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Foreign Contractor Withholding Tax in Vietnam: What you need to know.

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Foreign contractor withholding tax in vietnam: what you need to know

Foreign investors who do not have a permanent establishment in Vietnam or who have a permanent establishment in Vietnam, but the income is not related to the permanent establishment are subject to withholding tax (FCWT). Compliance with FCWT can be a complex exercise due to the reporting requirements and calculation methods, therefore foreign investors often disregard the significance of this taxation requisite, thus creating unnecessary risks within their operations in Vietnam.

Vietnam’s foreign contractor withholding tax (FCWT), commonly known as withholding tax, applies when a foreign/overseas party engaged in a commercial contract with an organisation in Vietnam. In practical terms, it represents a combination of two types of taxes – the value added tax (VAT) and, either Personal Income Tax (PIT) for individuals, or Corporate Income Tax (CIT) for organisations.

In this article, we delve into the reporting implications of FCWT in Vietnam and explain some of the practical implementation provisions, calculations, rates, responsibilities, declaration timeline and specific scenarios.

Organisations subject to FCWT

FCWT applies to foreign contractors who do not have a permanent establishment in Vietnam or who have a permanent establishment in Vietnam, but the income is not related to the permanent establishment. A foreign contractor is a foreign business entity or individual signing a contract or agreement with a Vietnamese party to conduct business or earn income in Vietnam. This includes the following transactions:

  • A foreign entity’s sale of goods or commodities within Vietnam. This refers to goods delivered to locations within the territory of Vietnam or whereby the foreign entity still controls the ownership, quality, pricing, or bears some costs related to the distribution of the goods in Vietnam.
  • A foreign entity’s sale of goods or commodities 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, vehicles and machinery repair services, brokerage, training (except for online training), and shared telecommunications service charges.
  • 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
    • Compensation from contractual breaches

The FCWT may be exempted under the following circumstances:

  • The supply of goods where the responsibility, cost, and risk relating to the goods pass at or before the border gate of Vietnam and there are no associated services performed in Vietnam
  • Services performed and consumed outside Vietnam, such as repairs, training, advertising, promotion, etc.
  • Other services performed wholly outside Vietnam, as specified in Circular 103/2014/TT-BTC

Tax rate and FCWT declaration methods

The tax rate applicable to Foreign Withholding Contractor Tax (FCWT) varies based on the tax calculation method selected by the foreign contractor. There are three primary methods of tax calculation: Direct Method, Deduction Method, and Hybrid Method. Among these, the Direct Method is the most commonly used approach and does not impose any specific conditions on the foreign recipient.

Direct method

The Direct Method is the default method for foreign contractors who do not register for tax in Vietnam. Under this method, the VAT and CIT or PIT applied to the foreign contractor are determined based on deemed rates. These rates vary according to the nature of the contract performed. Specifically:

  • For CIT, the FCWT rate ranges from 0.1% to 10%.
  • For VAT, the FCWT rate falls within the range of 2% to 5%.

The VAT withheld by the Vietnam party is considered an allowable input credit in its VAT return. If PIT is applied, it will be calculated according to the relevant PIT regulations.

Under the Direct Method, the taxable revenue depends on the nature of the overseas payment which can either be inclusive of tax (net) or exclusive of tax (gross).

  • In the context of Net Contracts, the responsibility for the Foreign Contractor Withholding Tax (FCWT) falls on the Vietnamese party involved in the contract. The payment stipulated in the contract must be adjusted by the applicable FCWT rates to accurately determine the contractor’s taxable revenue.
  • On the other hand, Gross Contracts place the responsibility for the FCWT on the foreign party. If the contract stipulates payment on a gross basis, the FCWT is assumed by the foreign contractor. It is then deducted from the total taxable revenue prior to making payment to the foreign contractor. This ensures compliance with tax regulations and accurate reporting of taxable income.

The below table represents VAT and CIT FCWT rates for certain activities:

Business line/activitiesDeemed VAT rate (%)Deemed CIT rate (%)
1Supply of goods in Vietnam or associated with services rendered in Vietnam (including in-country import-export and imports, distribution of goods in Vietnam or delivery of goods under Incoterms where the seller bears risk relating to goods in Vietnam)Exempt1
2Services55
3Restaurant, hotel, and casino management services510
4Construction, installation without supply of materials, machinery, or equipment52
5Construction, installation with supply of materials, machinery, or equipment32
6Transportation32
 In which: Transportation – InternationalExempt2
7InterestExempt5
8Royalties510
In which: Computer software, transfer of technology, and transfer of intellectual property (IP) rights (including copyrights and industrial properties)Exempt10
9Transfer of securitiesExempt0.1
10Financial derivativesExempt2
11Other activities22

Deduction method

The Deduction Method applies to foreign contractors who register for tax in Vietnam and adopt the Vietnamese accounting system. Under this method, the foreign contractor will pay VAT based on the added value and CIT upon the actual profits. The foreign contractor will issue VAT invoices to the Vietnam party and declare and pay VAT and CIT on a monthly or quarterly basis.

Hybrid method

The Hybrid Method is applicable to foreign contractors who register for VAT in Vietnam but do not adopt the Vietnamese accounting system. Under this method, the foreign contractor will pay VAT based on the added value, but CIT based on the deemed rates. The foreign contractor will issue VAT invoices to the Vietnam party and declare and pay VAT on a monthly or quarterly basis, while the Vietnam party will withhold CIT from the payments made to the foreign contractor.

Responsibilities and declaration timeline

The tax declaration and timeline for the submission and payment of FCWT depend on the method of tax calculation chosen by the foreign contractor, which has been summarised as follows:

ObligationsThe direct methodThe deduction methodThe hybrid method
ResponsibilityThe Vietnam party is responsible for declaring and paying FCWT on behalf of the foreign contractor.The foreign contractor is responsible for declaring and paying VAT and CIT by itself.The foreign contractor is responsible for declaring and paying VAT by itself, while the Vietnam party is responsible for withholding and paying CIT on behalf of the foreign contractor.
Timeline
  • Where the foreign contractor has not had a tax code registered in Vietnam, the Vietnam party must register FCWT tax code before declaration.
  • The Vietnam party must declare and pay FCWT within 10 days from the date of making the payment to the foreign contractor.
The foreign contractor must declare and pay VAT and CIT on a monthly or quarterly basis as normal taxpayers.The foreign contractor must declare and pay VAT on a monthly or quarterly basis as normal taxpayers, while the Vietnam party must declare and pay CIT within 10 days from the date of making the payment to the foreign contractor.

Specific cases and scenarios to pay attention in Vietnam

There are some specific cases and scenarios regarding FCWT that businesses should pay attention to in Vietnam, such as:

Application of double tax treaties (DTA)

Vietnam has signed double tax treaties with more than 80 countries to avoid double taxation and prevent tax evasion. If a foreign contractor is a tax resident of a treaty country and fulfills the conditions and procedures for claiming treaty benefits, they may be entitled to a reduced or exempt FCWT. To avail themselves of these benefits, the foreign contractor should obtain a certificate of tax residence from the tax authority of the treaty country and submit it to the Vietnam party or the Vietnamese tax authority.

Allocation of contract value

The foreign contractor should clearly allocate the contract value among different types of payments, such as supply of goods, supply of goods attached with services, services, construction, interest, royalties, etc., to determine the applicable FCWT rate for each payment. The allocation should be based on reasonable grounds and supported by relevant documents. If the contract value is not allocated or the allocation is not reasonable, the Vietnamese tax authority may re-allocate the contract value and impose additional tax and penalties.

Deduction of expenses for CIT purpose

Foreign contractors may deduct certain expenses from the taxable income if they choose the Deduction Method or the Hybrid Method for FCWT calculation. The deductible expenses must be related to the income generated in Vietnam, supported by valid invoices and documents, and comply with the Vietnamese tax regulations.

Tax procedures for Non-Resident E-commerce providers

In Vietnam, overseas suppliers providing E-commerce activities, digital-based business and other services are required to directly register and process tax payments or authorise a third party to perform the tax registration, tax declaration and tax payment in Vietnam according to regulations of the Ministry of Finance. Non-resident e-commerce providers implement their VAT and CIT obligations according to the Direct Method with the fixed tax rates of VAT and CIT as mentioned above.

In case overseas suppliers do not register, declare and pay taxes in Vietnam, the Vietnamese organisations that purchase goods or services from overseas suppliers or distribute goods or provide services on behalf of overseas suppliers will be responsible for declaring, withholding and paying FCWT.


We advise investors to carefully peruse the provisions, exemptions and reporting timelines for the FCWT declarations, to ensure that their foreign and local operations are protected and meet all the authorities’ requirements.

If you need any assistance with these or any other matters of taxation in Vietnam, to ensure you are compliant and protected in the market, our experts are ready to support you.

Anh Vu – Senior Manager – Tax & Accounting – anh.vu@acclime.com

Thu Thu Nguyen – Assistant Manager – Tax & Accounting – thuthu.nguyen@acclime.com

Thao Do – Partner – thao.do@acclime.com

Updated on May 13, 2024

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