Common mistakes regarding foreign contractors tax (FCT)?


- Failing to declare or incorrectly declaring FCT when importing machinery and equipment accompanied by warranty service, installation and trial production

- Borrowing capital from foreign enterprises and paying interest but not declaring FCT. 

- FCT have not been fully declared for expenses for foreign experts assigned to work in Vietnam such as accommodation, travel, and other related services. 

- Not declare and pay FCT because enterprises think that they can apply the Double Tax Agreements, but in fact they do not have enough and eligible documents to prove that they are appliable according to the Agreements. 

- Failure to declare full FCT. 

- Splitting one contract into several contracts to avoid tax. Example: Split a contract of purchase of machinery and equipment together with many other services into 2 contracts. A pure contract of sale and purchase of machinery and equipment is not subject to FCT. A contract for the provision of other services is subject to FCT. 

- Understate the taxable revenue: 

+ Only declare partly of the contract value. 

+ Only declare value added tax, not declare corporate income tax. 

+ Having contracts to hire foreign manager but do not declare and calculate tax with the reason that foreigners are experts or do not have enough basis to prove they are experts. 

- Deducting from revenue the expenses of the foreign contractor (such as expenses for accommodation, travel ...). 

- Offsetting the liabilities of payments in order not to declare and calculate FCT. 

- Incorrect application of value added tax rates and corporate income tax rates. Often applying tax rates in the wrong industry with the purpose of reducing tax payments on behalf of foreign contractors. 

- Expenses for internal transactions of the parent company: 

+ The cost has been incurred but enterprises wrongly think that because the payment has not been made, therefore they are allowed to delay the FCT declaration and payment.  

+ In fact, the transaction payment was made and the FCT must be immediately declared and paid, but the enterprise changed the transaction as a contract guarantee in order not to avoid FCT. 

+ The fact that the foreign parent company and its subsidiary in Vietnam have incurred the purchase and sale of machinery, equipment and other services but they do not perform the settlement, and record as payables/receivables with each other to offset later. They think that this way will help them to avoid FCT declaration.