Regulations of Vietnam law on contractor tax

One of the special concerns, when foreign investors invest in a new market, is the tax policy, which is specifically the contractor tax. Contractor tax is a tax that foreign contractors and foreign sub-contractors must pay when doing business in Vietnam. So, Regulations of Vietnam law on contractor tax. Let’s find out about this regulation with Lawyer X.

Legal grounds

• Tax Administration Law 2019
• Circular 103/2014/TT-BTC

Laws on contractor tax

1. Foreign contractors and foreign sub-contractors that satisfy the conditions specified in Article 8, Section 2, Chapter II or Article 14, Section 4, Chapter II, do business in Vietnam or earn income in Vietnam. The business is conducted on the basis of a contractor contract with a Vietnamese organization or individual or with another foreign organization or individual doing business in Vietnam on the basis of a subcontractor contract.

The determination of foreign contractors, foreign sub-contractors having permanent establishments in Vietnam, or being residents in Vietnam shall comply with the provisions of the Law on Corporate Income Tax, the Law on Personal Income Tax. and implementation manuals.

In case the Agreement on avoidance of double taxation to which the Socialist Republic of Vietnam is a signatory contains other provisions on permanent establishments and residents, the provisions of such Agreement shall apply.

2. Organizations established and operating under Vietnamese law, organizations registered to operate under Vietnamese laws, other organizations and individuals engaged in production and business: purchase services or services associated with goods or pay incomes generated in Vietnam on the basis of contractor contracts or subcontractors; purchase goods in the form of import and export on the spot or under the terms of international trade (Incoterms); distribute goods and provide services on behalf of foreign organizations and individuals in Vietnam (hereinafter referred to as Vietnamese parties) including:

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 Petroleum Law;

Branches of foreign companies permitted to operate in Vietnam;

Foreign organizations or representatives of foreign organizations helped to operate in Vietnam;

Ticket offices, agents in Vietnam of foreign airlines have the right to transport to and from Vietnam, directly or in a joint venture;

Organizations and individuals providing sea transportation services of foreign shipping companies; agents in Vietnam of freight forwarders, foreign delivery companies;

Securities company, securities issuer, fund management company, commercial bank where the securities investment fund or foreign organization opens a securities investment account;

Other organizations in Vietnam;

Individuals doing business in Vietnam.

Taxpayers under the guidance are responsible for withholding value-added tax and corporate income tax as guided in Section 3 Chapter II before making payments to foreign contractors and foreign sub-contractors.”

How to calculate foreign contractor tax

If the foreign contractor or sub-contractor is an organization

Foreign contractors and sub-contractors being business organizations shall fulfill their VAT and CIT obligations under the following instructions:

Pay VAT by credit method, CIT on the basis of revenue and expense declaration to determine taxable income (declaration method)

How to calculate VAT and CIT according to the declaration method?

Do the same as for Vietnamese enterprises.

Pay VAT and CIT according to the ratio method on revenue (direct method)

– Subjects and conditions of application

If a foreign contractor or sub-contractor fails to meet one of the conditions mentioned in Section 2.2.1 above, the Vietnamese party will pay tax on behalf of the foreign contractor or sub-contractor.

– How to calculate VAT and CIT by the direct method

How to calculate VAT:

The tax base is the turnover for calculating VAT and the percentage for calculating VAT on the turnover.

Revenue subject to VAT

a) Revenue subject to VAT:

Taxable turnover is the total revenue from providing services and services associated with VAT-liable goods received by foreign contractors or foreign sub-contractors, excluding payable taxes, including all expenses paid by the Vietnamese party on behalf of the foreign contractor, foreign sub-contractor (if any).

b) Determination of turnover subject to VAT in some specific cases:

b.1) In case, as agreed in the contractor contract, or sub-contractor contract, the revenue received by the foreign contractor or foreign sub-contractor does not include the payable VAT, the turnover for calculating VAT must be converted into turnover with VAT;

b.2) In case a foreign contractor signs a contract with a Vietnamese sub-contractor or a foreign sub-contractor pays tax according to the declaration method or the foreign sub-contractor pays tax by the mixed method to a part of the value of the work or item for the subcontractor specified in the contract the contractor signed with the Vietnamese party and the list of Vietnamese subcontractors and foreign subcontractors performing the same part of the work or item. If the requirements are listed together with the contractor contract, the foreign contractor’s VAT calculation revenue does not include the value of the work performed by the Vietnamese sub-contractor or the foreign sub-contractor.

In case a foreign contractor signs contracts with suppliers in Vietnam to purchase supplies, materials, machinery and equipment to perform the contractor contract, and goods and services for internal consumption, using items that do not belong to the items or jobs performed by the foreign contractor under the contractor contract, the value of these goods and services shall not be deducted when determining the foreign contractor’s VAT calculation revenue.

Amount of VAT payable = Revenue for calculating VAT x Percentage for calculating VAT on revenue

Foreign contractors and foreign sub-contractors that are subject to VAT by the method of direct calculation on VAT are not entitled to deduct input VAT.

How to calculate CIT

Amount of CIT payable = Taxable turnover x Percentage for calculating CIT on turnover

In there,

Revenue subject to CIT

Total revenue excluding VAT received by foreign contractors and sub-contractors, excluding taxes payable. Revenue for calculating CIT includes expenses paid by the Vietnamese party on behalf of foreign contractors and sub-contractors (if any).

Pay VAT by deduction method, CIT at percentage of turnover (mixed method)

Subjects and conditions of application

Foreign contractors, foreign sub-contractors if they fully meet the following conditions:

– Having a permanent establishment in Vietnam, or being a resident in Vietnam;

• The duration of business in Vietnam under the contractor contract or sub-contractor contract is 183 days or more from the effective date of the contractor contract or sub-contractor contract;
• And organize the accounting according to the provisions of the law on accounting.

=> Then register with the tax authority to pay VAT by the deduction method and pay CIT at the percentage calculated on taxable revenue.

How to calculate VAT and CIT by the mixed method?

– VAT: Implement like Vietnamese enterprises.

– CIT: Calculated by the direct method mentioned in Section 2.1.2 above

Foreign contractors and subcontractors are individuals

– VAT shall comply with regulations applicable to foreign contractors being business organizations mentioned above.

How to settle contractor tax in 2022

Dossier to prepare for contractor tax finalization

Enterprises paying VAT and paying CIT according to the ratio method on turnover need to prepare the finalization declaration documents:

Declaration of finalization of contractor tax, made according to form No. 02/NTNN issued together with Circular 156/2013/TT-BTC
List of foreign contractors and sub-contractors participating in the performance of contractor contracts according to form No. 02-01/NTNN, 02/2/NTNN issued together with Circular 156/2013/TT-BTC
List of tax payment documents
Contract liquidation (if any)
In addition, the contractor must also prepare detailed tax returns. The preparation of tax declaration dossiers is divided into each operation and specific case:

Business activities and other types of income
Tax declaration for foreign airlines
Tax declaration for foreign carriers
Tax return for foreign reinsurance

Time for submitting contractor tax finalization dossiers

Pursuant to Circular No. 156/2013/TT-BTC dated November 6, 2013 of the Ministry of Finance guiding the implementation of a number of articles of the Law on Tax administration; Law amending and supplementing a number of articles of the Law on Tax administration and Decree No. 83/2013/ND-CP dated July 22, 2013 of the Government.

• In Clause 3, Article 10 guides the deadline for submitting tax declaration dossiers:

“a) The deadline for submitting monthly tax declaration dossiers is the 20th (twentieth) day of the month following the month in which the tax liability arises…

d) The deadline for submitting tax declaration dossiers for each time a tax obligation arises is the 10th (tenth) day from the date of arising the tax obligation.”

Thus, the time limit for foreign contractors and foreign sub-contractors to pay tax is after 10 days from the date of arising tax operations.

If the contractor country taxpayers under the direct method. The deadline for submitting contractor tax finalization is 45 days from the date of contract termination.

Related articles:

• Personal income tax finalization service in Ho Chi Minh City
• Procedures for personal income tax finalization in Vietnam
• Vietnamese law on corporate income tax

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