Vietnam

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

Payments to foreign contractors

Foreign Contractor Tax (FCT) applies when a Vietnamese entity contracts with a foreign contractor lacking a licensed presence in Vietnam, regardless of service location. The FCT typically targets payments originating from Vietnam, with exceptions for the pure supply of goods, services consumed outside Vietnam, and specific services performed entirely abroad.

Additionally, FCT is applicable in certain distribution arrangements in Vietnam. Foreign contractors can opt to be deduction-method VAT payers if they comply with the Vietnamese accounting system, paying corporate income tax (CIT) based on actual profits if adequate records exist, or on a deemed-profit basis otherwise.

For foreign contractors applying direct method, VAT and CIT are withheld by the Vietnamese contracting party at stipulated rates, with CIT ranging from 0.1% to 10% and VAT from 2% to 5%. The VAT withheld can be claimed as an input credit.

Moreover, foreign contractors can choose a hybrid method, allowing VAT payment through the deduction method while CIT is calculated on gross turnover using direct method rates, subject to specific 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. International transportation is subject to 0% VAT.
3. 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.

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.

Effective July 1, 2025, operators of domestic and foreign e-commerce platforms must withhold and pay taxes, including personal income tax (PIT) and value-added tax (VAT), for:

• Individual and household residents on their worldwide sales income.
• Individual and household non-residents on Vietnam-sourced income from sales.

Withholding tax rates range from 0.5% to 5% for PIT and 1% to 5% for VAT depending on transaction type.

Tax treaties

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

Circular 80/2021 outlines new procedures for claiming tax treaty benefits, including required documentation and a formal review process. The tax authorities have 30 days to assess claims upon receiving sufficient documentation, with an option to extend by 10 days for further examination. They must notify taxpayers of approval or provide reasons for any rejections, aiming to reduce uncertainty for foreign companies applying for tax treaty benefits.

Notes

1. The treaty is not yet in force.
2. Interest earned by certain government bodies is exempt from FCT. 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 has ratified the Multilateral Instrument (MLI) to combat base erosion and profit shifting (BEPS), which took effect on September 1, 2023. Taxpayers should anticipate changes to double tax agreements (DTAs) and their implications for investment structuring in Vietnam.

Additionally, the General Department of Taxation (GDT) announced that the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC) will take effect in Vietnam on December 1, 2023, with information exchange starting January 1, 2024. The GDT provided a list of participating countries and the applicable taxes, including VAT, and instructed local tax departments to comply with the MAAC regulations