Together with the increment of foreign direct investment capital in Vietnam and cross-border transactions of selling goods and providing services by foreign suppliers to Vietnamese buyers, the concerns regarding the Foreign Contractor Tax and the control of transfer pricing that could affect these transactions have accordingly increased.

Foreign contractors are subject to Vietnam 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.

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.

As an independent foreign contractor, the following three options are available for the tax calucation in Vietnam of these respective taxes:

• Deduction method:

The foreign contractors adopts the Vietnamese accounting system. If accounting records are adequate, they will pay CIT on actual profits, but otherwise on a deemed-profit basis.

• Direct (non-deduction-method) method:

VAT and CIT will be withheld by the contracting party at deemed rates. Various rates are specified according to the nature of the contract performed. For CIT, the FCT rate varies from 0.1% to 10%. For VAT, the FCT rate can also range from 2% to 5%. The VAT withheld by the contracting party is an allowable input credit in its VAT return.

• Hybrid method:

VAT is paid based on the deduction method but with CIT being paid under the direct method rates on gross turnover. To apply this method, the foreign contractors need to satisfy certain conditions.

The Apolo Lawyers advantage is a domestic law firm which is totally familiar with carrying out the procedure and corporating with the state agency. Compared to the other foreign law firm in Vietnam, we are enough confident to prodive the best tax services with the affordable fee. Apolo Lawyers is looking forward to helping you.

More information can be found on the website: www.apolo.com.vn

QUYNH LE