Foreign Contractor Tax in Vietnam: A Complete Guide

Posted by Written by Doan Thi Yen Luy Reading Time: 8 minutes

What is Vietnam’s foreign contractor tax?

Vietnam’s foreign contractor tax (FCT), often referred to as the withholding tax, is a tax that is applied to transactions conducted in Vietnam between a foreign company or sub-contractor and a Vietnamese company.

It is made up of two kinds of taxes. These are the value added tax (VAT) and, either personal income tax (PIT) for individuals, or corporate income tax (CIT) applicable to most foreign contractors that are registered as organizations.

What transactions does Vietnam’s foreign contractor tax apply to?

Vietnam’s foreign contractor tax is applicable when carrying out business in Vietnam under a contract signed with a Vietnamese party or signed with a foreign sub-contractor. This includes the following transactions.

  • A foreign entity’s sale of goods or commodities within Vietnam. This means goods delivered to places within the territory of Vietnam or whereby the foreign entity still retains ownership of the goods, bears distribution, advertising or marketing costs, is responsible for the quality of goods, making pricing decisions, or authorizes/hires Vietnamese entities to carry out part of the distribution of goods in Vietnam.
  • A foreign entity’s sale of goods or commodities which are associated with services to be performed in Vietnam. This includes but is not limited to: installation, commissioning, maintenance, and other types of services.
  • A foreign entity’s provision of services in Vietnam. This includes online advertising and marketing, vehicle and machinery repair services, brokerage, online training, and shared telecommunications service charges. Certain exceptions are stated in the regulations for tax exemption, including services performed and consumed completely outside Vietnam and a number of specific services performed outside Vietnam, including advertising and marketing (not online).
  • Any foreign entity negotiating or concluding contracts via a Vietnamese entity/individual.
  • Foreign entities providing goods in Vietnam in the form of in-country export-import and earn income in Vietnam under contracts between them and Vietnamese companies. This is except for cases in which goods are processed and then returned to foreign entities.
  • Other incomes receivable in Vietnam in any form. This is irrespective of the location where the business is carried out. It includes:
    • income from asset transfers/assignments/liquidations;
    • income from royalties and interest; and
    • compensation from contractual breaches.

What is Vietnam’s foreign contractor tax not applied to?

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Not all foreign contractors are subject to Vietnam’s FCT as the laws do provide a few non-FCT cases. For example, pure purchase contracts whereby a Vietnamese customer signs a contract with a foreign entity to purchase goods or commodities from a foreign country (i.e. where the responsibility, cost and risk relating to the goods passes at or before the border gate of Vietnam and there are no associated services performed in Vietnam), services performed and consumed outside Vietnam and various other services performed wholly outside Vietnam (e.g. certain repairs, training, advertising, promotion, etc.).  

How do you declare foreign contractor tax in Vietnam?

There are three methods of declaring FCT. These are the: direct method, declaration method (also known as the Vietnam Accounting System (VAS) method), and the hybrid method.

Direct method (or withholding method)

This is the most common and practical method.

Using the direct method, FCT is declared and paid by the Vietnamese party. The Vietnamese party is responsible for the registration of the contracts with the tax authority and withholding and paying the applicable FCT to the local tax department.

Under this method, the taxable revenue will depend on the nature of the overseas payment which either includes tax (net) or does not (gross).

Net contracts

A contract whereby the Vietnamese party is responsible for and pays the FCT is a ‘net contract’.

In this case, the contract payment must be grossed up by the appropriate FCT rates in order to determine the contractor’s taxable revenue.

Gross contracts

Alternatively, a contract whereby the foreign party is responsible for and pays the FCT is a ‘gross contract’.

If the contract requires payment on a gross basis, the FCT is borne by the foreign contractor and withheld from total taxable revenue before making payment to said foreign contractor.

The Vietnamese company is responsible for the Foreign Contractor Tax declaration and payment to the tax authority in both Net and Gross contract scenarios:

  • For a Gross contract: The Vietnamese company must determine the FCT liability before making the payment. The payment amount will be the invoice amount minus the FCT.
  • For a Net contract: The Vietnamese company bears the FCT liability, and the payment will match the amount stated on the received invoice.
  • The deadline for submitting the FCT return and making the payment is within 10 days of the payment date for both contract types.

Tax rates using the direct method

There are different tax rates for different categories. Which category a transaction falls into will depend on the nature/scope of the payment/contract and several foreign contractor withholding tax rates may apply to more complex contracts.

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For example, where both services and goods or equipment are supplied and separate scopes of work and separate prices are applied.

If it is not possible to separate the value of each type of work/service, the tax authorities apply the highest rate to the whole contract.

Under this method, the FCT must be declared and remitted to the tax authority within 10 days of making payment to a foreign contractor. If there are multiple payments made to a foreign contractor on a frequent basis, FCT can be declared and remitted monthly to the tax authority by the 20th of each month.

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Foreign contractor tax rates in Vietnam

Business activity

VAT

CIT

PIT

Distribution and supply of goods including: raw materials, supply of goods, machinery and equipment.

 

Distribution and supply of goods including: raw materials, supply of goods, 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 (International Commercial Terms).

Exempt

1%

0.5%

Services

5%

5%

1.5% or 2%

Restaurant/Casino management services

5%

10%

N/A

Machinery and equipment leasing and insurance

5%

5%

5%

Lease of aircraft, aircraft engines, aircraft spare parts and sea going vessels without individual controllers

5%

2%

5%

Construction and installation with supply of materials, machinery and equipment

3%

2%

2%

Construction and installation without supply of materials, machinery and equipment

5%

2%

2%

Production, transportation and service with supply of goods

3%

2%

1.5%

Transfer of securities, certificates of deposit, ceding reinsurance abroad, reinsurance commissions

Exempt

0.1%

0.1%

Derivatives financial services

Exempt

2%

2%

Loan interest

Exempt

5%

5%

Income from royalties

Exempt or 5%

10%

5%

Others

2%

2%

1%

Deduction method (also known as the VAS method)

Under the Vietnamese Accounting System (VAS) method, the foreign company or contractor is taxed in a similar manner to a Vietnamese company.

This means that foreign contractors will be liable to declare and pay CIT at the applicable rate of 20 percent on their net profit earned from the project/contract. This is calculated by subtracting the total deductible expenses from total revenue. The foreign contractor, using the declaration method, must pay VAT on the difference.

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In doing so, foreign contractors must undertake and comply with certain requirements with regard to accounting and tax filings that are required of Vietnamese companies. For example, they must register for a tax code for the project/contracts, issue VAT invoices to customers, collect VAT on their sales, claim input VAT credits, and pay CIT based on a declaration of revenue and expenses.

Adopting VAS for a project in Vietnam is entirely optional for foreign contractors. Deciding whether to do so will usually depend on whether the tax advantages outweigh the tax and administrative disadvantages.

Eligibility requirements

Foreign contractors that want to use the deduction method to calculate their foreign contractor tax obligations must meet the following criteria:

  • They must have a permanent establishment in Vietnam or must be a resident for tax purposes.
  • The execution of the project/contract in Vietnam lasts for 183 days or more, calculated from the effective date of the project/contract.
  • They adopt the full VAS, apply for tax registration, and obtain a tax code (tax certificate) issued by the tax authority.

Hybrid method

The conditions for using the hybrid method are similar to those of the VAS method, except that the foreign contractors do not need to use the full VAS. Instead, the foreign contractors only need to comply with simplified VAS.

Under this method, the foreign contractor shall pay VAT as per the Declaration Method. CIT, however, is calculated and collected per the Direct Method.

Using this method, VAT is determined based on output VAT less input VAT, whereas CIT is calculated based on the tax rates listed above on gross income.

In this situation, the foreign contractor shall declare and pay tax directly to the tax authority and must register the method with the local tax office for this purpose.

Eligibility requirements

Foreign contractors that want to use the hybrid method to calculate their foreign contractor tax obligations must meet the following criteria:

  • They must have a permanent establishment in Vietnam or must be a resident for tax purposes.
  • The execution of the project/contract in Vietnam lasts for 183 days or more, calculated from the effective date of the project/contract.
  • Maintain accounting records in accordance with the accounting regulations and guidance of the Ministry of Finance.

Tax treaties that may affect foreign contractor withholding tax

The income tax portion of FCT may be subject to tax exemptions or reductions by virtue of Vietnam’s Double Tax Avoidance Agreements under certain circumstances.

Vietnam’s Double Tax Avoidance Agreements (2024)

No. DTA partners Interest (%) Royalties (%)
1 Algeria (Not yet in effect) 15 15
2 Australia 10 10
3 Austria 10 7.5/10
4 Azerbaijan 10 10
5 Bangladesh 15 15
6 Belarus 10 15
7 Belgium 10 5/10/15
8 Brunei Darussalam 10 10
9 Bulgaria 10 15
10 Cambodia 10 10
11 Canada 10 7.5/10
12 Croatia 10 10
13 China 10 10
14 Cuba 10 10
15 Czech Republic 10 10
16 Denmark 10 5/15
17 Egypt (Not yet in effect) 15 15
18 Estonia 10 7.5/10
19 Finland 10 10
20 France 0 10
21 Germany 10 7.5/10
22 Hong Kong 10 7/10
23 Hungary 10 10
24 Iceland 10 10
25 India 10 10
26 Indonesia 15 15
27 Iran 10 10
28 Ireland 10 5/10/15
29 Israel 10 5/7.5/15
30 Italy 10 7.5/10
31 Japan 10 10
32 Kazakhstan 10 10
33 North Korea 10 10
34 South Korea 10 5/15
35 Kuwait 15 20
36 Laos 10 10
37 Latvia 10 7.5/10
38 Luxembourg 10 10
39 Macao 10 10
40 Macedonia (Not yet in effect) 10 10
41 Malaysia 10 10
42 Malta 10 5/10/15
43 Mongolia 10 10
44 Morocco 10 10
45 Mozambique 10 10
46 Myanmar 10 10
47 Netherlands 10 5/10/15
48 New Zealand 10 10
49 Norway 10 10
50 Oman 10 10
51 Pakistan 15 15
52 Palestine 10 10
53 Panama 10 10
54 Philippines 15 15
55 Poland 10 10/15
56 Portugal 10 7.5/10
57 Qatar 10 5/10
58 Romania 10 15
59 Russia 10 15
60 San Marino 10/15 10/15
61 Saudi Arabia 10 7.5/10
62 Serbia 10 10
63 Seychelles 10 10
64 Singapore 10 5/10
65 Slovakia 10 5/10/15
66 Spain 10 10
67 Sri Lanka 10 15
68 Sweden 10 5/15
69 Switzerland 10 10
70 Taiwan 10 15
71 Thailand 10/15 15
72 Tunisia 10 10
73 Turkey 10 10
74 Ukraine 10 10
75 United Arab Emirates 10 10
76 United Kingdom 10 10
77 United States (Not yet in effect) 10 5/10
78 Uruguay 10 10
79 Uzbekistan 10 15
80 Venezuela 10 10

Frequently asked questions about Vietnam’s foreign contractor tax

What is the difference between foreign contractor tax and withholding tax?

There is no difference between foreign contractor tax and withholding tax. There are one and the same, but often used interchangeably.

Do I have to pay foreign contractor withholding tax?

Not all foreign contractors are subject to Vietnam’s FCT. There are a few exceptions, such as pure purchase contracts, whereby a Vietnamese customer signs a contract with a foreign entity to purchase goods/commodities from a foreign country (i.e. where the responsibility, cost and risk relating to the goods passes at or before the border gate of Vietnam and there are no associated services performed in Vietnam), services are performed and consumed outside Vietnam, and various other services performed wholly outside Vietnam (e.g. certain repairs, training, advertising, promotion, etc.).

What specific law covers Vietnam’s foreign contractor tax?

Vietnam’s foreign contractor tax is covered by Circular 103/2014/TT-BTC which was issued by the Ministry of Finance in 2014 and Circular 40/2021/TT-BTC dated June 1, 2021.

This article was last updated October 11, 2024.

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