EOR vs. Entity setup in Viet Nam: 8 Critical Signs for Your Best Decision

The Global Expansion Dilemma

Expanding your business into new markets, such as Vietnam, can be exciting, but it comes with critical decisions – one of the most significant being whether to rely on an Employer of Record (EOR) or establish your own local entity.

Both options have unique benefits and challenges, and knowing when to transition is vital for your growth strategy. Many companies struggle with factors such as navigating compliance, assessing financial readiness, and managing operational complexity.

At Sunbytes, we’ve empowered more than +300 business projects to seamlessly scale by leveraging our comprehensive services across.

This article outlines seven key signs that indicate it may be time to transition from an EOR to owning your own entity — or vice versa — based on your business objectives, financial situation, and market confidence.

By understanding these indicators, you’ll be equipped to make informed decisions that maximize efficiency and minimize risk as you expand globally. Let’s explore how you can achieve long-term success with the right approach.

TL;DR

• Expanding into new markets is challenging for businesses, particularly when deciding between using an Employer of Record (EOR) and establishing a foreign entity. Companies often struggle with compliance, financial readiness, and the complexity of managing operations across multiple markets.
• Understanding the key indicators that guide the decision-making process — such as testing new markets, having sufficient capital for entity setup, or mastering local labor laws — allows businesses to make informed choices.
• The pressure of navigating complex global hiring decisions is removed at Sunbytes. We provide in-depth, expert guidance to help your business define the optimal roadmap for hiring, payroll, and other payroll administration

The Core Choice: EOR or Entity?

Understanding Employee of Record (EOR)

An Employer of Record (EOR) is an organization that lawfully hires employees on behalf of another corporation. In Vietnam, EORs handle payroll, taxes, and employee benefits, allowing multinational enterprises to operate without creating a local presence. This strategy assists organizations who want to enter the market while avoiding upfront costs.

Benefits of EOR:

• Speed of entry: EORs can set up operations and begin hiring within days or weeks.
• Cost efficiency: EOR services eliminate the legal and setup costs of creating a new foreign entity.
• Compliance and risk management: EORs handle local legal compliance and employment laws, reducing business risk.
• Flexibility: Companies can quickly scale operations in response to market changes, without long-term commitments required by a physical entity.

Understanding setup with entity:

Establishing an entity in Vietnam requires additional steps and commitments compared to the EOR model. This includes registering a business with local authorities, establishing a physical office, and navigating the legal system to ensure compliance with local laws.

Steps involved:

Business registration: Submit required documents and obtain approval from Vietnamese authorities.

Tax registration: Obtain a tax code and understand local tax obligations.

Bank account setup: Open a corporate bank account, a process that often requires extensive documentation and compliance checks.

Hiring staff: Recruit and employ staff directly, including establishing payroll systems that comply with Vietnamese law.

Benefits of opening an entity:

Market presence: A physical entity can enhance credibility and visibility in the local market.

Control: Greater control over operations and the ability to directly influence the corporate culture and management processes.

Long-term investment: Best suited for companies committed to the Vietnamese market and seeking a stable, permanent presence.

Table Comparision

Factor	Using an Employer of Record EOR	Setting Up a Local Entity
Time to Hire	The EOR already has a legal entity in Vietnam, so you can onboard employees almost immediately after signing the service agreement.	Requires full legal registration: business license, corporate bank account, labor registration, internal HR setup, tax registration, etc.
Initial Investment	Very low. No need for capital investment, legal setup, office rental, or administrative infrastructure. You only pay the EOR service fee and employee costs.	High. Includes minimum capital contributions, legal and consulting fees, office costs, HR setup, government fees, and ongoing operational expenses.
Compliance Risk	Low. The EOR assumes responsibility for local compliance, including labor regulations, payroll tax, social insurance, and employment contracts.	High. Your company is fully responsible for compliance with Vietnamese labor, tax, insurance, and corporate regulations — with higher risk of penalties if done incorrectly.
Administrative Burden	Very low. The EOR handles payroll, tax filings, social insurance, labor reports, contracts, onboarding, and offboarding.	High. Requires managing all HR, payroll, accounting, tax reporting, labor declarations, annual audits, internal policies, and ongoing administrative processes.
Flexibility	High. Easy to scale up or down, test the market, hire quickly, or exit with minimal operational impact.	Low–Medium. Once established, the entity is harder to scale down or close. Changes in structure, staffing, or location require time and cost.

The 8 Critical Decision-Making Signs (EOR vs. Entity)

Sign 1: You Are Ready to Establish a Permanent Physical Presence in Vietnam

You have successfully navigated the pilot phase. Now, you stand at a strategic inflection point: moving from market testing to establishing a permanent physical presence in Vietnam.

Establishing your own legal entity is the gold standard for long-term commitment and stability. It signals to partners, government bodies, and competitors that you are confident in your trajectory. However, for the C-Suite, the decision between utilizing an Employer of Record (EOR) and setting up a dedicated entity (such as a Limited Liability Company or Representative Office) is not just about operations—it is about risk management and capital efficiency. You can never guarantee success in a specific market due to the impact of ever-changing local and global marketplaces and economies, the presence and strength of competitors, and shifting business needs. However, companies that are agile and adapt to change are more likely to prosper in the long run.

Before committing to an entity setup, it is crucial to validate that the market signals align with your long-term expansion goals. In the specific context of Vietnam, you should look for the following indicators of maturity:

• Availability of High-Caliber Local Talent: Are you finding that Vietnam’s workforce—particularly the young, tech-savvy demographic—can sustain your technical and operational needs without heavy reliance on expats?
• Scalable Market Depth: Have you moved beyond initial curiosity to sustained demand? Vietnam’s rising middle class and digital economy should offer a clear runway for growth, not just short-term spikes.
• Macro-Stability: Does the current GDP growth and Foreign Direct Investment (FDI) climate support a 5-to-10-year outlook?
• Regulatory & Competitive Navigation: Have you successfully identified a competitive edge in a safe environment, despite the complexities of local bureaucracy?

At Sunbytes, we offer comprehensive services to help you establish a presence in Vietnam quickly. Our flexible approach allows you to enter the market, identify opportunities, and withdraw easily if needed. This agility is ideal for companies testing new markets or pursuing short-term projects without long-term commitments. If your venture succeeds, you can establish your own foreign entity with support from our in-house experts or continue utilizing our EOR model. Our mission is to turn business leaders’ strategic ambitions into fast, measurable, and de-risked outcomes.

Sign 2: You Have Sufficient Capital for Initial Entity Setup Costs

The cost of setting up a legal entity depends on several factors, including the country, the type of entity, the number of employees, and local compliance requirements. For example, Sunbytes estimates that a foreign business establishing a new entity in Vietnam can generally expect to pay between US$4,000 and US$7,000. Here is a table summarizing factors for your consideration:

Cost comparison table

Factor	Using an Employer of Record EOR	Setting Up a Local Entity
Operational Costs	Service fee (percentage of employee’s salary or flat fee per employee)	Office rent, utilities, employee salaries, and office maintenance
Compliance and Legal Costs	Included in the service fee	Hiring legal and compliance staff, ongoing legal and compliance costs
HR and Payroll Management	Included in the service fee	Setup and operation of internal HR and payroll systems
Tax Handling	Managed by EOR	Managed internally or via hired professionals
Capital Requirements	None	Significant investment for office space, equipment, etc.

Sign 2: You Can Sustain Budget for Ongoing HR, Payroll, and Compliance

While the initial incorporation fee in Vietnam (typically $4,000–$7,000) is a sunk cost, the real financial test begins once your entity is operational. Shifting from an EOR to your own Vietnam LLC means absorbing every line item that was previously bundled into a single platform fee. You also lose the economies of scale an EOR provides, meaning your overheads for mandatory social insurance and administration will likely rise.

Here is a breakdown of the recurring costs you must budget for when running your own entity in Vietnam.

Managing a workforce in Vietnam requires a dedicated budget beyond just gross salaries. In Vietnam, mandatory employer contributions are high, often adding 21.5% to the gross salary for Social, Health, and Unemployment Insurance (SHUI). Additionally, the operational ecosystem includes:

• 13th-Month Salary: While not legally mandatory, it is a culturally expected “bonus” that almost all candidates anticipate.
• Trade Union Fees: A mandatory contribution equivalent to 2% of the payroll fund for companies with a local union.
• HR Admin: Costs for HRIS software, recruitment fees, and drafting bilingual labor contracts compliant with the Vietnamese Labor Code.

Compliance monitoring costs in Vietnam’s regulatory environment are high due to administrative procedures. Staying compliant requires constant vigilance and the use of specific tools. You must allocate funds for:

• Chief Accountant: By law, most companies are required to appoint a Chief Accountant. If you don’t hire one full-time, you will need to pay for an outsourced service.
• Digital Compliance Tools: Recurring subscription fees for the mandatory Digital Signature Token (USB) and E-invoice software required to issue valid VAT invoices.
• Annual License Tax: The Le Phi Mon Bai (Business License Tax) must be paid annually at the start of every fiscal year.

Corporation taxes. By forming a legal entity, you establish a “taxable presence” in Vietnam. You are no longer just paying payroll taxes; you are now liable for Corporate Income Tax (CIT) on profits.

• Standard Rate: The standard CIT rate in Vietnam is 20%.
• Transfer Pricing: If your Vietnam entity transacts with your overseas HQ, you must budget for strict Transfer Pricing audits and documentation to avoid penalties from the General Department of Taxation.

Local representatives in Vietnam require every company to have at least one Legal Representative (Dai dien phap luat). This individual is not just a figurehead; they bear full legal liability for the company’s actions.

• Residency Requirement: The Legal Rep must generally reside in Vietnam. If they are absent from Vietnam for more than 30 days, they must authorize another person via Power of Attorney.
• Nominee Costs: If you do not have a senior leader relocating to Vietnam, you may need to pay for a Nominee Director service, which can cost thousands of dollars annually and carries significant legal risk.

Physical address establishment. While you can initially register with a Virtual Office to get your license, operational reality is different. Vietnamese banks perform strict “Know Your Customer” (KYC) site visits before opening corporate accounts.

• Banking Compliance: Many banks will refuse to open accounts for companies without physical evidence of operation.
• Setup Costs: You need to anticipate costs for a physical lease, notary fees for the rental contract, internet/utilities, and the mandatory company signboard that must be displayed at your registered location to avoid fines.

Sign 3: You require absolute control over Intellectual Property (IP) ownership

For technology firms and R&D-focused organizations entering Vietnam, Intellectual Property (IP) is often the most valuable asset. If your local team develops proprietary software, algorithms, or trade secrets, IP security should be your top strategic priority and will influence your market entry approach.

The EOR Model: Indirect Protection. When using an EOR, the legal chain of title for IP involves three parties: the employee, the EOR, and your company. Rights typically transfer from the employee to the EOR, then from the EOR to your company through a service agreement.

• Contractual Layers: Although reputable EORs include strong assignment clauses, an intermediary legal layer still remains. You should ensure the EOR’s local employment contracts explicitly address “work for hire” provisions under Vietnam’s Intellectual Property Law.
• Due Diligence Risk: In the event of a future IPO or acquisition, investors often scrutinize these indirect ownership chains. Any ambiguity in the EOR’s contract with the employee can create friction during the due diligence process.

The Entity Model: Direct Ownership. Establishing your own Vietnam entity offers the cleanest legal structure for asset protection, as it removes the middleman entirely.

• Direct Assignment: A direct employer-employee relationship ensures that economic rights to work created during employment are automatically assigned to your company.
• Stronger Enforcement: In the event of an IP dispute or data theft, a direct employment contract makes it much easier to enforce Non-Disclosure Agreements and confidentiality clauses in Vietnamese courts, without involving a third-party provider.

Sign 4: You’ve mastered the setup process and time investment

In Vietnam, time is often the most underestimated hidden cost. While capital requirements are flexible, the administrative clock is rigid.

The EOR Model: An EOR allows you to bypass the bureaucratic queue entirely. You can onboard Vietnamese employees in days or weeks. This is crucial if you need to capture a market opportunity immediately or if your candidate is eager to start and won’t wait for your licensing delays.

The Entity Model: Establishing a foreign-owned LLC in Vietnam is not a digital-first experience. It is a physical, paper-heavy process as:

• Licensing: You must navigate a two-step licensing process (Investment Registration Certificate + Enterprise Registration Certificate), which takes 1 to 3 months depending on your industry.
• Banking Hurdles: Even after receiving your license, opening a corporate bank account involves strict Know Your Customer (KYC) checks and site visits, which can add another 2–4 weeks before you can transfer capital or pay salaries.

Sign 5: Your HR team has mastered local labor laws

Vietnam’s 2019 Labor Code is heavily pro-employee, and the regulatory landscape is littered with traps for the uninitiated foreign manager.

The EOR Model: The EOR acts as the legal employer, meaning they absorb 100% of the labor law compliance risk. In the event of a dispute regarding overtime calculation, severance pay, or social insurance contributions, the EOR handles the legal defense and resolution.

The Entity Model: When you switch to your own entity, that shield vanishes. You need dedicated internal HR expertise to navigate:

• Strict Termination Rules: Firing an employee in Vietnam is a legally complex and strictly regulated process. A procedural mistake can lead to costly wrongful termination lawsuits.
• Mandatory Reporting: You must handle monthly reports to the Department of Labor, Invalids and Social Affairs (DOLISA), and manage complex Trade Union regulations if your headcount grows.

Sign 6: You Prioritize a Localized Employee Experience and Custom Benefits

While an EOR gets people paid, an entity allows you to build a culture. This “Sign” is about shifting from a transactional relationship to a transformational one.

The EOR Model: EORs offer compliant, localized benefits (like standard health insurance), but the experience is often generic. Your employees effectively work for the EOR on paper, which can create a psychological distance between your brand and them.

The Entity Model: Owning your entity unlocks the ability to fully customize the employee value proposition to match your global culture:

• Branding: Employment contracts, pay slips, and offer letters carry your logo, not a third party’s.
• Custom Benefits: You can offer equity/ESOPs (which are legally complex under an EOR), supplemental private health insurance (e.g., Bao Viet or PVI care), and cultural perks like “Tet” (Lunar New Year) bonuses directly, fostering deeper loyalty and retention.

Sign 7: You Have a Strategy for Local Payroll Management & Outsourcing

Alt: You-are-happy-to-outsource-your-payroll-function-to-a-local-payroll-provider

Transitioning away from an EOR doesn’t mean you have to crunch the numbers yourself, but it does change your governance model.

The EOR Model: The EOR handles the entire lifecycle, including calculation, deduction, filing, and payment. If they make a calculation error, it is generally their responsibility to correct it.

The Entity Model: With your own entity, you will likely hire a local payroll provider. However, the dynamic shifts:

• You maintain liability: The provider processes the data you give them. If you fail to approve the payroll on time or if there is a discrepancy in the filing, the tax authority fines your company, not the provider.
• Complex Filings: You must oversee the accurate declaration of Personal Income Tax (PIT) and compulsory SHUI (Social, Health, Unemployment Insurance) contributions, ensuring your “Chief Accountant” signs off on every transaction.

Sign 8: You are ready to own your ongoing compliance risk

This is the final, decisive switch. Moving to your own entity means accepting that the buck stops with you.

The EOR Model: You pay a premium to the EOR to “rent” their legal infrastructure. In return, they own the risk of tax audits, legislative changes, and administrative penalties.

The Entity Model: As a legal entity in Vietnam, you are directly visible to the General Department of Taxation and other government bodies.

• Audits: You must be prepared for periodic tax inspections and labor audits (typically every 3–5 years).
• Legal Representative Liability: Your appointed Legal Representative is personally liable for the company’s compliance.
• Vigilance: You can no longer rely on a partner to tell you when laws change; you must proactively monitor Vietnam’s rapidly evolving legal decrees to remain compliant.

EOR vs Entity: Common Misconceptions

When choosing between an Employer of Record (EOR) and establishing a legal entity, decision-makers often rely on outdated assumptions. This overview clarifies the realities of operating in Vietnam.

Addressing Myths

Myth: An EOR is only a temporary, short-term solution.

• Reality: While EORs are well-suited for initial market entry, they are not limited to short-term use. For companies with small or distributed teams, or those seeking to avoid Vietnam’s complex compliance requirements, the EOR model can be a sustainable long-term solution. There is no required end date for an EOR arrangement unless your strategic objectives change.

Myth: My business activities are restricted under an EOR.

• Reality: This confusion often arises from conflating legal structure with daily operations. The EOR manages administrative functions such as payroll, tax, and legal compliance, while you maintain full operational control. You set KPIs, manage workflows, and direct your Vietnamese team as you would your own employees. The EOR does not influence your core business activities.

Myth: Opening my own entity is always more cost-effective.

• Reality: Many assume that “cutting out the middleman” saves money. In Vietnam, this is not always true. An entity incurs high fixed costs—such as office leases, chief accountant salaries, licensing fees, and audit costs—regardless of its revenue. If you have a small team, the “economies of scale” of an entity may never kick in, making the EOR the cheaper option for longer than expected.

Defining the Cost Tipping Point

The decision to switch models typically depends on a breakeven analysis. You should determine when the total monthly EOR management fees surpass the combined upfront and ongoing maintenance costs of a local entity.

Critical Mass Headcount: In Vietnam, the tipping point usually occurs when you have 4 to 6 full-time employees.

• With fewer than 4 employees, EOR fees, which are variable, are typically lower than the fixed monthly overhead of operating a compliant Vietnam LLC, including accounting, office, and tax reporting costs.
• With more than 6 employees, fixed entity costs are distributed across a larger team, resulting in a cost per employee below the EOR premium.

Tenure Factor: Headcount is not the only consideration; the duration of your operations is also important.

• If you plan to operate for less than 18 months, the sunk costs of incorporating (approximately $5,000) and liquidating (over $3,000 and 6 to 12 months of closing procedures) a Vietnam entity will likely exceed any savings on monthly fees.
• If your market entry strategy extends beyond three years, spreading setup costs over time makes the entity model more cost-effective in the long term.

EOR services or a comprehensive HR service with Sunbytes

Choosing whether to establish a legal entity or partner with an Employer of Record (EOR) is a crucial strategic decision that demands careful thought.

At Sunbytes, the pressure of navigating complex global hiring decisions is removed. We provide in-depth, expert guidance to help your business define the optimal roadmap for every stage of expansion.

Our service encompasses both Employer of Record (EOR) and Comprehensive HR Services (covering recruitment, end-to-end payroll compliance, and personnel administration). Leveraging experience across 300+ projects for FDI enterprises, we simplify your hiring and operational processes, ensuring seamless and absolute compliance across legal, HR, and payroll administration.

Ready to explore your options? 

Contact Sunbytes with our knowledgeable team today and take the next step towards streamlined global operations.

FAQs 

How long does it take to set up an entity in Viet Nam ?

Establishing a business entity in Vietnam typically takes 8 to 16 weeks, depending on the chosen structure and the complexity of the licensing process. Key steps include investment registration, enterprise registration, setting up a bank account, and obtaining tax registration.

Who owns the Intellectual Property (IP) created by an employee under an EOR model? 

The client company, secured via a tripartite agreement managed by the EOR

Can an EOR hire contractors and full-time employees?

Yes, an EOR in Vietnam can legally hire both contractors and full-time employees. The EOR ensures all employment contracts comply with local labor laws and that employees receive required benefits, including health insurance and pension contributions. Contractors are engaged under separate agreements that also meet Vietnamese regulations.