Contractor tax is no longer a new tax for businesses today. However, there are still many businesses that are confused and do not really understand this type of tax. Grasping that mentality, Viet An tax Agent would like to share with customers about contractor tax through the article below. Specifically:
Foreign Contractor Tax (FCT) is a tax applied to foreign organizations and individuals (not operating under Vietnamese law) that generate income from providing services or services associated with goods in Vietnam.
According to the provisions of Article 1 of Circular 103/2014/TT-BTC dated August 6, 2014, it is stipulated as follows:
Subjects submitting to contractor tax include:
Contractor tax at Gross price is the value of the contract between a Vietnamese enterprise and a foreign contractor that generates income in Vietnam, including tax.
Note: Calculate VAT for contractors first, then calculate CIT for foreign contractors
| VAT must be paid | = | Contract value | x | Percentage rate to calculate VAT on revenue |
| Corporate income tax must be paid | = | (Contract value – VAT) | x | CIT rate |
Contractor tax based on Net price is the value of the contract between a Vietnamese enterprise and a foreign contractor that generates income in Vietnam excluding tax.
Note: Calculate corporate income tax for foreign contractors first and then calculate VAT.
| Revenue subject to corporate income tax | = | Revenue does not include corporate income tax | : | (1 – Corporate income tax rate calculated on taxable revenue) |
| Corporate income tax must be paid | = | Revenue subject to corporate income tax | x | The corporate income tax rate is calculated on taxable revenue |
| Revenue subject to VAT | = | Revenue does not include VAT | : | (1 – Percentage to calculate VAT on revenue) |
| VAT must be paid | = | Revenue subject to VAT | x | Percentage rate to calculate VAT on revenue |
Percentage rate to calculate VAT on revenue
| No | Business lines | Percentage to calculate VAT |
| 1 | Services, machinery and equipment rental, insurance; Construction, and installation do not include raw materials, machinery and equipment | 5 |
| 2 | Production, transportation, and services associated with goods; Construction and installation include contracts for raw materials, machinery and equipment | 3 |
| 3 | Other business activities | 2 |
Rate (%) of corporate income tax calculated on taxable revenue
| No | Business lines | Rate (%) of corporate income tax calculated on taxable revenue |
| 1 | Trade: distributing and supplying goods, raw materials, supplies, machinery, and equipment; distributing and supplying goods, raw materials, supplies, machinery, and equipment associated with services in Vietnam {including supplying goods in the form of on-site import and export (except for goods processing). for foreign organizations and individuals); supply goods according to the delivery conditions of the International Commercial Terms – Incoterms} | 1 |
| 2 | Services, machinery and equipment rental, insurance, drilling rig rental | 5
|
| Private:
– Restaurant, hotel, and casino management services. |
10 | |
| – Derivative financial services | 2 | |
| 3 | Rent aircraft, aircraft engines, aircraft, and ship spare parts | 2 |
| 4 | Construction and installation with or without contracts for materials, machinery and equipment | 2 |
| 5 | Other production and business activities, transportation (including sea transportation and air transportation) | 2 |
| 6 | Transfer of securities and certificates of deposit, Overseas reinsurance, reinsurance ceding commission | 0,1 |
| 7 | Loan interest | 5 |
| 8 | Copyright income | 10 |
Above is the advice of Viet An Tax Agent for the questions “how to calculate foreign contractor tax in Vietnam?”. Customers who need advice and support regarding tax services please contact us for quick and timely answers.
