documents and non-cash payment are met. Two traps recur.
First, if the foreign lessor is importer of record it has no Vietnamese VAT registration, so the parties must agree who imports and bears the VAT. Second, import VAT on the goods and deemed VAT on the rentals can overlap, so the contract should avoid taxing the same value twice without a recovery route.
SBV Foreign-Currency Rules for Rental Payments
Paying rentals abroad in cross-border equipment leasing is a current-account transaction, which Vietnamese foreign-exchange law generally allows without prior SBV approval. Under the Ordinance on Foreign Exchange and Decree 70/2014/ND-CP, as amended, the Vietnamese lessee pays through an authorised credit institution and the bank checks supporting documents: the lease contract, invoices, evidence of the customs position, and proof that foreign contractor tax has been declared and paid. Banks handling cross-border equipment leasing payments routinely refuse to remit if the tax file is incomplete.
Classification still matters. If SBV rules treat the lease or deferred payment as foreign borrowing, registration of the loan and use of a designated loan account may be required, and repayments must follow the registered schedule. A second rule is easy to overlook: transactions between residents in Vietnam must generally be conducted in Vietnamese dong.
That means a Vietnam-incorporated lessor cannot normally invoice its FDI customer in US dollars, even if the underlying equipment cost was in dollars. Currency risk must therefore be managed in the lessor’s own financing, not through the rental currency.
Tax Depreciation and Accounting Treatment
For the lessee, the benefit of cross-border equipment leasing depends on whether the cost is deductible, and when.
Lessee treatment of cross-border equipment leasing
Under VAS 06, a finance-leased asset is recognised on the lessee’s balance sheet and depreciated, and the finance charge is expensed over the term. For tax, the lessee generally follows the fixed-asset depreciation rules in Circular 45/2013/TT-BTC as amended by Circulars 147/2016/TT-BTC and 28/2017/TT-BTC. Rentals under an operating lease are deductible as they accrue, provided the contract, invoices, payment records and foreign contractor tax filings are in order.
Related-party leases and interest limits
Where the cross-border equipment leasing counterparty is an affiliate, Decree 132/2020/ND-CP on transfer pricing and interest limitation applies. Rentals must be at arm’s length, related-party transactions must be disclosed, and the interest-like part of a finance lease can count towards the cap on net interest expense, currently set by reference to a percentage of EBITDA. Poor documentation is a common cause of disallowance.
Structuring Through a Vietnam Leasing Subsidiary
Many groups place a Vietnamese entity between the offshore funder and the FDI operating company. A leasing subsidiary Vietnam structure turns cross-border equipment leasing into a domestic lease for most purposes.
Cross-border equipment leasing versus a local lessor
Under a leasing subsidiary Vietnam model, the subsidiary is funded by equity or foreign loans, imports or buys the equipment itself, and leases it to the FDI operating company. Customs duty and import VAT are paid once at the subsidiary level; rentals are domestic, so foreign contractor tax on lease rentals falls away on the operating leg, while interest on the group funding is subject to its own withholding and interest-limitation rules.
The subsidiary charges output VAT on rentals, which the lessee generally recovers, and pays CIT on its margin. The lessee pays in dong.
The licensing question remains. A subsidiary carrying on finance leasing as a business needs an SBV licence as a financial leasing company, with minimum capital and governance requirements set by government decree. For most FDI groups the realistic path is an operating-lessor subsidiary registered for leasing machinery and equipment, with genuine operating leases. Confirm market-access and investment registration steps before incorporation.
Comparison of the main structures
| Factor | Offshore operating lease | Offshore finance lease or deferred sale | Vietnam operating-lessor subsidiary | Licensed financial leasing company |
|---|---|---|---|---|
| Lessor licence | No financial-leasing licence | Licensing and foreign-loan risk | Business registration only | SBV licence required |
| Foreign contractor tax | Deemed VAT and CIT on rentals | Interest and rental components under review | None on domestic rentals | None on domestic rentals |
| Customs route | Temporary import re-export | Permanent import | Import by subsidiary | Import by lessor |
| Payment currency | Foreign currency to offshore lessor | Foreign currency, may be registered | Vietnamese dong | Vietnamese dong |
| Main risk | Recharacterisation and time-limit breaches | Unlicensed credit activity | Arm’s length and funding limits | Capital and compliance cost |
No structure is universally best. Short-term specialist equipment often suits direct cross-border equipment leasing with temporary import; long-term core assets often suit a local lessor.
Frequently Asked Questions
Is cross-border equipment leasing by an unlicensed foreign lessor allowed?
Operating leases generally do not require a financial-leasing licence. Finance leases are a licensed credit activity under the Law on Credit Institutions 2024, so an unlicensed foreign lessor should not offer them directly. Confirm the characterisation with counsel before signing.
Is foreign contractor tax payable on lease rentals paid abroad?
Yes, generally. The Vietnamese lessee withholds deemed VAT and CIT under Circular 103/2014/TT-BTC, subject to treaty relief and current rates. Contracts often include a gross-up, so the lessee bears the tax cost.
When is temporary import and re-export available for leased machinery?
It suits operating leases where the equipment must return to the lessor within a set period. The importer must meet customs time limits, guarantees and re-export evidence. Equipment that stays in Vietnam is treated as permanently imported.
Can the lessee deduct import VAT on leased equipment?
Generally yes, if the lessee is the importer of record, holds the customs documents and meets the non-cash payment and invoicing conditions. If the foreign lessor imports, recovery routes need to be agreed in advance.
Can a Vietnamese leasing subsidiary charge rentals in US dollars?
Generally no. Transactions between residents in Vietnam must be settled in Vietnamese dong, with limited exceptions. The subsidiary should manage foreign-currency funding costs within its own financing and pricing rather than the rental currency.
Planning cross-border equipment leasing into Vietnam? IVLF Advisors LLC supports FDI companies and lessors on lease structuring, tax, customs and foreign-exchange questions. Contact us for a confidential preliminary consultation on your banking and finance and tax advisory needs.
Before you sign a term sheet for cross-border equipment leasing, ask your counsel to map the lessor, the characterisation, the customs route and the payment flow in one page, and check it against the current text of SBV and tax authority guidance, because a few weeks of review at this stage is far cheaper than a customs reassessment later.
This article provides general information only and is not legal, tax or financial advice. Laws and guidance change frequently; please obtain advice tailored to your specific circumstances before acting.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
