Foreign Contractor Withholding Tax (FCWT) in Vietnam, commonly known as Foreign Contractor Tax (FCT), applies to foreign companies providing paid services to Vietnamese businesses. Governed by Circular No. 103/2014/TT-BTC, FCT combines Value-Added Tax (VAT) and Corporate Income Tax (CIT) or Personal Income Tax (PIT) for individuals, into a single tax framework for foreign contractors.
Foreign Contractor Tax in Vietnam is not a separate tax but a mechanism ensuring that taxes on income earned by foreign entities or individuals from business activities within the country are properly withheld and remitted. Since its inception in 1995, FCT Vietnam regulations have been revised to keep pace with changes in tax laws and compliance requirements.
Read More about InCorp Vietnam’s Corporate Tax & Compliance Services for Foreign Firms
For foreign companies needing assistance with their tax obligations in Vietnam, understanding how to accurately complete the foreign contractor tax form is crucial. InCorp Vietnam offers expert corporate tax and compliance services, helping foreign firms navigate the complexities of Foreign Contractor Tax in Vietnam in line with the latest legislative updates.
How the Foreign Contractor Withholding Tax Works?
This tax is withheld on monetary payments made between a foreign company outside of Vietnam and a company that conducts business or earns income within Vietnam. The tax is applied to contracts, agreements, or commitments between a foreign contractor and a Vietnamese entity, as well as between a foreign sub-contractor and another foreign sub-contractor performing part of the main contract.
Foreign entities supplying goods to Vietnam as domestic exports and earning income under contracts with Vietnamese companies are also subject to this tax. This includes cases where goods are distributed within Vietnam or provided under intercompany terms that require the seller to assume responsibility for the goods once they enter Vietnam’s territory. Exceptions apply when goods are processed in Vietnam and then returned to the foreign entity.
Payments Subject to Foreign Contractor Tax (FCT) in Vietnam
Foreign contractors are liable for Foreign Contractor Tax (FCT) on services performed in Vietnam, except for the pure supply of goods, services executed and consumed outside of Vietnam, and other activities carried out entirely outside the country, such as training, repairs, promotion, and advertising.
Payments subject to Foreign Contractor Tax include:
- Interest
- Royalties and license fees
- Service fees, leases, rentals, insurance premiums, and transportation fees
- Management fees and head office charges/services
Profits distributed to foreign shareholders are not subject to remittance tax or withholding tax. However, a 5% Corporate Income Tax (CIT) withholding tax is applicable on interest paid on loans by foreign companies. Additionally, a 5% withholding tax is imposed on interest paid on certificates of deposit and bonds to foreign companies.
VAT and CIT Payable on Foreign Contract Agreements
| No. | Trade | VAT rate (%) |
| 1 | Services, rental of machinery and equipment, insurance; construction, installation exclusive of raw materials, machinery & equipment. | 5% |
| 2 | Production, transportation, services attached to goods; construction, installation inclusive of raw materials, machinery & equipment. | 3% |
| 3 | Other trades | 2% |
| ITEM | CIT Payable |
| 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% |
| Services, lease of machinery and equipment, insurance, lease of oilrig | 5% |
| Restaurant, hotel, casino management services | 10% |
| Derivative financial services | 2% |
| Lease of aircraft, aircraft engines, parts of aircrafts and ships | 2% |
| Construction, installation, whether or not inclusive of raw materials, machinery and equipment | 2% |
| Other business activities, transport (including sea transport and air transport) | 2% |
| Transfer of securities, certificates of deposit, ceding reinsurance abroad, reinsurance commission | 0.1% |
| Loan interest | 5% |
| Income from copyright | 10% |
Read Related: Personal Income Tax (PIT) for Foreigners in Vietnam: Your Simplified Guide to Compliance and Savings
Foreign Contractor Tax (FCT) Calculation: Methods Explained
Foreign contractors operating in Vietnam have three primary options for calculating their Foreign Contractor Tax (FCT), each with its own specific requirements, advantages, and considerations. These methods are designed to accommodate the diverse nature of foreign business activities within the country, allowing contractors to choose the approach that best suits their operational structure and the nature of their contracts.
1. Deduction Method (or Declaration Method)
The deduction method is particularly suitable for foreign contractors who have established a permanent presence in Vietnam or are engaged in long-term projects exceeding 182 days. This method requires the foreign contractor to adopt the Vietnamese Accounting System (VAS) and obtain a tax code from the Vietnamese tax authorities. By aligning with the local accounting practices, foreign contractors can integrate more seamlessly into the Vietnamese financial system, allowing for greater transparency and accuracy in tax reporting.
Under this method, Foreign Contractor Tax is calculated by deducting the applicable taxes directly from the total revenue generated by the foreign contractor within Vietnam. This approach is often favorable for contractors with significant operations in the country, as it allows them to offset their expenses against their revenues, potentially reducing their overall tax burden. Additionally, a 20% Corporate Income Tax (CIT) is imposed on the net profits earned by the foreign contractor.
One of the critical procedural requirements of this method is that the Vietnamese party involved in the contract must report the use of the deduction method to the tax authorities within 20 business days of signing the contract. This prompt reporting ensures that the tax authorities are aware of the tax calculation method being used and can monitor compliance accordingly. Furthermore, if a foreign contractor chooses the deduction method for one project, they are obligated to apply the same method to all other projects they undertake in Vietnam, ensuring consistency in their tax reporting.
Read Related: Setup & Plan Your Corporate Income Tax Vietnam: Everything You Need to Know about CIT
2. Direct Method
The direct method offers a more straightforward approach to calculating Foreign Contractor Tax and is often preferred by foreign contractors with more straightforward operations or shorter-term contracts in Vietnam. Unlike the deduction method, the direct method calculates FCT based on a fixed percentage of the foreign contractor’s turnover, making it easier to determine the tax liability without needing to maintain a Vietnamese accounting system.
In this method, the Vietnamese party is responsible for withholding the appropriate taxes from the payments made to the foreign contractor before the transfer of funds. This means that the contractor receives the payment after taxes have been deducted, simplifying the process for the foreign contractor and ensuring that the tax obligations are met upfront.
In addition to withholding taxes, the Vietnamese party also acts as the representative for the foreign contractor in dealing with the tax authorities. This includes submitting the necessary tax declarations and associated documents, thereby reducing the administrative burden on the foreign contractor. However, it is crucial that tax registration for Foreign Contractor Tax under the direct method is completed within 20 business days of the contract’s signing, ensuring compliance with Vietnamese tax laws from the outset.
3. Hybrid Method
The hybrid method provides a more flexible option, allowing foreign contractors to combine elements of both the deduction and direct methods. Specifically, this method allows a foreign contractor to calculate Corporate Income Tax (CIT) using the direct method, while calculating Value-Added Tax (VAT) using the deduction method. This hybrid approach can be advantageous for contractors who have a complex mix of revenue streams and expenses, allowing them to optimize their tax position by leveraging the benefits of both methods.
However, the hybrid method is only available to foreign contractors who have a permanent establishment in Vietnam or are engaged in a project with a duration of at least 182 days. This requirement ensures that only contractors with a substantial presence in Vietnam can take advantage of this more sophisticated tax calculation method.
Read Related: Value-Added Tax in Vietnam: Understanding and Navigating VAT for Business Success
4. Considerations and Compliance
Each of these Foreign Contractor Tax calculation methods has its own set of advantages and drawbacks, and not all methods are applicable to every foreign contractor. The choice of method depends on several factors, including the nature of the business activities, the duration of the project, and the contractor’s presence in Vietnam. It is essential for foreign contractors to carefully assess their situation and select the most appropriate method for their FCT calculation.
Moreover, once a method is chosen, the foreign contractor must adhere to it consistently across all projects in Vietnam to ensure compliance with local tax regulations. Failure to comply with these regulations can result in penalties and legal complications, underscoring the importance of accurate and timely tax reporting.
Obligation Timelines and Deadlines for Foreign Contractor Tax (FCT) Vietnam
Whenever the initial foreign contract is established, we must register a tax number specifically for Foreign Contractor Withholding Tax (FCWT).
The tax obligation arises once the payment is made, with the deadline for submitting the foreign contractor tax declaration being the 10th day following the date of payment.
InCorp Vietnam’s Tax Outsourcing Services for Foreign Contractors
Given the complexities of calculating Foreign Contractor Tax, many foreign contractors choose to engage professional tax services. InCorp Vietnam provides expert guidance to help businesses navigate Vietnamese tax laws, ensuring compliance and optimizing tax liabilities. Our seasoned team offers comprehensive tax outsourcing services, from selecting the right FCT calculation method to managing filings and ensuring full compliance.
By partnering with InCorp Vietnam, you can focus on your core business while we handle your tax obligations. Whether managing a single project or multiple contracts, our tailored solutions are designed to meet your needs, minimizing compliance risks and optimizing your tax position. Trust InCorp Vietnam to manage your FCT with precision and expertise.
About Us
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