Q&A Foreign Contractor Tax

1/5/2022

Question 1: The company has a contract to perform equipment software maintenance in Vietnam with a foreign enterprise (foreign enterprise does not have a permanent establishment in Vietnam). Foreign enterprise performs software maintenance via the Internet. Is this activity subject to foreign contractor tax (“FCT”)?

Answer:

Pursuant to Clause 1, Article 1 of Circular No. 103/2014/TT-BTC (“Circular 103”) providing guidance on regulated entities:

“Article 1. Regulated entities

This Circular is applied to the entities below (except for the cases in Article 2 Chapter I):

1. 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 sub-contractor and a foreign sub-contractor to perform part of the main contract.”

According to the above provision: if the company signs the contract to perform equipment software maintenance in Vietnam with a foreign enterprise (without having a permanent establishment in Vietnam) via Internet, this activity is subject to FCT in Vietnam.

 

Question 2: The parent company of the company purchases liability insurance for the director of its subsidiary in Vietnam based on the group's insurance policy. The insurance premium will be paid by the parent company. After that, the company will pay back the parent company its corresponding expenses. In this case, the parent company only collects the insurance premiums on behalf of the foreign insurance company but does not provide insurance services, so is it subject to FCT in Vietnam?

Answer:

- Pursuant to Clause 1, Article 1 of Circular 103 providing guidance on regulated entities:

“1. 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 sub-contractor and a foreign sub-contractor to perform part of the main contract.”

  • Pursuant to Article 6 of Circular 103 guiding on items subject to VAT;
  • Pursuant to Clause 2, Article 12 of Circular 103 guiding on a tax rate (%) on revenue subject to VAT;
  • Pursuant to Clause 2, Article 13 of Circular 103 guiding on a tax rate (%) on revenue subject to CIT;

According to the above provisions: if the foreign parent company purchases liability insurance for the director of its subsidiary in Vietnam, the parent company pays a premium to foreign insurance company and collects it from its subsidiary, so the parent company is regulated by Circular 103. The subsidiary in Vietnam is obliged to withhold FCT before paying the parent company and shall declare, pay tax on behalf of the parent company in accordance with the Laws on Tax administration.

 

Question 3: The company signs a principle contract with a foreign supplier in the form of on-site import and export, the delivery party is a domestic company. According to the guidance of Circular 103, it is subject to FCT, the company pays tax on behalf of the foreign contractor (the contract clearly states). But for this supplier, the company must pay 50% of the value of the goods in advance to receive the goods. Is it subject to FCT when paying 50% of the value of the goods in advance? And when paying the remaining 50% of the value of the goods, how will the company calculate FCT?

Answer:

Pursuant to Article 4 of Circular 103, taxpayers defined in Clause 2 Article 4 Chapter I are obliged to withhold VAT and corporate income tax as prescribed in Section 3 Chapter II before paying foreign contractors and foreign sub-contractors.

So, the company withholds VAT and CIT before paying 50% in advance to foreign contractor and declares, pays tax on behalf of foreign contractor. Regarding the remaining 50% payment, before paying, the company withholds VAT and CIT and declares, pays tax on behalf of foreign contractor.

  • Tax declaration dossiers: Foreign contractor tax declaration form No. 01/NTNN issued together with the Circular No. 80/2021/TT-BTC dated 29 September 2021 of the Ministry of Finance;
  • Calculation of payable VAT and CIT: the company shall comply with the guidance of Article 12, Article 13, Section 3, Chapter II of Circular No. 103/2014/TT-BTC dated 6 August 2014 of the Ministry of Finance mentioned above;
  • Deadlines for submission of tax declaration dossiers: no later than the 10th day from the date of arsing tax obligation. In case, the company makes payments to foreign contractors many times per month, it may declare monthly instead of declaring each time, the deadline for submitting tax declaration dossiers is the 20th day of the following month in which the tax obligation arises.
  •  Tax payment deadline: no later than the last day of the tax declaration dossiers deadline.
  • Location for submission of tax declaration dossiers: The taxpayers shall submit the tax declaration dossiers at the relevant tax authority directly managing them.

 

Question 4: The company signs a principle contract to purchase goods from a foreign supplier, the contract validity is 1 year (for example: 1 October 2020 to 1 October 2021) based on the on-site import and export model, the payment term is 60 days from the date of delivery, FCT is incurred. When the contract terminates but the company has not yet paid the foreign supplier, does it have to finalize according to regulations within 45 days from the contract termination date?

Answer:

At the end of the contractor contract, the company declares the finalization of VAT and CIT pursuant to Point e Clause 6 Article 8 of Decree No. 126/2020/NĐ-CP dated 19 October 2021 of the Government.

  • Tax finalization declaration dossiers: Foreign contractor tax finalization declaration form No. 02/NTNN and list of appendices issued together with the Circular No. 80/2021/TT-BTC dated 29 September 2021 of the Ministry of Finance.
  • Calculation of payable VAT and CIT: the company shall comply with the guidance of Article 12, Article 13, Section 3, Chapter II of Circular No. 103.
  • Deadlines for submission of tax finalization dossiers: no later than the 45th day from the end of contractor contract.
  • Tax payment deadline: no later than the last day of the tax declaration dossiers deadline.