Foreign Contractor Tax is a type of tax applied to non-resident individuals, foreign contractors, and foreign subcontractors when doing business or earning income in Vietnam. This is a tax calculated on the expenses payable by Vietnamese legal entities. The taxable party can be a foreign legal entity or a Vietnamese legal entity depending on the provisions of the contract. However, the taxpayer must be a Vietnamese legal entity.
CASES THAT FOREIGN CONTRACTOR TAX SHALL BE APPLIED:
- Foreign business organizations having permanent establishments in Vietnam or not; foreign business individuals that are residents of Vietnam or not (hereinafter referred to as foreign contractors and foreign sub-contractors) who do business in Vietnam or earn income in Vietnam under contracts, agreements, or commitments between the foreign contractor and a Vietnamese entity or between a foreign contractor and a foreign sub-contractor to perform part of the main contract.
- Foreign entities providing goods in Vietnam in the form of domestic export and earn income in Vietnam under contracts between them and Vietnamese companies or distribute goods in Vietnam or provide goods under Incoterms rules that require the sellers to be responsible for goods that have been taken into Vietnam’s territory.
- Any foreign entity that performs the whole or part of goods distribution or service provision in Vietnam, who is still the owner of goods that are delivered to Vietnamese organizations or who takes responsibility for the cost of distribution, advertising, marketing, quality of goods/services delivered to Vietnamese organizations, or imposes prices.
- Any foreign entity that negotiates or concludes contracts via a Vietnamese entity.
- Any foreign entity that exercises its right to export, import, distribute goods in Vietnam, buy goods to export, or sell goods to Vietnamese traders in accordance with trading laws.
EXAMPLES ON FOREIGN CONTRACTOR TAX:
The following cases are subject to Vietnam’s regulations on foreign contractor tax:
Example 1:
– Case 1: Company X that is located overseas signs a contract to buy cloth from Vietnamese company A and requests company A to deliver the goods to Vietnamese company B (in the form of domestic export defined by law). Company X earns an income in Vietnam under a contract between company X and company B (company X sells cloth to company B).
In this case, company X is regulated by the regulations and thus, company B shall declare and pay tax on behalf of company X.
– Case 2: Company Y that is located overseas signs a contract to process cloth with Vietnamese company C and requests company C to deliver the goods to Vietnamese company D for further processing (in the form of domestic export defined by law). Company Y earns an income in Vietnam under a contract between company Y and company D (company Y sells goods to company D).
In this case, company Y is regulated by the regulations and company D shall declare and pay tax on behalf of company Y.
– Case 3: Company Z that is located overseas signs a contract to process or buy cloth with Vietnamese company E (company Z provides raw materials for company E) and requests company E to deliver the goods to Vietnamese company G for further processing (in the form of domestic export defined by law). After processing, company G returns the goods to company Z and company Z must pay company G for the processing under the contract.
In this case, company Z is not regulated by the regulations.
Example 2:
Company A that is located overseas delivers goods to a Vietnamese company B or authorizes company B to perform some services (delivery, distribution, marketing, advertising) while company A is still the owner of goods delivered to company B or still takes responsibility for the cost, quality of goods/services delivered to company B, or the one who imposes prices for goods/services. In this case, company A is regulated by the regulations.
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