A Complete Guide to Foreign Contractor Tax Vietnam

Taxes are a non-negotiable part of your business processes. As you rake in profits, generate revenue, and shell out funds on operational and running costs, you must keep a record of spending and income. If your business is incorporated in Vietnam, a foreign contractor tax Vietnam is non-negotiable.

In other words, you must pay the appropriate taxes to the government of the country where your business is incorporated in.

Vietnam has clearly defined corporate tax regulations, particularly regarding foreign contractors. In this article, you’ll learn all about contractor tax in Vietnam, the regulating tax authorities, and other related tidbits.

Read on.

What is Vietnam’s Foreign Contractor Tax?

Vietnam’s foreign contractor tax is applied to foreign organizations and individuals undertaking business or earning income sourced from Vietnam based on agreements with Vietnamese parties (including foreign-owned companies). .

In other words, Vietnam’s foreign contractor tax applies to all financial service provision agreements between a sub-contractor or foreign company and a Vietnamese organization. This tax is often referred to as withholding tax.

Foreign contractor tax (FCT) applies to certain financial transactions or payments to foreign companies, such as:

Lease rentals
Insurance
Transportation
Transfer of goods and securities supplied within Vietnam’s borders or linked services provided in Vietnam
Interest
Construction, installation with/without the supply of materials, machinery or equipment.
Royalties
Service fees

FCT is a legal requirement by Vietnamese law, per Circular No.103/2014/TT-BTC dated August 06, 2014.

Although there are rare exceptions, FCT applies to foreign companies with permanent establishments in the country. It also includes foreign organization representatives who reside, do business, and earn income under agreements, commitments, or contracts in the country, with a Vietnamese organization, on behalf of the foreign company.

Also, any foreign entity that provides goods or services in Vietnam as domestic export, earning contractual income, and participating in the distribution of the goods is inclusive of this withholding tax.

We’ll discuss more on precise transactions that the foreign contractor tax applies to later in this article. First, let’s examine the nature of these taxes.

What kind of taxes are collected when paying foreign contractor tax in Vietnam?

Foreign contractor taxes are of two kinds:

Value-added tax (VAT)
Income tax

Various products and services are subject to VAT. For instance, foreign organizations provide several services and goods in Vietnam that are VAT-taxable.

Additionally, foreign organizations may be required to pay one of two income taxes:

Personal income tax (PIT)
Corporate income tax (CIT)

CIT-subject income includes revenue gotten from the provision of services, goods, and services attached to goods within the country, bound by contract or subcontract between Vietnamese entities and foreign companies.

The terms apply regardless of the foreign organization’s location resulting from a transfer of rights or copyrights, assets transfer, loan interest, or liquidation.

Corporate income tax is a legal requirement per national regulation. Additionally, you may be required to pay other arising fees or taxes per related laws.

As such, it is essential to familiarize yourself with taxation laws in Vietnam.

What are some examples of taxable foreign corporation transactions in Vietnam?

No.	Items	CIT rate (%)	VAT rate (%)
1	Trading: Supply of goods in Vietnam or associated with services rendered in Vietnam (including in-country export-import and import, distribution of goods in Vietnam, or delivery of goods under Incoterms where the seller bears risks relating to the goods in Vietnam	1	Exempt
2	Service, Lease of machinery and equipment, insurance, lease of an oil rig.	5	5
	– Restaurant, hotel, casino management services	10	5
	– Derivative financial services	2	Exempt
3	Construction, installation without supply of materials, machinery or equipment	2	5
4	Construction, installation with supply of materials, machinery or equipment.	2	3
5	Transportation	2	3⁽¹⁾
6	Transfer of securities, certificates of deposit, ceding reinsurance abroad, reinsurance commission	0.1	Exempt
7	Loan interest	5	Exempt
8	Royalties	10	Exempt⁽²⁾
9	Other business activities	2	2

Note:
(1) International transportation which is exempt from VAT.
(2) Software licenses, transfers of technology and intellectual property rights are exempt from VAT. Other royalties are likely subject to VAT

Various VAT rates apply to different business transactions. For instance, 5% VAT is levied on the construction, rental, and installation of equipment and machinery.

On the other hand, a 3% VAT applies to transportation and production activities, including installations inclusive of equipment, machinery, and raw materials.

In foreign contract agreements where CIT applies, a 1% levy is paid for trading activities, including the distribution of raw materials, goods, machinery, and supplies.

Regarding services such as machinery, and equipment leases (e.g, oil rigs), a 5% corporate income tax applies.

Industries in the hospitality and entertainment sector, such as restaurant, hotel, and casino management services, pay a 10% CIT, while those in the aviation and marine sector pay 2% CIT.

Additionally, contract agreements involving the transfer of securities, reinsurance commission, and certificates of deposit pay a 0.1% corporate income tax.

When do the tax obligations take effect, and what are the deadlines?

As soon as the first foreign contract is initiated, tax code must be registered to generate the foreign contractor withholding tax.

Thus, the obligation to pay the corresponding withholding tax is incurred as soon as a transaction is made.

Per regulations:

The deadline for registering the tax code is the 20^th day from the date of signing the contract/agreements.
The deadline for submitting tax declaration dossiers and paying tax is the 10th day from the date of arising tax obligations.

How to declare foreign contractor tax in Vietnam

Before declaring taxes, you ought to have calculated the payment due.

There are three methods to doing this:

Declaration method
Mix method
Direct method.

To declare, you must meet the following requirements:

Be a permanent resident of Vietnam
Have operated contractually in Vietnam for at least 183 days
Have a government-issued tax code
Adopt the national accounting practices

The credit method stipulated in Vietnamese law is the basis for tax calculations.

Why does Vietnam have foreign contractor taxes?

Hardly any other countries in the world have a similar form of taxation. However, it is clear that the Vietnamese government takes this taxation form seriously, as it significantly affects local businesses.

Hence, foreign contracts often feature several taxable objects, and there’s a need to pay attention to specifics in each contract.

How Can We Help?

As a foreign organization looking to do business in Vietnam or with Vietnamese affiliations, you must keep abreast of the local regulations and perks regarding corporate taxes and other legal requirements.

Without professional assistance from seasoned experts, your organization could get lost in a sea of litigation and other legal issues you’d rather avoid.

At Premia TNC, we boast top-class professionals with years of experience handling Vietnamese business tax-related matters.

We provide corporate clients with all-in-one tax services. Additionally, we give you information and advice regarding corporate income taxes, personal income tax, and value-added tax as it applies to you and your organization.

Our services don’t stop at taxing; they also extend to accounting and auditing.

At Premia TNC, we understand how difficult it is for foreign companies and new businesses to get a foothold within the Vietnamese commercial landscape. This is why we help new businesses achieve legal incorporation status in Vietnam.

Contact us today to help your organization navigate the legal waters of the Vietnamese system while you can focus on your core business operations.