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Vietnam Corporate - Withholding taxes

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Foreign Contractor Tax (FCT) is withheld on payments to foreign contractors.

Payments to foreign contractors

FCT on payments to foreign contractors applies where a Vietnamese contracting party (including a foreign-invested enterprise incorporated in Vietnam) contracts with a foreign party that does not have a licensed presence in Vietnam, irrespective of whether the services are provided in Vietnam or overseas.

This FCT generally applies to payments derived from Vietnam, except for the pure supply of goods (i.e. where the responsibility, cost, and risk relating to the goods passes at or before the border gate of Vietnam and there are no associated services performed in Vietnam), services performed and consumed outside Vietnam, and various other services performed wholly outside Vietnam (e.g. certain repairs, training, advertising, promotion).

In addition, certain distribution arrangements where foreign entities are directly or indirectly involved in the distribution of goods or provision of services in Vietnam are subject to FCT (e.g. where the foreign entity retains ownership of the goods; bears distribution, advertising, or marketing costs; is responsible for the quality of goods or services; makes pricing decisions; or authorises/hires other Vietnamese entities to carry out part of the distribution of goods/provision of services in Vietnam).

Foreign contractors can apply to be deduction-method VAT payers if they adopt the Vietnamese accounting system. If accounting records are adequate, the foreign contractor will pay CIT on actual profits, but otherwise on a deemed-profit basis.

For direct (non-deduction-method) foreign contractors, VAT and CIT will be withheld by the contracting party at deemed rates. Various rates are specified according to the nature of the contract performed. For CIT, the FCT rate varies from 0.1% to 10%. For VAT, the FCT rate can also range from 2% to 5%. The VAT withheld by the contracting party is an allowable input credit in its VAT return.

A summary of VAT and CIT FCT rates follow:

Types of payment Deemed VAT rate (%) (3) Deemed CIT rate (%)
Supply 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) Exempt (1) 1
Services 5 5
Services together with supply of machinery and equipment (2) 3 2
Restaurant, hotel, and casino management services 5 10
Construction, installation without supply of materials, machinery, or equipment 5 2
Construction, installation with supply of materials, machinery, or equipment 3 2
Leasing of machinery, equipment, and drilling rigs 5 5
Leasing of aircraft and vessels Exempt (4) 2
Transportation 3 (5) 2
Interest Exempt 5
Royalties Exempt/5 (6) 10
Insurance Exempt/5 (7) 5
Re-insurance, commission for re-insurance Exempt 0.1
Transfer of securities Exempt 0.1
Financial derivatives Exempt 2
Other activities 2 2

Notes

  1. VAT will not be payable where goods are exempt from VAT or where import VAT is paid upon importation.
  2. Where the contract does not separate the value of goods and services.
  3. The supply of goods and/or services to the oil and gas industry is subject to the standard 10% VAT rate. Certain goods or services may be VAT exempt or subject to 5% VAT.
  4. Where aircraft and vessels cannot be manufactured in Vietnam.
  5. International transportation is subject to 0% VAT.
  6. Software licences, transfer of technology, and transfer of intellectual property (IP) rights (including copyrights and industrial properties) are VAT exempt. Other royalties may attract VAT.
  7. Certain types of insurance are exempt from VAT (see Exempt goods and services under VAT in the Other taxes section).

Interest

The FCT applied to interest payments to an overseas lender is 5%. Interest on pre-1999 loans may be exempt from FCT. 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.

Interest earned from bonds (except for tax-exempt bonds) and certificates of deposit are subject to 5% FCT. The sale of bonds and certificates of deposits are subject to deemed tax of 0.1% of the gross sales proceeds.

Royalties, licence fees, etc.

A 10% royalty FCT applies in the case of payments made to a foreign party for transfers of technology or software licence, unless the transfers are contributed as part of legal capital (akin to equity). Transfers of technology are defined very broadly. Certain contracts for the transfer of technology must be registered with the competent authorities.

Recently, the MoF has consistently sought to impose a 5% VAT on the payments for the right to use a trademark.

Management fees and head office charges

FCT applies on management fees and head office charges at the rates applicable to services (see above).

Cross-border leases

A Vietnam-based lessee is required to withhold tax from payments to an offshore lessor. 5% VAT and 5% CIT is applicable to the rental charge if it is an operating lease. If it is a finance lease, the interest portion will be exempt from VAT and subject to 5% CIT.

Tax treaties

The above FCT rates may be affected by a relevant DTA.

Recipient Interest (%) Royalties (%)
Algeria (1, 3) 15 15
Australia 10 10
Austria (2, 3, 4) 10 7.5/10
Azerbaijan (3) 10 10
Bangladesh (2, 3) 15 15
Belarus (2, 3) 10 15
Belgium (2, 3, 4) 10 5/10/15
Brunei Darussalam (3) 10 10
Bulgaria (2, 3) 10 15
Canada (3, 4) 10 7.5/10
China (3) 10 10
Cuba 10 10
Czech Republic (3) 10 10
Denmark (2, 3, 4) 10 5/15
Egypt (1) 15 15
Estonia 10 10
France 0 10
Finland (3) 10 10
Germany (3, 4) 10 7.5/10
Hong Kong (3, 4) 10 7/10
Hungary 10 10
Iceland (3) 10 10
India (3) 10 10
Indonesia (2, 3) 15 15
Iran (3) 10 10
Israel (2, 3, 4) 10 5/7.5/15
Italy (3, 4) 10 7.5/10
Ireland (2, 3, 4) 10 5/10/15
Japan (3) 10 10
Kazakhstan (3) 10 10
Korea (North) (3) 10 10
Korea (South) (2, 3, 4) 10 5/15
Kuwait (1, 3) 15 20
Laos 10 10
Luxembourg 10 10
Macedonia (1) 10 10
Malaysia (3) 10 10
Malta 10 5/10/15
Mongolia (3) 10 10
Morocco (3) 10 10
Mozambique 10 10
Myanmar (3) 10 10
Netherlands (2, 3, 4) 10 5/10/15
New Zealand 10 10
Norway (3) 10 10
Oman (3) 10 10
Pakistan (2) 15 15
Palestine (1) 10 10
Panama (5)    
Philippines (2, 3) 15 15
Poland (2, 4) 10 10/15
Portugal 10 7.5/10
Qatar (3) 10 5/10
Romania (2, 3) 10 15
Russia (2) 10 15
San Marino 10/15 10/15
Saudi Arabia (3) 10 7.5/10
Serbia (3) 10 10
Seychelles (2) 10 10
Singapore (2, 3, 4) 10 5/10
Slovakia (3, 4) 10 5/10/15
Spain (3) 10 10
Sri Lanka (2, 3) 10 15
Sweden (3, 4) 10 5/15
Switzerland 10 10
Taiwan (2) 10 15
Thailand (2, 3) 10/15 15
Tunisia (3) 10 10
Turkey (1, 3) 10 10
Ukraine (3) 10 10
United Arab Emirates (3) 10 10
United Kingdom (3) 10 10
United States (1, 2, 3) 10 5/10
Uruguay 10 10
Uzbekistan (2, 3) 10 15
Venezuela (3) 10 10

Notes

  1. The treaty is not yet in force.
  2. In most cases, the limits set by the DTA are higher than the present FCT rates under domestic law; consequently, the domestic rates will apply.
  3. Interest derived by certain government bodies is exempt from FCT.
  4. Royalty FCT rates vary for certain types of royalties.
  5. The content of these new DTAs is not available.

Last Reviewed - 25 August 2017

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