P1. A Comprehensive Manual for the Foreign Contractor Tax in Vietnam

Currently, trade in goods is growing with the goal of boosting the economy. Therefore, in order to avoid foreign private enterprises and contractors enjoying 100% of interest and revenue from Vietnam without having to pay additional fees from business activities, FCT tax was born. So what is Foreign Contractor Tax, and how is FCT tax calculated; who will be subject to FCT? Let’s answer through the following article.

What is Foreign Contractor Tax (FCT)?

Vietnam applies FCT (withholding tax) on transactions between foreign firms/sub-contractors and Vietnamese firms. Depending on contractor type, FCT components are VAT and either CIT or PIT.

To which transactions is Vietnam’s foreign contractor tax applicable?

The foreign contractor tax in Vietnam applies to businesses engaged in contracts with either Vietnamese parties or foreign contractors. The tax is applicable to the following transactions:

– The sale of goods or commodities within Vietnam by a foreign entity. This includes goods that remain under the ownership, quality control, pricing control, or incur distribution costs within Vietnam.

– Prohibiting the sale of goods or commodities that are related to services to be performed in Vietnam. This encompasses services such as installation, commissioning, maintenance, and related services.

– Vietnam provides various services such as repair, brokerage, and training (excluding online training) along with online advertising, marketing, and shared telecommunication services. The regulations outline specific service exemptions for tax exemption. For instance, services consumed entirely out of Vietnam and advertising and marketing (not online) performed outside Vietnam.

– The business can receive other forms of income in Vietnam. These incomes cover income from asset transfers, assignments and liquidations, income from royalties and interest, and compensation for contractual breaches.

With VAT

Services or services associated with goods subject to VAT:

– Supply in Vietnam and Consume in Vietnam

– Supply outside Vietnam and Consume in Vietnam.

With CIT

– Services associated with goods;

– Service Provider;

– Supply and distribution of goods;

Notes: 

(*) In case, if actual goods are provided with services that are free of charge, whether or not in the contract value of services such as: Installation, warranty, maintenance, running try,…

– For VAT, it must still calculate VAT on the service value.

– For CIT calculated on the entire value of services + goods;

(*) In case the contract cannot separate the value of goods and the value of the accompanying services (including the case of free accompanying services), then:

– For VAT, it must still calculate VAT on the entire contract value.;

– For corporate income tax, it must still calculate corporate income tax on the entire contract value;

Continue. P2

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Website: hmlf.vn Email: miller@hmlf.vn

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