Vietnam

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.

Foreign contractors can pay FCT using a hybrid method. 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. To apply this method, the foreign contractors need to satisfy certain conditions.

A summary of VAT and CIT FCT rates for certain activities follows:

Notes

1. VAT will not be payable where goods are exempt from VAT or where import VAT is paid upon importation.
2. 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.
3. International transportation is subject to 0% VAT.
4. Computer software, transfer of technology, and transfer of intellectual property (IP) rights (including copyrights and industrial properties) are VAT exempt. Other royalties may attract VAT.

Interest

The FCT applied to interest payments to an overseas lender is 5%. Offshore loans provided by certain government or semi-governmental institutions may obtain an exemption from the interest FCT where a relevant 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. 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 sought to impose a 5% VAT on the payments for the right to use a trademark.

Foreign companies engaged in or selling goods/services via e-commerce, digital platform, and other business in Vietnam without a PE now have to directly register and file tax returns in Vietnam for their income from selling goods/services to Vietnamese corporations and individuals. Foreign companies will be awarded with a tax code, declare tax online at the portal of the GDT on a quarterly basis, and pay tax online.

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). The tax rates would depend on the nature of goods or services provided by foreign suppliers.

If foreign companies do not directly register, declare, and pay tax in Vietnam, Vietnamese organisations and parties have the following responsibilities:

• If the Vietnamese purchasers or distributors have business registration, they are responsible to withhold and declare tax on behalf of the foreign suppliers.
• If the Vietnamese purchasers are individuals, banks, or payment intermediary companies, they are required to withhold and declare tax on a monthly basis.
• 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.

Management fees and head office charges/services

FCT applies on management fees and head office charges/services 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 rental payment will be exempt from VAT and subject to 5% CIT.  

Tax treaties

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

Circular 80/2021 provides new guidance on claiming tax treaty benefits, including the procedures and documents required for the submission. Notably, a formal review and approval process is now introduced.

A deadline for the tax authorities’ review and assessment of treaty claims is 30 days upon receipt of sufficient documents. The tax authority is required to issue a decision that approves the amount of tax eligible for exemption/reduction or notifies in writing to taxpayers the reasons for any rejection of the claim. This timeline can be extended for 10 days where the tax authority needs to conduct further examination to confirm the position. This could remove the current uncertainty in applying tax treaty benefits of foreign companies.

Notes

1. The treaty is not yet in force.
2. Interest earned by certain government bodies is exempt from WHT. In most cases, the limits set by the DTA are higher than the present withholding rates under domestic law; consequently, the domestic rates will apply.

Vietnam deposited its instrument of ratification for the MLI (BEPS Convention). The BEPS Convention entered into force on 1 September 2023 for Vietnam. Taxpayers should be aware of these potential changes to DTAs and the impact this may have on the plans for structuring the investments and transactions to claim treaty benefits in Vietnam.

In early July 2024, the GDT sent an official letter to local tax departments announcing the effective date of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC agreement) with Vietnam is 1 December 2023. The implementation date to support information exchange for tax periods starts from 1 January 2024. 

The GDT also encloses a list of countries/territories that have signed the MAAC agreement and announces types of taxes that the agreement will apply, including VAT. Accordingly, the GDT requests local tax departments to implement the MAAC agreement in accordance with regulations on effective date and implementation date.