Foreign Contractor Withholding Tax (FCT) Guides for Newly Established FIEs in Vietnam

FCT is regulated under Circular 103/2014/TT-BTC issued by the Ministry of Finance dated 6 August 2014.

Who are considered foreign contractors?

Foreign contractors are:

those practice or do business in Vietnam or generate income in Vietnam on the basis of a contract, agreement, or commitment with a Vietnamese party, or with another foreign party doing business in Vietnam;
those that supply goods in Vietnam in the form of import and export on the spot and generate income in Vietnam or distribute goods in Vietnam or supply goods under Incoterms in which the seller bears risk related to goods goods cross Vietnam’s border gates;
those perform part or all of distributing goods and providing services in Vietnam;
those through Vietnamese organizations and individuals negotiate and sign contracts;
those exercise the right to import, export and distribute and trade in the Vietnamese market.

How is the tax withheld?

FCT comprises of VAT and CIT.

VAT application in FCT

Services or services associated with goods subject to VAT that are provided by foreign contractors inside or outside Vietnam, but consumed in Vietnam are subject to VAT.

How is VAT calculated?

VAT

Value-added amount

VAT rate (%)

The table below shows the VAT rate applying in FCT:

No.	Industry	VAT rate (%)
1	Services, rental of machinery and equipment, insurance; construction, installation exclusive of raw materials, machinery, and equipment.	5
2	Production, transportation, services attached to goods; construction, installation inclusive of raw materials, machinery, and equipment, leasing oil	3
3	Other trades	2

CIT application in FCT

How is the CIT tax rate applied?

CIT

Taxable revenue

CIT rate (%)

The table below shows CIT rate applying in FCT:

No.	Industry	CIT rate (%)
1	Trading: distribution, supply of goods, raw materials, supplies machinery and equipment; distribution of goods, raw materials, supplies, machinery and equipment attached to services in Vietnam (including those provided in the form of domestic exports, except for goods processed under processing contracts with foreign entities); supply of goods under Incoterms	1
2	Services, lease of machinery and equipment, insurance, lease of oilrig.	5
3	Restaurant, hotel, casino management services	10
4	Derivative financial services	2
5	Lease of aircraft, aircraft engines, parts of aircrafts and ships	2
6	Construction, installation, whether or not inclusive of raw materials, machinery and equipment	2
7	Other business activities, transport (including sea transport and air transport)	2
8	Transfer of securities, certificates of deposit, ceding reinsurance abroad, reinsurance commission	0.1
9	Interest income	5
10	Loyalty fee	10

No.	Industry	CIT rate (%)
1	Trading: distribution, supply of goods, raw materials, supplies machinery, and equipment; distribution of goods, raw materials, supplies, machinery, and equipment attached to services in Vietnam (including those provided in the form of domestic exports, except for goods processed under processing contracts with foreign entities); supply of goods under Incoterms	1
2	Services, lease of machinery and equipment, insurance, lease of oil rig.	5
3	Restaurant, hotel, and casino management services	10
4	Derivative financial services	2
5	Lease of aircraft, aircraft engines, parts of aircraft, and ships	2
6	Construction, installation, whether or not inclusive of raw materials, machinery, and equipment	2
7	Other business activities, transport (including sea transport and air transport)	2
8	Transfer of securities, certificates of deposit, ceding reinsurance abroad, reinsurance commission	0.1
9	Interest income	5
10	Loyalty fee	10

FCT declaration and filing

There are three (3) ways of declaring and filing FCT as presented below:

No	Declaration method	Conditions for application	Practice notes
1	VAT deduction and CIT on taxable profit (indirect method)	– Permanent establishment (PE) – Contract duration greater than 183 days – Adoption of Vietnam Corporate Accounting and registration of tax code at the Tax Office	Foreign contractor shall prepare VAT and CIT returns similar to an enterprise established in Vietnam
2	VAT non-deduction and CIT on taxable revenue (direct method)	If the conditions mentioned in Item 1 are not met. The Vietnamese party shall declare and pay FCT on the foreign contractor’s behalf.	Vietnamese party shall withhold tax from the payment to the foreign contractor, and prepare the FCT return when incurred or on a monthly basis and FCT finalization at the end of the contract.
3	VAT deduction and CIT on taxable revenue (hybrid method)	– Permanent establishment (PE) – Contract duration greater than 183 days – Compliance with the Vietnamese accounting law and regulations and registration of VAT deduction and CIT on taxable revenue with the Tax Office	Foreign contractors shall prepare VAT returns similar to enterprises established in Vietnam while CIT shall be declared as item 2 above.

FCT filing deadlines

The deadline for FCT filing and submission is regulated by law as follows:

Type of FCT returns	Deadline
FCT returns	– Monthly basis: no later than day 20th of the following month – When incurred: within 10 days since the payment date to the foreign contractor
FCT finalization	Within 45 days since the end of the contract