FOREIGN CONTRACTOR TAX IN VIETNAM

Foreign contractor tax (FCT) is imposed on foreign companies and individuals earning income from Vietnam through agreements with Vietnamese companies. FCT combines value-added tax (VAT) and corporate income tax (CIT) for agreements between foreign companies and Vietnamese companies, while it combines VAT and individual income tax (IIT) for agreements between foreign individuals and Vietnamese companies. Payments subject to FCT include loan interests, royalties, service fees, rentals, insurance fees, transportation fees, income from securities transfer, and goods supplied within Vietnam or associated with services rendered in Vietnam. Certain transactions and services may be exempt from tax, such as pure supply of goods passing before the border gate and services performed outside Vietnam.

There are three calculation methods for FCT: the Deduction Method, Direct Method, and Hybrid Method. Under the Deduction Method, foreign contractors register for VAT purposes, file CIT and VAT returns, and follow the Vietnamese Accounting System if they have a permanent establishment or tax residency in Vietnam and the project duration is 183 days or more. They pay CIT at 20% on net profits and VAT based on the deduction method (output VAT minus input VAT).

Under the Direct Method, foreign contractors do not register for VAT and CIT purposes. CIT and VAT are withheld by Vietnamese parties at prescribed rates from payments made to the foreign contractor. The rates vary depending on the nature of activities performed. FCT returns must be submitted to the tax authority within 10 days after making payments, or by the 20th day of the month for contractors with multiple payments.

The Hybrid Method involves foreign contractors registering for VAT purposes, paying VAT based on the deduction method, and paying CIT under the direct method rates on gross turnover. The requirements for adopting the Hybrid Method are similar to the Deduction Method.

Different FCT rates apply under the Direct Method for various industries, including supply of goods, services, restaurant/hotel/casino management services, construction/installation, transportation, interest, royalties, transfer of securities, financial derivatives, and other activities.

These tax regulations aim to govern the taxation of foreign contractors in Vietnam and ensure compliance with the Vietnamese tax system.

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