Vietnamese
Foreign Contractor Tax (FTC) is applicable to foreign individuals and organizations who earn incomes in business activities in Vietnam. How to determine the FCT? Is it deducted or not? Please get a deeper understanding of FCT in the following post.
1. What is the FCT?
1.1. The definition of FCT
Foreign Contractor Tax (FCT) is applicable to foreign individuals and organizations earning incomes in business activities such as service and goods supplies in Vietnam.
Foreign contractors include:
- Individuals (resident or non-resident) doing business in Vietnam or earning income in Vietnam.
- Foreign organizations (with or without permanent establishments in Vietnam) doing business in Vietnam.
The FCT includes obligations of Value Added Tax, Enterprise income tax, or personal income tax. This type of tax is considered when having rising incomes in Vietnam.
1.2 When does the FCT arise?
In accordance with Article 1, Circular No. 103/2014/TT-BTC prescribes the FTC which are subjected to individuals or organizations as follows:
- Do business in Vietnam or earn income in Vietnam under contracts, agreements or commitments
- Distribute goods in Vietnam
- Produce goods in Vietnam and arise incomes
- Negotiate in contracts via Vietnamese organizations or individuals. Foreign organizations and individuals conclude in their name’s contracts.
- Within that, the payable taxes in the cases are considered as follows:
- FCT includes VAT and EIT for foreign contractors and organizations.
- FCT includes VAT and PIT for foreign contractors and organizations who are residents or nonresidents in Vietnam.
2. How much does FCT rate?
In accordance with Circular No. 103/2014/TT-BTC, regulations on FCT, the FCT rate is based on the subjects of taxpayers and payable taxes. Firstly, consider in terms of EIT or PIT based on taxable income. And then, consider the payable VAT of foreign contractors.
- EIT rate of foreign contractor
EIT rate is calculated in accordance with foreign contractors’ business lines. Details on EIT rate are shown in the table as follows:
No. | Business lines | Rate (%) of enterprise income tax on taxable turnover |
1 | Trade: distribution and supply of goods, raw materials, supplies, machinery and equipment; distribution and supply of goods, raw materials, supplies, machinery and equipment accompanied by services | 1 % |
2 | Service, renting out of machinery and equipment, insurance, lease of oilrigs | 5 % |
3 | Renting out of aircraft, aircraft engines, aircraft parts and seagoing ships | 2 % |
4 | Construction and installation with or without the supply of raw materials, materials, machinery and equipment | 2 % |
5 | Other production and business activities, transport (including sea transport and air transport) | 2 % |
6 | Transfer of securities and deposit certificates, ceding reinsurance abroad, reinsurance ceding commission | 0.1 % |
7 | Loan interest | 5 % |
8 | Income from copyright | 10 % |
- PIT rate of foreign contractor
For foreign individuals who are residents of Vietnam, the PIT rate is 20% excluding the reduction of family circumstances.
For a foreign individual who resides in Vietnam, the PIT equals to a Vietnamese individual’s PIT.
- VAT rate of foreign contractor
Foreign contractor’s VAT rate is shown in the Table as follows:
No. | Business lines | Rate (%) for VAT calculation |
1 | Services, renting out of machinery and equipment, insurance; construction, installation | 5% |
2 | Production, transportation, and services accompanied by goods | 3% |
3 | Other business activities | 2% |
3. Is FCT deducted?
FCT includes 2 methods of tax calculation: the declaration method and the direct method. In accordance with the declaration method, foreign contractors are allowed to pay the same tax as Vietnamese enterprises which are deducted in accordance with law provisions.
Foreign contractors must register tax declaration of enterprise income tax and VAT as Vietnam’s enterprises. Foreign contractors must satisfy the conditions as follows:
- Foreign business organizations with permanent establishments in Vietnam;
- Foreign businesspeople who are residents in Vietnam
- The period of business operation on Vietnam under the contract or subcontract is at least 183 days
- Fill in the tax registration declaration and being issued with tax code of contractor, apply Vietnam’s accounting regime.
Vietnam’s representatives must have written informs to local tax agencies on the foreign contractor's submission of FCT under the deduction method. The written informs shall be submitted within 20 days from the signing date.
In the case that foreign contractors make many contracts at the same time, one of the registered contracts for tax payment under the deduction method is approved. At that time, other contracts must also pay taxes according to the registered deduction method.
Within that, the foreign contractors shall pay EIT at the rate of 20% over the before-tax profits.
Therefore, FCT is applicable to individuals and organizations doing business in Vietnam and earning income in Vietnam. It is necessary to follow Circular No. 103/2014/TT-BTC and other guidance of local tax agencies to define payable FCT.
