Foreign contractors (or any corporate parties deriving income in Vietnam) are subject to taxes on payments for work done in Vietnam based on the contracts signed between them and a Vietnamese partner(s) in the form of the foreign contractor tax (FCT), value added tax (VAT) and corporate income tax (CIT). CIT-liable income is determined on the basis of declaring total turnover and expenses.
Foreign contractors are subject to the above-listed taxes for services rendered in Vietnam, not including the pure supply of goods, services performed and consumed outside Vietnam and other services performed wholly outside of the country. In short, foreigner contractors are not subject to the above-mentioned taxes for payments for overseas services as well as for services performed and consumed outside of Vietnam.
As an independent foreign contractor, the following three options are available for the payment of these respective taxes.
If the foreign contractor has permanent establishment status in Vietnam or if the duration of the project is greater than 183 days, and if they use the Vietnamese accounting system, the respective amounts can be deducted from total revenues. The Vietnamese party must inform the relevant tax authorities that the foreign contractor will use this method within 20 working days of the contract signing.
Tax declarations in the case of VAT payments are calculated directly based on added value and CIT payments based on the contractor’s turnover percentage. The Vietnamese party must withhold and pay the taxes for the foreign contractor in addition to submitting tax declaration and finalization dossiers to the relevant tax agencies directly managing them. Furthermore, the Vietnamese party must complete the tax registration procedures in order to pay the FCT on behalf of the foreign contractor/subcontractor within 20 working days after signing a contract.
Wherein foreign contractors are allowed to register and pay for VAT based on the conventional method, but CIT continues to be subject to the deemed rates. This method is allowed if the foreign contractor has permanent resident status in Vietnam or operates in Vietnam under a contract with a 183 day or greater term and maintains accounting records that follow the Ministry of Finance’s relevant accounting regulations and guidelines. The Vietnamese party is responsible for sending the necessary notifications to the relevant tax authority in the city where the foreign contractor’s office is located within 20 working days of signing a contract.
A foreign contractor must pay FCT in one of the two methods listed below if they work as a foreign joint venture/partnership contractor with a Vietnamese party:
- The executive board of the partnership or the Vietnamese party must declare, pay for and finalize the VAT and CIT if the parties form a cost-accounting executive board with a bank account that takes responsibility for the issuance of invoices, or if the Vietnamese party conducts accounting for, and distributes profits to, the parties; or
- The foreign contractor may declare and pay the taxes themself by way of one of the three methods mentioned above if the parties enter into a partnership by sharing turnover or products, or jointly undertake a contractual job with each respective party performing a separate part to determine their own respective turnover.
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