Vietnam’s Foreign Contractor Tax – 3 Ways to Calculate FCT

Foreign contractors are subject to taxes on payments for work done in Vietnam based on the contracts signed with a Vietnamese partner in the form of the foreign contractor tax (FCT). FCT is not a separate tax, but typically comprises a combination of value added tax (VAT) and corporate income tax (CIT), or personal income tax (PIT) for the income of foreign individuals.

CIT-liable income is determined based on declared total turnover and expenses.

Foreign contractors are subject to the above-listed taxes for services rendered in Vietnam, but this does not include the pure supply of goods, services performed and consumed outside Vietnam, and other services performed wholly outside of the country.

In other words, foreign contractors are not subject to these taxes for payments received for overseas services or services performed and consumed outside of Vietnam.

Payments that are subject to FCT include interest, royalties, service fees, leases, rentals, insurance premiums, transportation fees and so on.

No withholding tax or remittance tax is imposed on profits paid to foreign corporate shareholders. However, a withholding tax of five percent CIT applies to interest paid on loans from foreign entities. An offshore loan provided by certain governments or semi-government organizations can get an exemption from withheld tax on interest where there is double taxation agreement between Vietnam and the relevant country.

Interest paid on bonds and certification of deposit issued to foreign entities is subject to five percent withholding tax.

Three ways to calculate FCT

  1. Deduction method

  2. Direct method

  3. Hybrid method

This is an excerpt from an article appearing in Vietnam Briefing, a subsidiary of Dezan Shira & Associates. For the latest economic, regulatory and business news from Vietnam, visit vietnam-briefing.com.