Vietnam Foreign Contractor Withholding Tax levied on the brokerage fee for deposit services at foreign bank; 3. Foreign Contractor Withholding Tax More specifically, output VAT is the total VAT imposed on the goods or services it sells. The three methods will be further discussed in this article. Some Foreign Contractors will have choices on which form of FCT they can choose. 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Although Vietnams DTAs employ the same definition of PE, the specific list of what constitutes a PE in each DTA may differ. The current FCT regime dates from 2014. Foreign contractors have three options for tax payments: VAT and CIT payments will be filed in the same manner and tax rates as local companies; foreign contractors will be allowed to follow the ordinary method if they satisfy the following conditions: This method is applicable when the foreign contractors do not meet one of the conditions mentioned above; the base for calculating VAT and CIT is the taxable revenue. WebFCT is a domestic tax regulations imposed on FC irrespective of the presence of a PE in Vietnam. (See details in Article 12 of Circular 103/2014/TT-BTC). In some cases, you can pay foreign contractor tax in the form of withholding tax in Vietnam. 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. 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. The applicability of FCWT depends on the business or contract type. This is because a rule that is provided in most DTAs is that a non-resident company is taxed only in its country and it may be taxed on its business income in Vietnam if it has a PE in Vietnam. Heres a brief overview of developments in legalized gambling in Vietnam and what to watch moving forward. Foreign enterprises and individuals doing business in Vietnam are subject to foreign contractor tax (with some exceptions). Step 4: 10 days from the date of payment to the foreign contractor (the amount after withholding FCT), the Vietnamese party declares and pays FCT => See detail in Section 3. 08th Floor TMS Building, 172 Hai Ba Trung, District 1 Ho Chi Minh City, Vietnam + 84 (0) 28 7302 5771 + 84 (0) 28 7302 5775. (See more in Pocket Tax Book- VAT and CIT). Foreign contractor tax is not a new separate tax in Vietnam. I have feedback or want to know more about this site. The Vietnam Briefing Magazine was first published in 2009, and is contributed to by investment professionals based in Vietnam. Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. Particularly, foreign individuals will pay VAT and personal income tax according to the law on Personal Income Tax in Vietnam. Business intelligence is a critical component of the decision making process when considering where and how an investment into Asia should be made. Why Vietnam. The income tax portion of FCT may be subject to tax exemptions or reductions by virtue of Vietnams Double Tax Avoidance Agreements under certain circumstances. Web Value-Added Tax rate for services provided to Representative office of foreign entities 05. (See more in Pocket tax book VAT and CIT). Contact us today to understand how we can help you lower your tax burden. The VAT withheld by the contracting party is an allowable input credit in its VAT return. If the individuals use cards or other payment methods from which the banks or payment intermediary companies cannot withhold, the banks or payment intermediary companies are required to track and report payments made to foreign companies to the GDT on a monthly basis. Copyright 2006 - 2023 Law Business Research. Foreign contractor tax in Vietnam See the territory summaries for more detailed information. International transportation is subject to 0% VAT. Deductible Expenses are actual expenses related to production or business except for 'non-deductible expenses' as defined in the LCIT. VAT is calculated based on the deduction method, while CIT is determined under the direct method rates on the gross turnover. In case there are any other arising taxes or fees, youll have to pay them according to current related laws on those taxes or fees. This article largely discusses the rules that apply to foreign contractors that are entities. 103/2014/TT-BTC issued by the Vietnam Ministry of Finance in 2014. For example, where both services and goods or equipment are supplied and separate scopes of work and separate prices are applied. 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. Tax Exempt Income is income that is exempt from tax and that is listed as tax exempt income in the LCIT. Payment net of FCT: Foreign Contractors that adopt the Direct Method often request the Vietnamese counter-party to pay any amounts due net of all taxes. There are three methods of declaring FCT. Take the smart route towards company startup with our fast and easy digital incorporation process, We can help connect your business with local banks and other digital-based alternatives, Fulfill annual reporting requirements with outsourced accounting and auditing activities, Enhance your business image with a mailing address in prime locations, Become a certified working ex-pat in Singapore; obtain relevant work visas and permits. These are the: direct method, declaration method (also known as the Vietnam Accounting System (VAS) method), and the hybrid method. It is made up of two kinds of taxes. For services, lease of machinery and equipment, construction or installation without provision of materials, machinery, and equipment, the tax rates will be at 5%. Foreign Contractor Tax The added value of services or services accompanying VAT-liable goods is the turnover for VAT calculation multiplied by the percentage (%) of the added value to turnover (see chart below). In this case, the contract payment must be grossed up by the appropriate FCT rates in order to determine the contractors taxable revenue. A place of business must be fixed. Conversely, higher CIT tax rates may also apply in other limited circumstances e.g., extractive industries like the mining or 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. ; Tax declaration dossiers and related guidance, see details in Chapter IX, Circular 80/2021/TT-BTC. For other business activities, the tax rates will be at 2%. What are the methods for Foreign Contractor Tax Calculation and Payment in Vietnam? They apply the Vietnamese accounting system to their business, complete the tax registration and are issued a TIN by a tax authority. International Free Trade Agreements. (See more in Pocket tax book . The rules describe the tax obligations of foreign entities and individuals who do business in or receive income from Vietnam. In order to adopt the hybrid method, foreign contractors and subcontractors must meet the following conditions: They apply the accounting system according to Vietnamese accounting regulations and guidance of the Ministry of Finance. This includes the following transactions. There are three levels of VAT: 0%, 5% and 10%. For assistance with investmentsintoVietnamplease contact us [email protected] visit us atwww.dezshira.com. People and Organisation Partner, PwC Vietnam, Tax Controversy and Dispute Resolution Partner, PwC Vietnam. Non-residents. If it is a finance lease, the rental payment will be exempt from VAT and subject to 5% CIT. In specific, CIT fixed rates vary depending on different business activities as follows: The above tax rates can change to comply with the Double Taxation Agreement signed by Vietnam and the jurisdiction where the foreign entity is located. Immigration Foreign Contractor Withholding Tax TAX Vietnam Briefing has developed into a premium source for insight on doing business in Vietnam. Transfers of technology are defined very broadly. The tax payable will be determined based on the revenue derived in Vietnam at the deemed rates in accordance with the current VAT and CIT regulations (refer to the withholding tax [WHT] rates set out above). Specifically, a foreign entity in Vietnam includes: Moreover, if you perform a part of the contract signed by other foreign contractors and a Vietnam entity, your income will also be subject to FCT. Step 3: From the date of signing the contract with the foreign contractor, within 20 days, the Vietnamese enterprise shall notify the tax authority in writing and register for tax code (granting a 10-digit tax code for the contractor not registered for tax in Vietnam). Heres how. Webapplication of a withholding tax called Foreign Contractor Tax (refer below). (See details in Point e, Clause 6, Article 8, : follow the guidance of VAT law and CIT law. The foreign contractor, using the declaration method, must pay VAT on the difference. Under this option, and as the tax is levied generally on turnover, the Foreign Contractor pays tax regardless of its profit or loss and regardless of how much input VAT it may set off against output VAT. For domestic purchases, input VAT is based on VAT invoices. Error! Includes in-country import-export and imports, distribution, or delivery of goods under Incoterms where seller bears risk relating to goods in Vietnam; ** Not applicable to Computer software licences or transfers of technology or intellectual property (IP) rights. 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 and imports the merchandise itself into Vietnam. Foreign contractors are: According to Article 2 of the Circular, your business is exempt from Vietnam FCT if it: Receive consulting on suitable business entities in Vietnam by simply visiting this site on Vietnam Company Formation! PIT: apply according to the provisions of PIT. Adopting VAS for a project in Vietnam is entirely optional for foreign contractors. 5% VAT and 5% CIT is applicable to the rental charge if it is an operating lease. The next generation search tool for finding the right lawyer for you. If the Vietnamese purchasers or distributors have business registration, they are responsible to withhold and declare tax on behalf of the foreign suppliers. Foreign business individuals, even though they are residents or non-residents in Vietnam. 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. Circular 103 took effect on October 1, 2014. This is because there are 3 methods to pay FCT in Vietnam. New book Vietnams foreign contractor tax is covered byCircular 103/2014/TT-BTCwhich was issued by the Ministry of Finance in 2014. For ease of reference, in this article, a foreign contractor and sub-contractor are each referred to as a Foreign Contractor. 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. Machinery and equipment leasing and insurance, Lease of aircraft, aircraft engines, aircraft spare parts and sea going vessels without individual controllers, Construction and installation with supply of materials, machinery and equipment, Construction and installation without supply of materials, machinery and equipment, Production, transportation and service with supply of goods, Transfer of securities, certificates of deposit, ceding reinsurance abroad, reinsurance commissions. Particularly, your company will be subject to Vietnam foreign contractor tax (FCT) for carrying out business activities in this country. The VAT it pays is the same, and the CIT it pays, and which is calculated on net profit, is the same. 1992-2023 Dezan Shira & Associates All Rights Reserved. Step 2: If subject to FCT, continue to determine whether the Vietnamese party or the foreign party must declare and pay FCT (See in Article 8. Lets assume youre running a company in a foreign jurisdiction but providing goods and services in Vietnam. It can avoid having to implement the full VAS, but it still needs to maintain accounting records as required by law. Notably, a formal review and approval process is now introduced. 103/2014/TT-BTC (which will be discussed in the next section). The regulations related to foreign contractor tax present the important following contents: Detail content of above issues are presented as below. There is no difference between foreign contractor tax and withholding tax. Withholding tax on interest, royalties, and fees for technical services for resident companies are set at 20 percent. The added value of services or services accompanying VAT-liable goods is the turnover for VAT calculation multiplied by the percentage (%) of the added value to turnover. 5 percent: the provision of certain essential goods and services including, but not limited to, clean water; fresh foodstuffs; medical and educational equipment; and scientific and technology services. Vietnam Foreign Contractor Tax For a better understanding, lets walk you through a comprehensive overview of how this tax works in Vietnam. Generally, foreign contractor tax is regulated by Circular No. This, however, may be changing. They adopt the Vietnamese Accounting System (VAS), apply for tax registration and obtain a tax code (tax certificate) issued by the tax authority. Engages in domestic exports or specific ways of goods distribution in Vietnam, Negotiates and signs contracts via Vietnamese entities, Fully or partially provides goods or services in Vietnam, Operates in Vietnam under the law on investment, the law on petroleum, and the law on credit institutions, Supplies goods for Vietnamese entities without providing specific ancillary services in Vietnam (namely delivery at foreign or Vietnams border checkpoint), Earns income from services provided and used outside of Vietnam, Provides services for fixing means of transportation or marketing, and these services are carried out outside of Vietnam, Uses bonded warehouse or Inland Container Depot (ICD) as a warehouse for international transportation, goods transit, or goods storage for later processing done by other businesses. The losses may be carried forward to the next fiscal year and set off against taxable income in that year. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. For VAT, the FCT rate can also range from 2% to 5%. To apply this method, the foreign contractors need to satisfy certain conditions. There are several methods to calculate and pay foreign contractor tax in Vietnam. WebThere are three methods available, which are as follows: VAT and CIT payments will be filed in the same manner and tax rates as local companies; foreign contractors will be allowed to follow the ordinary method if they satisfy the following conditions: They have a permanent establishment or resident status in Vietnam; With a PE, no exemption from FCWT-CIT under a DTA is possible. They will also have options depending on the interaction of the FCT and DTAs. The CIT Assessable Turnover includes all expenses paid by the Vietnamese counter-party on behalf of the Foreign Contractor, but it excludes the payment made by the Foreign Contractor to a Vietnamese sub-contractor or a foreign contractor which applies the Declaration Method or the Hybrid Method. Tax 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. This is the most common and practical method. Foreign Contractor Withholding Tax It is made up of two kinds of taxes. However, there is a benefit to the Vietnamese counter-party if payment is made by the withholding method and the FCT obligation is passed to the Vietnamese counter-party. Please try again. For VAT, the FCT rate can also range from 2% to 5%. It is made up of two kinds of taxes. Formation To Funding: Legal Considerations for Tech Startups in Vietnam, Vietnams New Standards for Coal Fired and Gas Turbine Power Plants and Pricing for Transitional Projects, The New National Power Development Plan of Vietnam, How-to-guide: How to prevent bribery and corruption (UK), How-to guide: How to ensure sanctions screening and sanctions due diligence is effective (USA). There are different tax rates for different categories. (See details in Point e, Clause 6, Article 8, Decree 126/2020/N-CP). It publishes business, industry and foreign direct investment news, as well as tax, legal, accounting, and HR regulatory updates. Vietnam I can help you find and connect with an advisor, get guidance, search resources, or share feedback about this site. For foreign contractors, Circular 103/2014/TT-BTC on foreign contractor tax (Circular 103) is the most important and amended FCT legislation. The above FCT rates may be reduced by a relevant DTA. Instead, the foreign contractors only need to comply with simplified VAS. Foreign Contractor Withholding Tax Foreign Contractor Withholding Tax levied on processing contract Foreign Contractor Withholding Tax levied on international transportation Income from compensation due to violation of the contract 01. FCT legislation has been developed and amended from time to time since it was first issued in 1995. One of the methods is for Vietnamese parties to pay FCT on your behalf, by withholding a part of the Vietnam-sourced payment made to your foreign companies, hence withholding tax in Vietnam. With respect to imported goods, VAT is computed on the import dutiable price plus import duty plus exercise tax (if applicable), and the environmental protection tax (if applicable). Foreign Contractor Withholding Tax What constitutes a PE may vary in each DTA. Vietnam has a specific foreign contractor tax (" FCT "). Foreign Contractor Tax In this scenario, foreign contract tax is Vietnam withholding tax. Get helpful tips and info from our newsletter! The foreign contractor calculates CIT and CIT pursuant to Section 2 and Section 4, If the foreign contractor fails to meet any of the requirements for declaring and paying tax by himself, Law on Tax administration No. The hybrid method allows foreign contractors to register for VAT and accordingly pay VAT based on the deduction method but with CIT being paid under the direct method rates on gross turnover. 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. Creditable Input VAT equals the taxable price of goods sold or services rendered by a selling party to the Foreign Contractor multiplied by the applicable VAT rate. 38/2014/QH14; Tax declaration dossiers and related guidance, see details in Chapter IX, Circular 80/2021/TT-BTC. Adopting VAS for a project in Vietnam is entirely optional for foreign contractors. If you would like to learn how Lexology can drive your content marketing strategy forward, please email [emailprotected]. Guide to Corporate Tax in Vietnam for Foreigners, Foreign business organizations with or without permanent establishments in Vietnam, or. Tax, Accounting, and Audit in China 2022/23 offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establis Let me show you how I can be of assistance. : Deadlines for submission of tax dossiers, see details in Article 44. : the foreign contractor shall finalize VAT and CIT at the termination of the contract if the declaration is made by the mixed method or the annual finalization if the declaration is made according to the declaration method. Tax Exempt Income is usually income from business sectors or investment activities that are encouraged, for example, income from cultivation, husbandry or income from performance of contracts for scientific research and technological development, or income from investment in favored geographical areas. It publishes business news concerning foreign direct investment into Vietnam, including the most important tax, legal and accounting issues. Under this method, the foreign contractor shall pay VAT as per the Declaration Method. VAT and CIT apply to a Foreign Contractor that is an entity. WebThe Foreign Contractor Withholding Tax applies to certain payments by a Vietnamese contracting party to foreign parties earning income from Vietnam without setting up a legal entity in Vietnam. Foreign Contractors Withholding Tax Offshore loans provided by certain government or semi-governmental institutions may obtain an exemption from the interest FCT where a relevant double tax agreement (DTA) or inter-government agreement (IGA) applies. Also, foreign entities that earn income in Vietnam under a contract with a Vietnamese company for the local provisioning of goods through domestic export, or in some cases for distribution or provisioning of goods in Vietnam under an agreement where the seller was had exported the goods into Vietnam, and the goods are not intended for re-export out of Vietnam. CIT however, is calculated and collected per the Direct Method. Our experts can help! Foreign contractor tax (FCT) is a tax levied on income from providing services or services attached to goods in Vietnam for Vietnamese enterprises and individuals (Vietnamese parties) that are provided by foreign enterprises and individuals (foreign contractors) as detailed in Article 1, Circular 103/2014/TT-BTC. Webof visitors who are eligible for entry into Vietnam Application of measures to prevent the COVID-19 epidemic for entrants into Hanoi 5. This could remove the current uncertainty in applying tax treaty benefits of foreign companies. In such circumstances the contract price is grossed up and the amount withheld actually becomes an expense of the Vietnamese counter-party. The Vietnamese party is obliged to withhold and pay the taxes deducted from the payments, before paying foreign contractors. We can have a suitable advisor contact you within one business day. For example, the DTA between Vietnam and the Seychelles or the DTA with Sweden extend the meaning of a PE to furnishing a service. It clarifies previous ambiguities and introduces new tax rules. This means that, foreign contractors will be liable to declare and pay CIT at the applicable rate of 20% on their net profit earned from the project/contract. WebVietnam Pocket Tax Book 2020 Contents Taxation6 General overview Corporate Income Tax7 Tax rates Tax incentives Calculation of taxable profits Non-deductible expenses Losses Administration Profit remittance Distribution and supply of goods including: raw materials, supply of goods, machinery and equipment. 38/2014/QH14. Vietnam has a specific foreign contractor tax (FCT). Three methods of tax payment: A Foreign Contractor can pay tax in one of three ways: Declaration Method, Direct Method or the Hybrid Method. The FCT is a kind of withholding tax. Foreign Contractor Withholding Tax (FCWT) On 17 January 2017, GDT issued Official Letter 209/TCT-DNL guiding tax treatment on bank service charges which are levied by foreign banks on transactions connected to Vietnam. CIT rate as a percentage of taxable turnover is stipulated in Circular 103. The Declaration Method applies to a Foreign Contractor if (i) it has a permanent establishment (PE) in Vietnam; (ii) the contract has a term of 183 days or more from the effective date of the contract; and (iii) it adopts the Vietnam Accounting System (VAS), files its tax registration application with the tax authorities and obtains a tax code. Find spotlight and explainer articles, news updates, factsheets, useful tools, as well as webinars featuring on-the-ground advisors. Foreign Contractors Withholding Tax in Vietnam, Webinar | Wednesday, July 26, 2023 | 3:00 PM Vietnam / 4:00 PM China / 11:00 AM CET. To calculate and pay FCT in Vietnam, foreign enterprises can choose one of the given three options: declaration method, direct method (withholding tax), or mix method. Double taxation agreements between territories often provide reduced WHT rates. Note: Please kindly refer full related ducuments here https://www.crowe.com/vn/insights/tax-publications/related-regulations.

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