Vietnam Foreign Contractor Tax: Latest Policies

Before doing business in Vietnam, foreign investors should have a clear understanding of the Foreign Contractor Tax (FCT). Let’s dive deeper into this topic with Thao & Co.

What is Foreign Contractor Tax?

Here’s a breakdown of the concept and types of taxes applicable to foreign contractors:

Definition

Foreign Contractor Tax (FCT) is a tax levied on foreign organizations and individuals earning income from supplying services or trading goods in the Vietnamese market.

A Foreign Contractor Tax Code is a 10 or 13-digit number issued by tax authorities. This code helps to manage taxpayers, track payments, and ensure uniform tax administration nationwide.

Types of foreign contractor taxes

In certain circumstances, as stated in governmental regulations, foreign contractors in Vietnam need to pay the following taxes:

1. 📌 Value-added tax (VAT): Applicable when organizations or individuals conduct business involving services, or goods supplied in conjunction with services, in Vietnam.
2. 📌 Corporate income tax (CIT): Applicable when corporate foreign contractors generate income from business activities in Vietnam.
3. 📌 Personal income tax (PIT): Applicable when individual foreign contractors conduct business activities and earning income in Vietnam.
4. 📌 Other taxes and fees (if applicable): Other than the listed taxes above, foreign contractors may also have to pay license tax, natural resources tax, etc.

Foreign contractor tax: Is it an official term?

Currently, Vietnamese law doesn’t mandate a single specific English term for this type of tax. Regardless, the term Foreign Contractor Tax has been commonly used in official legal and tax-related texts in the Vietnamese legal system:

Example: Foreign Contractor Tax (FCT) applies to foreign organizations and individuals earning income in Vietnam.(Thuế nhà thầu áp dụng đối với tổ chức và cá nhân nước ngoài có thu nhập tại Việt Nam.)

Withholding Tax: This is a tax mechanism where tax is deducted at source when payments to foreign contractors are made.

Example: Withholding tax is deducted from payments to foreign contractors.

(Thuế khấu trừ được áp dụng cho các khoản thanh toán cho nhà thầu nước ngoài.)

Latest regulations on foreign contractor tax

Here are the latest policies concerning foreign contractor tax in Vietnam. These regulations are primarily detailed in official guidance such as Circular 103 Foreign Contractor Tax.

Who has to pay foreign contractor tax?

The following entities are liable for foreign contractor tax:

1. ✅ Foreign organizations providing services, supplying goods, or conducting profitable business activities in Vietnam, regardless of whether they have a permanent establishment in Vietnam.
2. ✅ Foreigners (residing or not residing in Vietnam) conducting business activities or providing services in Vietnam and earning income in Vietnam.
3. ✅ Foreign subcontractors conducting part of the business activities or supply under a contract with primary foreign contractors in Vietnam.
4. ✅ Foreign goods providers (either individual or organization) having legal rights to distribute, import, and export goods in Vietnam.
5. ✅ Foreign individuals and organizations trading services in Vietnam or earning income from services performed in Vietnam.

Who is exempt from foreign contractor tax?

Individuals or organizations don’t have foreign contractor tax obligations if they:

1. ❎ Work in Vietnam under the provisions of the following Laws: The Vietnamese Law on Investment 2020, The Vietnamese Law on Petroleum 2022, The Vietnamese Law on Credit Institutions 2010.
2. ❎ Only supply goods without accompanying services in Vietnam where delivery is made at a foreign border checkpoint or a Vietnamese border checkpoint.
3. ❎ Not generating income from, or providing any services in, Vietnam.
4. ❎ Are based in Vietnam but provide services abroad.
5. ❎ Individuals and organizations using bonded warehouses or Inland Container Depots (ICDs) for storage, transshipment for international transport, transit, warehousing, or processing of goods for export.

Conditions for foreign contractor tax liability

1. 1. Foreign contractors generating revenue by conducting business activities or providing services/goods in Vietnam.
2. 2. Foreign contractors operating under contracts or agreements signed with Vietnamese individuals or organizations for service/goods supply, delivery, business activities, etc.
3. 3. Foreign contractors having tax obligations when conducting business activities or providing services in Vietnam and generating income.
4. 4. Foreign contractors providing services and goods in the Vietnamese market, or to individuals and organizations in Vietnam.
5. 5. Other individuals or organizations that do not fall under tax exemption categories as per the regulations on foreign contractor tax.

Tax rates for foreign contractors in Vietnam

A tax rate is a specific percentage applied to calculate the tax liability for each type of tax, such as VAT or CIT. Also, each business type or industry has a different tax rate applied.

Accordingly, the CIT and VAT rates for foreign contractors in Vietnam across different business sectors are as follows:

Foreign contractor tax calculation

You can calculate the foreign contractor tax using the following formulas:

+ VAT calculation formula:

VAT Payable = VAT-able Revenue × VAT Rate on Revenue

Where:

1. + VAT-able Revenue: Total value of services or goods provided in Vietnam.
2. + VAT Rate on Revenue: The specific VAT rate for each industry/profession as stipulated by Vietnamese law.

+ CIT calculation formula:

CIT Payable = CIT-able Revenue × CIT Rate on Revenue

Where:

1. + CIT-able Revenue: Total revenue generated from business operations or service provisions in Vietnam.
2. + CIT Rate on Revenue: The CIT rate for each business type as stipulated by Vietnamese law.

Important considerations for Foreign Contractors working in Vietnam

Foreign Contractors working in Vietnam should:

1. ⚖️ Thoroughly research the tax regulations and obligations for foreign contractors to comply with withholding tax and payment procedures for foreign contractor tax in Vietnam.
2. 📜 Clearly define tax responsibilities, goods delivery terms, and other requirements before signing any economic contracts.
3. 💵 Establish clear payment methods upfront.
4. 📄 Verify the contractor’s business license and tax code before starting any collaboration to ensure legal compliance.
5. 💸 If profits need to be remitted abroad, always adhere to all applicable tax laws.
6. ⌚ Track project progress to ensure timelines are met and the legal rights of all parties are protected.
7. 💻 Have contracts precisely translated to avoid misunderstandings.

Read more: Requirements for a Foreigner to Set Up a Business in Vietnam

Thao & Co. – Precise contract and tax document translation

Vietnam’s foreign contractor tax is a key consideration for foreign contractors and their business partners. Being proactive in understanding tax regulations helps prevent legal risks and keeps your business’s financial health in check.

Foreign contractors and their local partners should pay close attention when handling tax-related documents and contracts. To avoid costly mistakes arising from cultural conflicts and language barriers, consider using professional contract and tax document translation services from Thao & Co.

At Thao & Co., we’ve earned the trust of countless clients over the years by delivering high-quality service, backed by:

1. ⭐ Multi-industry translation expertise in 50+ languages, including English, Chinese, Korean, Japanese, and more.
2. ⭐ Native linguists who are not only language experts but also knowledgeable in Vietnamese law.
3. ⭐ Streamlined, transparent workflow ensuring on-time delivery.
4. ⭐ Strict confidentiality protocols, including NDAs, to protect your sensitive information.

If you’re interested in our services or would like a consultation, feel free to reach out via our website’s chat box or Contact form. Thao & Co. will get back to you promptly.