The regulations related to foreign contractor tax present the important following contents:
- Overview of foreign contractor tax
- Tax bases and tax rate
- Declaration and tax payment
- Tax finalization
- Tax refund
- Steps for declaration and tax payment
- Frequently asked questions (FAQs)
Detail content of above issues are presented as below.
Note: Please kindly refer full related ducuments here https://www.crowe.com/vn/insights/tax-publications/related-regulations
1. Overview of foreign contractor tax
Foreign contractor tax (FCT) is a tax levied on income from providing services or services attached to goods in Vietnam for Vietnamese enterprises and individuals (Vietnamese parties) that are provided by foreign enterprises and individuals (foreign contractors) as detailed in Article 1, Circular 103/2014/TT-BTC. Accordingly, the foreign contractor will be subject to FCT including: (1) value-added tax (VAT) and (2) corporate income tax (CIT) if it is an enterprise / or personal income tax (PIT) if it is an individual in accordance with the provisions of the foreign contractor tax law instead of the separate tax laws (see in Article 5 of Circular 103/2014/TT-BTC). In addition, due to foreign factors, the declaration and payment of foreign contractor tax will mostly be performed by the Vietnamese party on behalf of the foreign contractor because the foreign contractor does not meet the conditions to do it himself (see in Article 8 of Circular 103/2014/TT-BTC).
2. Tax bases and tax rate
If the foreign contractor fails to meet any of the requirements for declaring and paying tax by himself (the Vietnamese party shall declare and pay tax on his behalf):
VAT:
|
VAT payable |
= |
Revenue subject to VAT |
x |
VAT rate |
(See details in Article 12 of Circular 103/2014/TT-BTC).
CIT:
|
CIT payable |
= |
Revenue subject to CIT |
x |
CIT rate |
(See details in Article 13 of Circular 103/2014/TT-BTC).
PIT: apply according to the provisions of PIT.
* Tax rate % applied to some cases
|
Trade |
VAT rate |
CIT rate |
|
Trading: distribution, supply of goods, raw materials, supplies, machinery and equipment; distribution of goods, raw materials, supplies, machinery and equipment attached to services in Vietnam (including those provided in the form of domestic exports, except for goods processed under processing contracts with foreign entities); supply of goods under Incoterms. |
NA |
1% |
|
Supply of machinery attached to services in Vietnam, if the value of machinery and equipment can not be separated from the value of services. |
3% |
2% |
|
Services, lease of machinery and equipment, insurance, lease of oilrig |
5% |
5% |
|
Restaurant, hotel, and casino management services |
5% |
10% |
|
Derivative financial seriveces |
NA |
2% |
|
Lease of aircraft, aircraft engines, parts of aircraft and ships |
NA |
2% |
|
Construction, installation, exclusive of raw materials, machinery and equipment |
5% |
2% |
|
Construction, installation, inclusive of raw materials, machinery and equipment |
3% |
2% |
|
Other business activities, transport (including sea transport and air transport) |
3% (international transport: 0%) |
2% |
|
Transfer of securities, certificate of deposit, ceding reinsurance abroad, reinsurance commission |
NA |
0.1% |
|
Loan interest |
NA |
5% |
|
Income from copyright |
NA |
10% |
If the foreign contractor meets the requirements for declaring and paying tax by himself
The foreign contractor calculates CIT and CIT pursuant to Section 2 and Section 4, Circular 103/2014/TT-BTC.
3. Declaration and tax payment
If the foreign contractor fails to meet any of the requirements for declaring and paying tax by himself (the Vietnamese party shall declare and pay tax on his behalf): Deadlines for submission of tax dossiers, see details in Article 44, Law on Tax administration No. 38/2014/QH14; Tax declaration dossiers and related guidance, see details in Chapter IX, Circular 80/2021/TT-BTC.
If the foreign contractor meets the requirements for declaring and paying tax by himself: Deadlines for submission of tax dossiers, see details in Article 44, Law on Tax administration No. 38/2014/QH14; Tax declaration dossiers and related guidance, see details in Chapter IX, Circular 80/2021/TT-BTC.
4. Tax finalization
If the foreign contractor fails to meet any of the requirements for declaring and paying tax by himself (the Vietnamese party shall declare and pay tax on his behalf): the Vietnamese party shall make the finalization of VAT and CIT at the termination of the contractor contract, in the case of the contract with many payment times.
If the foreign contractor meets the requirements for declaring and paying tax by himself: the foreign contractor shall finalize VAT and CIT at the termination of the contract if the declaration is made by the mixed method or the annual finalization if the declaration is made according to the declaration method.
(See details in Point e, Clause 6, Article 8, Decree 126/2020/NĐ-CP).
5. Tax refund
If the foreign contractor fails to meet any of the requirements for declaring and paying tax by himself (the Vietnamese party shall declare and pay tax on his behalf): VAT is the deductible input tax of the enterprise. If the enterprise is eligible for VAT refund and wishes to receive a tax refund, please see detail in Clause 3, Article 1, Circular 103/2014/TT-BTC.
If the foreign contractor meets the requirements for declaring and paying tax by himself: follow the guidance of VAT law and CIT law. (See more in Pocket tax book – VAT and CIT).
6. Steps for declaration and tax payment
If the foreign contractor fails to meet any of the requirements for declaring and paying tax by himself (the Vietnamese party shall declare and pay tax on his behalf):
Step 1: To determine whether a foreign party providing services or goods attached to the service is subject to FCT (See in Article 1, Circular 103/2014/TT-BTC).
Step 2: If subject to FCT, continue to determine whether the Vietnamese party or the foreign party must declare and pay FCT (See in Article 8, Circular 103/2014/TT-BTC).
- If it is the Vietnamese party, proceed to Step 3 onwards.
- If it is the foreign party, the Vietnamese party only needs to make the contract payment obligation like Vietnamese suppliers without having to declare and pay FCT.
Step 3: From the date of signing the contract with the foreign contractor, within 20 days, the Vietnamese enterprise shall notify the tax authority in writing and register for tax code (granting a 10-digit tax code for the contractor not registered for tax in Vietnam). at https://thuedientu.gdt.gov.vn/.
Step 4: 10 days from the date of payment to the foreign contractor (the amount after withholding FCT), the Vietnamese party declares and pays FCT => See detail in Section 3. Declaration and tax payment
Step 5: Tax finalization => See detail in Section 4. Tax finalization
If the foreign contractor meets the requirements for declaring and paying tax by himself: apply according to the provisions of VAT and CIT. (See more in Pocket Tax Book- VAT and CIT).