GENERAL TAX DEPARTMENT
TAX DEPARTMENT OF DONG THAP PROVINCE

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SOCIALIST REPUBLIC OF VIETNAM
Independence - Freedom - Happiness

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No. 1160/CTDTH-TTHT
Re: Foreign contractor tax

Dong Thap, July 12, 2024

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To:
May Grass Import-Export Co., Ltd.
Address: Lot 8-9-10, Song Hau Industrial Zone, Tan Thanh Commune, Lai Vung District, Dong Thap Province

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On July 2, 2024, the Tax Department of Dong Thap Province received document No. 11/2024/CV-CMI dated June 27, 2024, from May Grass Import-Export Co., Ltd. requesting clarification on foreign contractor tax.

The Tax Department of Dong Thap Province responds as follows:

According to Articles 1, 6, 7, 8, 11, 12, and 13 of Circular No. 103/2014/TT-BTC dated August 6, 2014, by the Ministry of Finance, guiding the implementation of tax obligations applicable to foreign organizations and individuals conducting business in Vietnam or earning income in Vietnam, the following provisions apply:

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Article 1: Subjects of Application

1. Foreign organizations conducting business with or without a permanent establishment in Vietnam; foreign individuals conducting business, either as residents or non-residents in Vietnam (hereinafter referred to as Foreign Contractors, Foreign Subcontractors) who conduct business in Vietnam or earn income in Vietnam based on contracts, agreements, or commitments between the foreign contractor and Vietnamese organizations or individuals, or between the foreign contractor and foreign subcontractors to perform part of the contractor’s work.

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Article 6: Subjects Subject to VAT

1. Services or goods-related services subject to VAT provided by Foreign Contractors, Foreign Subcontractors under contractor agreements for production, business, and consumption in Vietnam (except as specified in Article 2, Chapter I), including:

• Services or goods-related services subject to VAT provided by Foreign Contractors, Foreign Subcontractors in Vietnam for consumption in Vietnam.

• Services or goods-related services subject to VAT provided by Foreign Contractors, Foreign Subcontractors outside Vietnam but consumed in Vietnam.

2. When goods are provided under a contract with the delivery point within Vietnam (except for the case specified in Clause 5, Article 2, Chapter I); or when the provision of goods includes services performed in Vietnam such as installation, trial, maintenance, warranty, replacement, and other services accompanying the provision of goods (including free services), whether these services are or are not included in the contract value, the value of goods is subject to VAT on import as per the regulations, while the value of services is subject to VAT according to the guidance in this Circular. If the contract does not separate the value of goods and services (including free services), VAT is calculated for the entire contract.

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Article 7: Taxable Income

1. Taxable income of Foreign Contractors and Foreign Subcontractors is income arising from activities such as supplying, distributing goods, providing services, or services related to goods in Vietnam based on contractor agreements (except as specified in Article 2, Chapter I).

2. When goods are provided under conditions where the delivery point is within Vietnam (except for the case specified in Clause 5, Article 2, Chapter I); or when the provision of goods includes services such as advertising, marketing, commercial promotion, after-sales service, installation, trial, maintenance, warranty, replacement, and other services accompanying the provision of goods (including free services), whether or not included in the contract value, the taxable income of Foreign Contractors and Foreign Subcontractors is the total value of goods and services.

3. Income arising in Vietnam of Foreign Contractors and Foreign Subcontractors is any income received in any form based on contractor agreements, regardless of the location of the business activities of the foreign contractors.

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Article 8: Subjects and Conditions for Application
Foreign Contractors and Foreign Subcontractors must pay taxes as specified in Chapter II, Section 2 if they meet the following conditions:

1. Have a permanent establishment in Vietnam or be residents in Vietnam;

2. The business term under the contractor agreement or subcontractor agreement is 183 days or more from the effective date of the contract;

3. Apply Vietnam's accounting system and register for tax, with a tax code issued by the tax authority.

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Article 11: Subjects and Conditions for Application
Foreign Contractors and Foreign Subcontractors who do not meet one of the conditions in Article 8, Section 2, Chapter II, must have the Vietnamese Party pay taxes on their behalf according to the provisions in Articles 12 and 13, Section 3, Chapter II.

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Article 12: Value Added Tax (VAT)
The tax base for VAT is the taxable turnover and the percentage rate to calculate VAT on the turnover.

The VAT payable = taxable turnover × VAT rate on turnover

Foreign Contractors and Foreign Subcontractors who are subject to VAT under the direct method on VAT cannot offset VAT on goods and services purchased to perform their contracts.

1. Taxable Turnover
   a) Taxable turnover:
   Taxable turnover is the total revenue from providing services or goods-related services subject to VAT that Foreign Contractors and Foreign Subcontractors receive, excluding taxes payable, including any amounts paid by the Vietnamese Party on behalf of the foreign contractors.

b) Determining taxable turnover for specific cases:
b.1) In cases where, according to the agreement in the contractor/subcontractor agreement, the turnover received by the foreign contractor does not include VAT payable, the taxable turnover must be adjusted to the VAT-inclusive turnover using the formula:

Taxable turnover = Turnover excluding VAT / (1 - VAT rate on turnover)

2. VAT rate on turnover:
   a) VAT rate on turnover for specific industries:
   | No. | Industry | VAT Rate |
   | --- | -------- | -------- |
   | 1 | Services, machinery leasing, insurance, construction, installation without materials | 5% |
   | 2 | Production, transportation, services related to goods | 3% |
   | 3 | Other business activities | 2% |

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Article 13: Corporate Income Tax (CIT)
The tax base for CIT is the taxable turnover and the percentage rate to calculate CIT on the taxable turnover.

CIT payable = taxable turnover × CIT rate on taxable turnover

1. Taxable turnover
   a) Taxable turnover:
   Taxable turnover is the total revenue excluding VAT that Foreign Contractors and Foreign Subcontractors receive, excluding taxes payable. The taxable turnover includes any costs paid by the Vietnamese Party on behalf of the foreign contractors.

b) Determining taxable turnover for specific cases:
b.1) In cases where, according to the contractor/subcontractor agreement, the turnover received by the foreign contractor does not include CIT payable, the taxable turnover must be determined using the formula:

Taxable turnover = Turnover excluding CIT / (1 - CIT rate on taxable turnover)

2. CIT rate on taxable turnover:
   a) CIT rate for specific industries:
   | No. | Industry | CIT Rate |
   | --- | -------- | -------- |
   | 1 | Trade: distribution, supply of goods, materials, machinery, equipment | 1% |
   | 2 | Services, machinery leasing, insurance, offshore drilling | 5% |