Are foreign contractors required to pay personal income tax in Vietnam?

Are foreign contractors required to pay personal income tax in Vietnam?

Based on the provisions of Clause 1, Article 5 of Circular 103/2014/TT-BTC, the types of taxes applicable to foreign contractors are as follows:

- Foreign contractors and foreign sub-contractors as business organizations must fulfill value-added tax (VAT) and corporate income tax (CIT) obligations according to the guidance in this Circular.

- Foreign contractors and foreign sub-contractors as foreign individuals conducting business must fulfill VAT obligations according to the guidance in this Circular and PIT obligations under the law on PIT.

- For other types of taxes, fees, and charges, foreign contractors and foreign sub-contractors must comply with the current laws on other taxes, fees, and charges.

Therefore, foreign contractors must also pay PIT according to the law on PIT.

What are types of taxes applicable to foreign contractors in Vietnam? (Image from the Internet)

Which document currently regulates contractor tax in Vietnam?

Currently, contractor tax is not specifically defined in any single document. However, it can be understood through some specific regulations:

According to Clauses 27, 28, and 29 of Article 4 of the Bidding Law 2023, as follows:

- Sub-contractor: An organization or individual that signs a contract with the main contractor to participate in the construction work; consultation; non-consultation; related service provision of the goods supply package; or tasks within the mixed package.

- Special sub-contractor: A sub-contractor that performs important tasks of the bid package as proposed by the main contractor in the bidding dossier based on the capacity and experience requirements stated in the bid invitation dossier or request dossier.

- Foreign contractor: An organization established under foreign law or an individual of foreign nationality participating in bidding.

Additionally, Article 1 of Circular 103/2014/TT-BTC stipulates the entities subject to contractor tax as follows:

[1] Foreign organizations conducting business with or without a permanent establishment in Vietnam; foreign individuals conducting business who are residents or non-residents in Vietnam (collectively referred to as foreign contractors, foreign sub-contractors) conducting business in Vietnam or earning income arising in Vietnam based on contracts, agreements, or commitments between the foreign contractor and Vietnamese organizations or individuals, or between the foreign contractor and the foreign sub-contractor to perform part of the contractor's contract.

[2] Foreign organizations and individuals supplying goods in Vietnam in the form of on-spot import and export with income arising in Vietnam based on contracts between foreign organizations and individuals and Vietnamese enterprises (excluding cases of processing and returning goods to foreign organizations and individuals) or distributing goods in Vietnam, or supplying goods under delivery conditions of international commercial terms - Incoterms, where the seller bears risks related to the goods until they reach Vietnamese territory.

[3] Foreign organizations and individuals conducting part or all of the business of distributing goods, providing services in Vietnam, where foreign organizations and individuals retain ownership of the goods delivered to Vietnamese organizations or are responsible for distribution costs, advertising, marketing, product quality, or setting prices for the goods or services; including cases of authorization or hiring some Vietnamese organizations to perform part of the distribution service, or other services related to the sale of goods in Vietnam.

[4] Foreign organizations and individuals conducting negotiations and signing contracts through Vietnamese organizations and individuals but the contracts are in the name of foreign organizations and individuals.

[5] Foreign organizations and individuals exercising export, import, and distribution rights in the Vietnamese market, purchasing goods for export or selling goods to Vietnamese traders under the law on commerce.

Given the above regulations, it can be inferred that contractor tax is a type of tax applied to individuals and organizations that are foreign contractors, foreign sub-contractors when doing business or having income in Vietnam.

Which entities are not subject to contractor tax in Vietnam?

Based on Article 2 of Circular 103/2014/TT-BTC, entities not subject to contractor tax include:

- Foreign organizations and individuals doing business in Vietnam under the Law on Investment, the Law on Petroleum, and the Law on Credit Institutions.

- Foreign organizations and individuals providing goods to Vietnamese organizations and individuals without associated services performed in Vietnam, under the following forms:

+ Delivery at foreign border gate: the seller bears all responsibilities, costs, and risks related to exporting and delivering goods at the foreign border gate; the buyer bears all responsibilities, costs, and risks related to receiving and transporting goods from the foreign border gate to Vietnam (including cases of delivery at the foreign border gate with a warranty clause being the seller’s responsibility and obligation).

+ Delivery at Vietnam’s border gate: the seller bears all responsibilities, costs, and risks related to the goods until the delivery point at Vietnam’s border gate; the buyer bears all responsibilities, costs, and risks related to receiving and transporting goods from Vietnam’s border gate (including cases of delivery at Vietnam’s border gate with a warranty clause being the seller’s responsibility and obligation).

- Foreign organizations and individuals earning income from services provided and consumed outside of Vietnam.

- Foreign organizations and individuals providing the following services to Vietnamese organizations and individuals, where the services are performed outside of Vietnam:

+ Repairing means of transport (aircraft, aircraft engines, aircraft parts, ships), machinery, equipment (including offshore cables, transmission equipment), whether or not including supplies and replacement equipment;

+ Advertising and marketing (except internet advertising and marketing);

+ Investment and trade promotion;

+ Brokerage: selling goods and providing services abroad;

+ Training (except online training);

+ Sharing telecommunications and international postal services between Vietnam and abroad where these services are performed outside of Vietnam, services for renting foreign transmission lines and satellite bandwidth under the Law on Telecommunications; sharing postal service payments between Vietnam and abroad under the Law on Post, international postal agreements to which the Socialist Republic of Vietnam is a party where these services are performed outside of Vietnam.

- Foreign organizations and individuals using bonded warehouses, inland clearance depots (ICD) as storage for goods in support of international transport, transit, transshipment, storage of goods, or for other enterprises to process goods.