Foreign Contractor Withholding Tax (FCT) is tax liability withheld on payments to foreign contractors.
Circular No. 103/2014/TT-BTC dated August 6th, 2014 which is promulgated by the Ministry of Finance and took into effect since October 1st, 2014 has provided the detail Guidance for fulfillment of tax liabilities of foreign entities doing business in Vietnam or earning income in Vietnam (“Circular 103”).
Subjects of application
The foreign contractor as mentioned is described as:
- Foreign business organizations having permanent establishments (“PE”) in Vietnam or not; foreign business individuals that are residents of Vietnam or not 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 sub-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 (except for cases in which goods are processed and then returned to foreign entities) 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.
There are only few exceptions where FCWT is non-applicable as follows:
i. If the transaction is performed between a subsidiary and a Vietnamese counterpart.
ii. If the foreign vendor sells the goods based on EXW-, FCA-, FAS- or FOB. This shall not apply to cases, where the seller provides after sales services related to the product directly, i.e. under Incoterms as DAT, DAP or DDP. In this case, the FCWT is also applicable to the product itself.
iii. If the service is offered and rendered outside of Vietnam.
FCWT liability computation and declaration
FCWT is not a separate tax, and normally comprises a combination of Value Added Tax (“VAT”) and CIT, or Personal income tax (“PIT”) for income of foreign individuals.
Foreign contractors can apply to be deduction-method VAT payers if they adopt the Vietnamese accounting system. If accounting records are adequate, the foreign contractor will pay CIT on actual profits, but otherwise on a deemed-profit basis.
For direct (non-deduction-method) foreign contractors, VAT and CIT will be withheld by the contracting party at deemed rates. It means that the Vietnamese contracting party will withhold a percentage of the invoice to pay therefore to the Vietnamese Tax Authorities.
Various rates are specified according to the nature of the contract performed. For CIT, the FCWT rate varies from 0.1% to 10%. For VAT, the FCWT rate can also range from 2% to 5%. The VAT withheld by the contracting party is an allowable input credit in its VAT return.
The Vietnamese party is responsible for registration for FCWT code, preparation and submission of the FCWT declaration and making payment on behalf of the foreign contractor.
Above is the general information of FCWT implication in Vietnam. Where specific cases/transactions are being considered, definitive advice should be sought.
To get into details of FCWT compliance, please feel free to contact us as at:
Address: Unit 602A, Tower A, Handi Resco Office Building
521 Kim Ma Street, Ba Dinh District, Hanoi
Tel: + 84 24 3974 4181/ 4182
+ 84 24 3974 3090