Foreign Contractor Withholding Tax
FCT is not a separate type of taxation. FCT is a term referring to the Value-Added Tax (VAT) and Corporate Income Tax (CIT) / Personal Income Tax (PIT) obligation of foreign contractors/sub-foreign contractors:
- For foreign organizations: VAT and CIT
- For foreign individuals: VAT and PIT
APPLICABLE SUBJECTS
Foreign contractors (FC)
Foreign business organizations with or without a Permanent Establishment (PE) in Vietnam; or Foreign business individuals being residents or non-residents => doing business in Vietnam or having income derived from Vietnam based on contracts with Vietnam parties.
Sub – foreign contractors (SFC)
Foreign business organizations with or without a Permanent Establishment (“PE”) In Vietnam, or Foreign business individuals being residents or non-resident => doing business in Vietnam or having income derived from Vietnam based on contracts with the FC in order to perform a portion of the FC’s contract with Vietnam parties.
Foreign organizations; foreign individuals supply goods to Vietnam via on-spot export/import activities.
Foreign organizations and individuals distribute goods in Vietnam or supply goods under the delivery terms of Incoterms which sellers bear all risks during the delivery of goods inside Vietnam territory.
Foreign organizations and individuals who partly or wholly perform the distribution of goods, provision of services in Vietnam whereby (i) they remain the ownership of goods or (ii) they bear the cost of distribution, marketing, advertising and take responsibility of quality of goods or (ii) they reserve the rights to deem the selling price of goods/services (including cases of authorizing or hiring Vietnamese parties to partly carry out distribution services or other services related to selling goods in Vietnam.
Foreign organizations and individuals who conclude contracts in their own names via Vietnamese organizations/individuals
Foreign organizations and individuals who exercise the import/export rights, distribution of goods in Vietnam, trading of goods for export, selling goods to Vietnamese merchants
FCWT DECLARATION
There are 3 methods for FCWT declaration. Based on each situation and satisfied conditions, FC/ SFC considers and choose an appropriate manner for WHT declaring and filings.
- Full VAS method- Deduction method
- Deemed method
- Hybrid method
DEDUCTION METHOD
Conditions to apply
- Having a permanent establishment or being tax resident in Vietnam;
- Having a contract lasting for 183 days or more; and
- Maintaining accounting records in accordance VAS
Declaration
VAT: Using VAT deduction method
| VAT payable = Output VAT – Deductible Input VAT |
CIT: Based on actual profit
| CIT payable = {Taxable income – Deduction (if any)} * CIT rate (20%) |
Tax registration/Notification: Vietnamese party carry out tax notification for FCs within 20 workings days from signing date
Tax filing: FCs declare monthly VAT and periodic/annual declaration for CIT
DEEMED METHOD [COMMON METHOD]
Conditions to apply:
FCs/SFCs do not satisfy any condition stipulated in the Deduction method
Declaration:
| VAT payable = VAT Taxable turnover x Deemed Added Value ratio x VAT rate (*) |
(VAT Taxable turnover: include CIT + include expenses paid by Vietnamese party on behalf of the FCs/SFCs)
| CIT payable = CIT taxable turnover x CIT rate as % of turnover (*) |
(CIT taxable turnover: exclude VAT + include cost (if any) which Vietnamese party has paid on behalf of FCs/SFCs)
Tax registration: Vietnamese parties carry out tax registration for FCs within 20 working days from signing date.
Tax filing: Vietnamese parties withhold FCT and pay to tax authority on behalf of FCs on an ad-hoc basis (within 10 days from the payment date) or on monthly basis (if payment arises usually).
HYBRID METHOD
“Hybrid method” is the short name used to refer to the FCT payment for VAT under deduction method and CIT on the deemed basis
Conditions to apply:
- Having a permanent establishment or being tax resident in Vietnam;
- Having a contract lasting for 183 days or more; and
- Maintaining accounting records in simplified VAS (apply accounting system sufficiently to record input and output VAT of contract performance)
Declaration:
- VAT: deductible method (as Full VAS method)
- CIT: fixed % on turnover (as Deemed method)
Tax registration/notification: Vietnamese parties carry out tax notification for FCs within 20 working days from signing date.
Tax filling: FCs declare monthly VAT; CIT from each payment within 10 working days from the payment date. In case of many payments in the month, CIT declaration can be made on a monthly basis.