Foreign Contractor Withholding Tax (“FCWT”)
- Applicable entities
The FCWT shall be applied to foreign business organizations with or without a Permanent Establishment (“PE”) in Vietnam, as well as Foreign Business Individuals being tax residents or non tax residents (“Foreign Contractors”) earning income in Vietnam on the basis of contracts or agreements. Foreign organizations and individuals supplying goods in Vietnam through on-spot export/import and earning income in Vietnam (except for the case of processing and re-exporting goods to foreign organizations or individuals), or distributing goods in Vietnam, or providing goods under Incoterms where the sellers assume the risk over the goods until it arrives in Vietnam, shall also be subject to the FCWT.
- Components of FCWT
FCWT shall be applied to CIT and VAT if the Foreign Contractors are foreign business organizations and it shall include PIT and VAT if the Foreign Contractors are the foreign individuals.
- FCWT calculation method
Foreign Contractors can opt for one of following three methods of FCWT calculation:
To apply this method, Foreign Contractors must satisfy the following conditions:
– Having a PE in Vietnam or being a tax resident in Vietnam;
– The duration of the project or contract in Vietnam is not less than 183 days from the date of calculation; and
– Adopting the Vietnam Accounting System (“VAS”), registering and being issued with tax codes by the local tax authorities.
According to this method, Foreign Contractors will pay VAT under the deduction method and register the same to the local tax authorities in accordance with the Law on VAT; and declare the CIT on the actual net profits at the standard tax rate in accordance with the Law on CIT.
Deemed rate method
The deemed rate method shall be applied to Foreign Contractors failing to satisfy one of the conditions of the Deduction Method. The Vietnamese parties shall withhold the tax payable calculated on the basis of deemed percentage of taxable turnover. The deemed percentage rate will depend on the nature of the services supplied.
With this method, Foreign Contractors shall calculate the VAT according to the deduction method and the CIT in accordance with the deemed rate method.
- Payment of the FCWT if the foreign contractors do not reside in Vietnam
The Vietnamese party shall withhold the FCWT from the payable amount to Foreign Contractors and is obliged to pay the withheld FCWT to the Vietnamese Government. Vietnamese parties may include:
– Business organizations established under the Law on Enterprises, the Law on Investment and the Law on Cooperatives;
– Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, armed units, non-business organizations and other organizations;
– Petroleum contractors operating under the Law on Petroleum;
– Branches of foreign companies licensed to operate in Vietnam;
– Foreign organizations or representatives of foreign organizations licensed to operate in Vietnam;
– Vietnam-based ticket offices, agents of foreign airlines licensed for inbound and outbound transportation from Vietnam on their own or in a joint- venture;
– Organizations and individuals of maritime transport services of foreign maritime transport firms; Vietnam- based agents of foreign forwarding and warehousing and delivery firms;
– Securities companies, securities issuance organizations, fund management companies, commercial banks with the security investment funds or foreign organizations opening securities investment accounts;
– Other organizations in Vietnam; and
– Individuals doing business in Vietnam.
- FCWT and dividend earnings
The foreign organizations shall not pay FCWT on dividends received from Vietnamese enterprises they have invested. However, foreign individuals shall pay FCWT for the dividends distributed.
- Capital gains tax
Foreign transferors shall pay CIT or PIT arising from the transfer of shares/portion of capital depending on whether the foreign transferors are organisations or individuals. The taxable gain is determined as the difference between the transfer price and the purchase (capital contribution) price less transfer expenses.
The transferees are required to withhold capital gain tax from foreign transferors and carry out a tax declaration and payment with the local tax authorities. If the transferees are not located in Vietnam, the enterprises issuing the shares or the company having capital transfer shall carry out this tax compliance duty on behalf of the transferees.