Introduction

Foreign Contractor Withholding Tax (FCWT) is an important consideration for small business owners operating in Vietnam. This summary provides an overview of FCWT regulations, relevant tax rates, payment options, and common FAQs.

Overview of FCWT

Foreign entities conducting business in Vietnam and making payments to Vietnamese individuals or organizations under a contract are subject to FCWT. FCWT is regulated by Circular No. 103/2014/TT-BTC.

Applicability of FCWT

FCWT is applicable in various scenarios, including:

  1. Sales of goods or commodities within Vietnam, including goods delivered in Vietnam or where the foreign entity controls aspects such as ownership, quality, pricing, or distribution costs.
  2. Sales of goods or commodities associated with services to be performed in Vietnam, such as installation, commissioning, and maintenance services.
  3. Provision of services in Vietnam, including advertising, marketing, vehicle and machinery repair, brokerage, training (excluding online training), and shared telecommunications services.
  4. Receipt of other incomes in Vietnam, such as income from asset transfers, royalties, interest, and compensation from contractual breaches.

Types of Withholding Tax

FCWT may apply to two types of withholding tax: Value Added Tax (VAT) and Corporate Income Tax (CIT).

The following table presents the treatment rates based on the purpose of payment:

Purpose of Payment Deemed Rate for VAT Deemed Rate for CIT
Services 5% 5%
Goods supplied in Vietnam, Goods supplied associated with services rendered within Vietnam* Not payable on VAT exempt goods or if import VAT is paid upon import 1%
Construction, installation with supply of materials, machinery, or equipment 3% 2%
Transportation services (domestic) 3% 2%
Restaurant, hotel, and casino management services 5% 10%
Construction, installation without supply of materials, machinery, or equipment 5% 2%
Interest payments 5%
Royalty payments** Various circumstances apply 10%
Transfer of securities 0.1%
Financial derivatives 2%
Other activities 2% 2%

Note:

*Includes in-country import-export and imports, distribution, or delivery of goods under Incoterms where the seller bears risk relating to goods in Vietnam.

**Not applicable to computer software licenses or transfers of technology or intellectual property (IP) rights.

Payment Options for Foreign Contractors

Foreign contractors in Vietnam have three payment options for FCWT:

  1. Deduction and Declaration Method: Foreign contractors follow the same tax rates and filing methods as local companies, satisfying specific conditions such as having a permanent establishment or resident status in Vietnam, conducting business for 183 days or more under a contractor or subcontractor contract, and registering for taxes and obtaining a Tax Identification Number (TIN) from a tax authority.
  2. Hybrid Method: VAT is calculated using the deduction method, while CIT is determined based on direct method rates on the gross turnover. Foreign contractors and subcontractors must meet the same conditions as in the Deduction and Declaration method and apply the Vietnamese accounting system according to regulations and guidance from the Ministry of Finance.
  3. Direct Method: Applicable to foreign contractors who do not meet the conditions of the Deduction and Declaration or Hybrid methods. The taxable revenue is used to calculate both VAT and CIT, and VAT on goods or services used to execute main contracts and subcontracts cannot be deducted.

Calculation of FCWT Rates

To calculate FCWT rates, multiply the added value of services or services accompanying VAT-liable goods by the percentage of added

FAQ: Vietnam’s Foreign Contractor Tax

  1. What is the difference between foreign contractor tax and withholding tax?Foreign contractor tax and withholding tax are often used interchangeably and refer to the same concept. They represent the taxes imposed on payments made by foreign entities to Vietnamese individuals or organizations under a contract.
  2. Do I have to pay foreign contractor withholding tax?If you are a foreign entity conducting business in Vietnam and making payments to Vietnamese individuals or organizations under a contract, you are generally required to pay Foreign Contractor Withholding Tax (FCWT). The specific tax rates and requirements depend on the nature of the payment and the chosen payment method.
  3. What specific law covers Vietnam’s foreign contractor tax?Vietnam’s foreign contractor tax is regulated by Circular No. 103/2014/TT-BTC. This circular provides guidelines and regulations regarding the application, rates, and payment methods of Foreign Contractor Withholding Tax (FCWT) in Vietnam.

In summary, foreign entities conducting business in Vietnam and making payments to Vietnamese individuals or organizations under a contract are subject to Foreign Contractor Withholding Tax (FCWT). The tax rates vary depending on the purpose of payment, and there are different payment options available to foreign contractors. It is important for foreign contractors to understand the FCWT regulations and fulfill their tax obligations in Vietnam.