Are foreign enterprises subject to contractor tax when signing contracts for maintenance of software and equipment in Vietnam?

Are foreign enterprises subject to contractor tax when signing contracts for maintenance of software and equipment in Vietnam?

Pursuant to Clause 1, Article 1 of Circular 103/2014/TT-BTC, it is stipulated as follows:

Applicable Subjects

The guidance in this Circular applies to the following subjects (except for cases specified in Article 2, Chapter I):

1. Foreign organizations conducting business with a permanent establishment in Vietnam or without a permanent establishment in Vietnam; foreign individuals conducting business, being residents in Vietnam or non-residents in Vietnam (hereinafter collectively referred to as Foreign Contractor, Foreign Subcontractor) conducting business in Vietnam or generating income arising in Vietnam based on contracts, agreements, or commitments between the Foreign Contractor and Vietnamese organizations, individuals or between Foreign Contractors and Foreign Subcontractors to carry out part of the Contractor Contract.

2. Foreign organizations, individuals providing goods in Vietnam in the form of on-the-spot import-export and generating income in Vietnam based on contracts signed between foreign organizations, individuals with enterprises in Vietnam (excluding cases of processing and re-exporting goods to foreign organizations, individuals) or distributing goods in Vietnam or providing goods under delivery terms of international trade clauses - Incoterms where the seller bears the risks related to the goods into Vietnam territory.

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Thus, foreign enterprises are subject to contractor tax when signing contracts to carry out maintenance of software and equipment in Vietnam.

Are foreign enterprises subject to contractor tax when signing contracts for maintenance of software and equipment in Vietnam? (Image from the Internet)

What is contractor tax in Vietnam?

Currently, the contractor tax is not specifically defined in any document; however, it can be understood through some specific regulations:

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

- Subcontractor: is an organization or individual who signs a contract with the main contractor to participate in construction; consulting; non-consulting; related services of the package for providing goods; work belonging to a mixed package.

- Special Subcontractor: is a subcontractor performing important work of the package proposed by the main contractor in the bidding dossier, proposal dossier based on requirements of capability, experience in the invitation for bids, requirement dossier.

- Foreign Contractor:** is an organization established under foreign law or an individual with foreign nationality participating in bidding.

Simultaneously, according to Article 1 of Circular 103/2014/TT-BTC, which stipulates subjects applying this contractor tax include:

[1] Foreign organizations conducting business with a permanent establishment in Vietnam or without a permanent establishment in Vietnam; foreign individuals conducting business, being residents in Vietnam or non-residents (collectively referred to as Foreign Contractors, Foreign Subcontractors) conducting business in Vietnam or generating income arising in Vietnam based on contracts, agreements, or commitments between the Foreign Contractor and Vietnamese organizations, individuals or between Foreign Contractors and Foreign Subcontractors to carry out part of the Contractor Contract.

[2] Foreign organizations, individuals providing goods in Vietnam in the form of on-the-spot import-export and generating income in Vietnam based on contracts signed between foreign organizations, individuals with enterprises in Vietnam (excluding cases of processing and return of goods to foreign organizations, individuals) or distributing goods in Vietnam or providing goods under delivery terms of international trade clauses - Incoterms where the seller bears the risks related to the goods into Vietnam territory.

[3] Foreign organizations, individuals performing a part or the whole business distribution of goods, providing services in Vietnam where the foreign organization, individual remains the owner of goods handed over to Vietnamese organizations or is responsible for distribution costs, advertising, marketing, quality of services, quality of goods delivered to Vietnamese organizations or sets the selling prices of goods or services supplied; including cases of authorizing or hiring some Vietnamese organizations to perform part of the distribution services, other related services concerning the sale of goods in Vietnam.

[4] Foreign organizations, individuals through Vietnamese organizations, individuals to negotiate and sign contracts in the name of foreign organizations, individuals.

[5] Foreign organizations, individuals exercising their right of export, import, distribution in the Vietnamese market, buying goods for export, selling goods to Vietnamese traders according to commercial law.

Thus, from these regulations, it can be understood that contractor tax is a type of tax applied to individuals, organizations that are foreign contractors, foreign subcontractors when conducting business or having income in Vietnam.

Which 5 entities are not subject to contractor tax in Vietnam?

According to Article 2 of Circular 103/2014/TT-BTC, entities not applying contractor tax include:

- Foreign organizations or individuals conducting business in Vietnam as prescribed by the Law on Investment, Law on Petroleum, Law on Credit Institutions.

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

+ Delivering goods at foreign border gates: the seller bears all responsibilities, costs, risks related to the export of goods and delivering goods at foreign border gates; the buyer bears all responsibilities, costs, risks related to receiving, transporting goods from foreign border gates to Vietnam (including cases of delivering goods at foreign border gates with warranty terms as seller's responsibility and obligation).

+ Delivering goods at Vietnam border gates: the seller bears all responsibilities, costs, risks related to goods until the delivery point at Vietnam border gates; the buyer bears all responsibilities, costs, risks related to receiving, transporting goods from Vietnam border gates (including cases of delivering goods at Vietnam border gates with warranty terms as the seller's responsibility and obligation).

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

- Foreign organizations, individuals providing the following services to Vietnamese organizations, individuals where services are performed abroad:

+ Repairing means of transport (aircraft, aircraft engines, aircraft components, sea vessels), machinery, equipment (including submarine cables, transmission equipment), with or without accompanying replacement materials, equipment;

+ Advertising, marketing (except advertising, marketing on the internet);

+ Investment and trade promotion;

+ Brokerage: selling goods, providing services abroad;

+ Training (except online training);

+ Revenue sharing (payment fees) for international telecommunications services between Vietnam and abroad where such services are performed outside Vietnam, services leasing transmission lines and satellite bandwidth of foreign countries as prescribed by the Telecommunications Law; Revenue sharing (payment fees) for international postal services between Vietnam and abroad as prescribed by the Postal Law, international postal treaties Vietnam is a signatory to where such services are performed outside Vietnam.

- Foreign organizations, individuals using bonded warehouses, inland ports (ICD) as storage facilities for supporting international transport, transit, transshipment, storage, or for processing by other enterprises.