Foreign contractor tax is not a standalone tax, but a tax collection mechanism applicable to foreign organizations and individuals (including foreign contractors and foreign subcontractors) that do business in Vietnam or derive income arising in Vietnam under contracts, agreements, or commitments with Vietnamese organizations or individuals.
Previously, the determination of foreign contractor tax obligations was primarily guided under Circular 103/2014/TT-BTC dated 6 August 2014 of the Ministry of Finance guiding the implementation of tax obligations applicable to foreign organizations and individuals doing business in Vietnam or deriving income in Vietnam (“Circular 103”). However, Circular 103 has been repealed with effect from 1 July 2026. Accordingly, the determination and declaration of foreign contractor tax obligations shall be governed directly by the respective tax laws and regulations, namely: corporate income tax (“CIT”) for foreign contractors that are organizations; personal income tax (“PIT”) for foreign contractors that are individuals; value-added tax (“VAT”); and the relevant implementing tax guidance.
When entering into contracts, agreements, or commitments with foreign counterparties, Vietnamese organizations and individuals should pay particular attention to identifying the following key factors:
(i) whether a counterparty that is an organization has a permanent establishment in Vietnam; and whether a counterparty that is an individual is a tax resident of Vietnam;
(ii) whether the subject matter of the transaction under the contract, agreement, or commitment gives rise to a tax liability of the foreign contractor in Vietnam under the prevailing regulations;
(iii) whether the foreign contractor declares and pays tax directly in Vietnam, or the Vietnamese party is responsible for withholding, declaring, and paying tax on its behalf;
(iv) whether the foreign contractor falls within the scope of application of a double taxation avoidance agreement.
Clarifying and agreeing on these matters, from the negotiation and contract-drafting stage through to the performance and payment stage, is key to enabling the parties to comply with tax laws and avoid the risks of administrative penalties and tax arrears assessments.
This article provides an update on certain noteworthy developments regarding CIT and VAT obligations of foreign contractors that are organizations/enterprises established under foreign law that do business in Vietnam or derive income arising in Vietnam under contracts, agreements, or commitments with Vietnamese organizations or individuals.
- Tax calculation methods
| Circular 103 | New regulations |
Declaration Method VAT: credit method; CIT: determined on the basis of declared revenue and expenses to ascertain taxable income. | Applicable to foreign contractors that satisfy all of the following conditions: having a permanent establishment in Vietnam; conducting business in Vietnam for a period of 183 days or more; applying the Vietnamese accounting regime; and having registered for tax. | CIT: applicable to foreign contractors having a permanent establishment in Vietnam, who pay tax on taxable income arising in Vietnam and on taxable income arising outside Vietnam that is related to the operations of that permanent establishment[1]. VAT: foreign contractors having a permanent establishment in Vietnam may voluntarily apply the credit method[2]. The foreign contractor registers for tax and directly declares and pays tax in accordance with regulations. |
Direct Method VAT: calculated as a percentage (%) of revenue; CIT: calculated as a percentage (%) of revenue. | The foreign contractor does not satisfy one of the conditions for applying the Declaration Method. The Vietnamese party pays tax on behalf of the foreign contractor or foreign subcontractor. | Applicable to foreign contractors without a permanent establishment in Vietnam in respect of taxable income arising in Vietnam that is not connected with the operations of a permanent establishment, and to foreign contractors without a permanent establishment in Vietnam, including enterprises engaged in e-commerce or digital platform-based business. The Vietnamese party that enters into the contract with the foreign contractor shall withhold and pay tax on behalf of the foreign contractor and submit the tax declaration dossier and tax finalization dossier to the tax authority directly managing the Vietnamese party. Foreign suppliers without a permanent establishment in Vietnam that conduct e-commerce or digital platform-based business with Vietnamese organizations or individuals shall register, declare, and pay tax directly with the Vietnamese tax authorities. Where transactions are made through an e-commerce platform operator that provides online ordering and payment functions, the platform operator shall withhold and pay tax on behalf of the foreign supplier doing business on the e-commerce platform. Where a business organization in Vietnam applying the credit method of VAT purchases goods or services from a foreign supplier on an e-commerce platform, such organization is responsible for withholding and paying tax on behalf of the foreign supplier in accordance with regulations. |
Hybrid Method VAT: credit method; CIT: calculated as a percentage (%) of revenue. | A foreign contractor that satisfies both of the following conditions: having a permanent establishment in Vietnam; and conducting business in Vietnam for a period of 183 days or more and maintaining accounting records in accordance with the law on accounting and the guidance of the Ministry of Finance. | Repealed with effect from 12 March 2026. Where a contractor contract or subcontractor contract was signed before 12 March 2026 and is being performed under the Hybrid Method, the determination of CIT liability under that method shall continue until the contract expires[3]. The foreign contractor directly declares and pays tax to the tax authority directly managing the Vietnamese party. |
In this regard, please note the following:
1.1. Permanent establishment of a foreign contractor in Vietnam:
A permanent establishment of a foreign contractor in Vietnam is a production or business establishment through which the foreign contractor conducts part or all of its production or business activities in Vietnam, including:
a. A branch, executive office, factory, workshop, means of transport, oil field, gas field, mine, or other site for the extraction of natural resources in Vietnam;
b. A construction site, or a construction, installation, or assembly project;
c. A service-providing establishment, including the provision of consulting services through employees or other organizations or individuals;
d. An agent of a foreign enterprise;
e. A representative in Vietnam that is authorized to conclude contracts in the name of the foreign enterprise, or that is not so authorized but regularly delivers goods or provides services in Vietnam;
f. An e-commerce platform or digital platform through which the foreign contractor supplies goods or services in Vietnam.
1.2. Determination of taxable income arising in Vietnam
Taxable income arising in Vietnam is income received that is sourced from Vietnam from the provision of services, the supply and distribution of goods (including the supply of goods and services through e-commerce or digital platform-based business models), lending, and royalties paid by Vietnamese organizations or individuals or by foreign organizations or individuals doing business in Vietnam, irrespective of the place where the business is conducted; and income from the transfer of capital (directly or indirectly), investment projects, rights to contribute capital, rights to participate in investment projects, and rights to explore, exploit, and process minerals in Vietnam, irrespective of the place where the transfer is made.
- CIT and VAT percentage rates under the Direct Method (percentage of revenue)
Services and goods supplied | Rate (%) VAT | Rate (%) CIT | Total rate (%) (Gross price) |
Services | 5% | 5% | 10% |
Management services for restaurants, hotels, and casinos | 5% | 10% | 15% |
Cross-border digital services (via e-commerce platforms) | 10% | 5% | 15% |
Leasing of machinery, equipment, drilling rigs, and means of transport | 5% | 5% | 10% |
Leasing of aircraft, helicopters, gliders, and sea vessels | 5% | 2% | 7% |
Royalties; intellectual property rights | (−) | 10% | 10% |
Interest on offshore loans | (−) | 5% | 5% |
Construction and installation without supply of materials | 5% | 2% | 7% |
Construction and installation with supply of materials | 3% | 2% | 5% |
International transportation (air and sea) | 3% | 2% | 5% |
Derivative financial services | (−) | 2% | 2% |
Distribution and supply of goods in Vietnam (Incoterms with delivery within Vietnam) | 1% | 1% | 2% |
Transfer of securities; reinsurance | (−) | 0.1% | 0.1% |
Transfer of capital in Vietnamese enterprises | (−) | 2% | 2% |
Note: (−): Not subject to VAT
In this regard, please note the following:
- Where a contract covers multiple different business activities, or part of the contract value is not subject to VAT, revenue must be separated for each activity in order to apply the corresponding percentage rate. Where the value of each business activity cannot be separated, the highest VAT percentage rate on revenue shall apply to the entire contract value.
- For contracts for the supply of machinery and equipment accompanied by services performed in Vietnam, if the value of the machinery and equipment can be separated from the value of the services when determining VAT payable, the VAT percentage rate shall be applied to the revenue of each respective portion of the contract value. Where the contract does not separate the value of the machinery and equipment from the value of the services, the VAT percentage rate applicable to taxable revenue shall be 3%.
Regarding CIT, where services are supplied together with goods, the goods shall be taxed at the rate of 1%; where the value of the goods cannot be separated from the value of the services, the rate of 2% shall apply.
- Taxable revenue where the direct method (percentage of revenue) applies
| Circular 103 | New regulations |
CIT taxable revenue | Total revenue, excluding VAT, received by the foreign contractor or foreign subcontractor, before deduction of taxes payable. Taxable revenue includes expenses paid by the Vietnamese party on behalf of the foreign contractor or foreign subcontractor (if any)[4]. | Total revenue received by the foreign contractor or foreign subcontractor, before deduction of taxes payable. Taxable revenue includes expenses paid by the Vietnamese party on behalf of the foreign contractor or foreign subcontractor (if any)[5]. |
VAT taxable revenue | VAT taxable revenue is the total revenue from the supply of services, or services attached to goods, that are subject to VAT, received by the foreign contractor or foreign subcontractor, before deduction of taxes payable, including expenses paid by the Vietnamese party on behalf of the foreign contractor or foreign subcontractor (if any)[6]. | Unchanged from the previous regulations.[7] |
In this regard, please note the following:
Under the current regulations, CIT taxable revenue of a foreign contractor applying the Direct Method (percentage of revenue) is revenue before deduction of taxes payable; in essence, CIT is calculated directly on revenue without excluding VAT. This is a major difference from Circular 103, under which CIT taxable revenue was revenue exclusive of VAT.
This rule is also consistent with the treatment of Vietnamese enterprises that declare and pay VAT under the direct method, whose CIT taxable revenue is revenue inclusive of VAT.
[1] Article 12.1 of Decree No. 320/2025/ND-CP dated 15 December 2025 of the Government guiding the Law on Corporate Income Tax (“Decree 320”).
[2] Article 21.2(e) of Decree No. 181/2025/ND-CP dated 1 July 2025 of the Government detailing the implementation of a number of articles of the Law on Value-Added Tax (“Decree 181”).
[3] Article 10.4 of Circular 20/2026/TT-BTC dated 12 March 2026 of the Ministry of Finance guiding the Law on Corporate Income Tax and Decree 320 (“Circular 20”).
[4] Article 13.1(a) of Circular 103.
[5] Article 7.3 of Circular 20.
[6] Article 12.1(a) of Circular 103.
[7] Article 9.4(a) of Circular No. 69/2025/TT-BTC dated 1 July 2025 of the Ministry of Finance detailing a number of articles of the Law on Value-Added Tax and guiding the implementation of Decree 181.
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This article was prepared by Ha Tu, Counsel