What are the procedures and applications for tax exemption and reduction notification under an agreement for foreign contractors using the credit-invoice method in Vietnam?

Vietnam: What is a foreign contractor?

According to Article 4 of the Law on Procurement 2023:

Definitions

In this Law, the following terms are construed as follows:

...

29. A foreign contractor, a foreign investor is an organization established under foreign law or an individual of foreign nationality participating in the bidding.

30. A domestic contractor, a domestic investor is an organization established under Vietnamese law or an individual of Vietnamese nationality participating in the bidding.

31. The bid closing time is the deadline for receiving expressions of interest, prequalification applications, bidding applications, and proposals.

...

Accordingly, a foreign contractor is an organization established under foreign law or an individual of foreign nationality participating in the bidding.

What are procedures and applications for tax exemption and reduction notification under an agreement for foreign contractors using the credit-invoice method in Vietnam? (Image from the Internet)

Do foreign contractors have to pay personal income tax in Vietnam?

According to 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 subcontractors who are business organizations must fulfill obligations regarding value-added tax (VAT) and corporate income tax (CIT) as guided in this Circular.

- Foreign contractors and foreign subcontractors who are foreign individuals conducting business activities must fulfill obligations regarding VAT as guided in this Circular and PIT according to the law on PIT.

- For other types of taxes, fees, and charges, foreign contractors and foreign subcontractors shall comply with existing laws on other taxes, fees, and charges.

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

What are the procedures and applications for tax exemption and reduction notification under an agreement for foreign contractors using the credit-invoice method in Vietnam?

According to Article 62 of Circular 80/2021/TT-BTC, the procedures and applications for tax exemption and reduction notification under an agreement for foreign contractors using the credit-invoice method are as follows:

For business activities and other types of income:

- Within 15 days before the tax declaration deadline, the foreign contractor or the Vietnamese party signing the contract or paying income to the foreign contractor shall submit to the directly managing tax authority of the Vietnamese party the application for tax exemption and reduction under the tax agreement, which includes:

+ A written request according to form No. 01/HTQT issued together with Appendix I of Circular 80/2021/TT-BTC;

+ The original (or certified copy) of the certificate of residence issued by the tax authority of the resident country immediately before the year of notification subject to tax exemption and reduction under the tax agreement, legalized;

+ A copy of the contract signed with organizations and individuals in Vietnam with the taxpayer's confirmation;

+ A power of attorney in case the taxpayer authorizes a legal representative to carry out the procedure to apply the tax agreement.

- In case of securities trading activities without a securities trading contract, the taxpayer must submit a deposit account confirmation certificate for shares or bonds by the depository bank or securities company, confirmed according to form No. 01/TNKDCK issued together with Appendix I of Circular 80/2021/TT-BTC.

- For income from capital transfer activities: the taxpayer must submit an additional copy, confirmed by the taxpayer, of the capital transfer contract and a copy of the investment certificate of the Vietnamese company in which the foreign investor contributed capital, confirmed by the taxpayer.

- In cases where foreign government organizations have income subject to tax exemption under the interest on loans provisions of the tax agreement: the taxpayer must submit a copy of the loan agreement signed between the foreign government organization and organizations or individuals in Vietnam, confirmed by the taxpayer.

- In case in the previous year, a tax exemption and reduction application under the tax agreement was submitted, in subsequent years, only the new economic contracts signed with organizations and individuals in Vietnam and abroad (if any), confirmed by the taxpayer, need to be sent.

- Within 15 days before the end of the working contract in Vietnam or before the end of the fiscal year (whichever occurs first), the foreign contractor shall send the original (or certified copy) certificate of residence that has been legalized for that fiscal year to the Vietnamese party signing the contract or paying income.

Within 03 working days from the receipt of the certificate of residence, the Vietnamese party signing the contract or paying income is responsible for submitting to the tax authority the original (or certified copy) of this certificate of residence.

- If, at the above-mentioned time, the certificate of residence is still unavailable, the foreign contractor is obliged to commit to sending the original (or certified copy) certificate of residence that has been legalized in the quarter immediately following the fiscal year's end.

For foreign airlines:

- Within 15 days before commencing exploration of the aviation market or before the first fiscal year (whichever occurs first), the office in Vietnam of the foreign airline shall submit to the tax authority the notification application subject to tax exemption and reduction under the tax agreement. The application includes:

+ A written request according to form No. 01/HTQT issued together with Appendix I of Circular 80/2021/TT-BTC;

+ The original (or certified copy) of the certificate of residence issued by the tax authority of the resident country immediately before the year of notification subject to tax exemption and reduction under the tax agreement, legalized;

+ A copy of the license to explore the Vietnamese market (flight permit) issued by the Civil Aviation Authority as per the Civil Aviation Law, confirmed by the taxpayer;

+ A power of attorney in case the taxpayer authorizes a legal representative to carry out the procedure to apply the tax agreement.

- In the event that in the previous year, a tax exemption and reduction application under the tax agreement was submitted, in subsequent years, only new copies of the license to explore the Vietnamese market (flight permit) issued by the Civil Aviation Authority with the taxpayer's confirmation need to be sent (if any).

- Within 15 days before the end of the working contract in Vietnam or before the end of the fiscal year (whichever occurs first), the office in Vietnam of the foreign airline shall submit the certificate of residence that has been legalized for that fiscal year and the income statements for international transportation for ticket sales in the Vietnamese market according to form No. 01-1/HKNN, and the income statements for international transportation for code sharing arrangements in international air transportation according to form No. 01-2/HKNN of the related fiscal year to the tax authority as a basis for applying income tax exemption and reduction from international transportation activities of foreign airlines.

For foreign transport companies:

- When finalizing taxes, the foreign transport company or its agent must submit to the tax authority the application for tax exemption or reduction under the tax agreement. The application includes:

+ A written request according to form No. 01/HTQT issued together with Appendix I of Circular 80/2021/TT-BTC;

+ The original (or certified copy) of the certificate of residence issued by the tax authority of the country or territory where the foreign shipping company resides for the fiscal year immediately preceding the year of tax exemption and reduction request under the tax agreement, legalized.

- The agent of the foreign transport company in Vietnam or the representative office of the foreign transport company is responsible for storing records, applications, and vouchers as regulated by the Accounting Law, the Decree guiding the Accounting Law 2015, and the Vietnam Maritime Code 2015, and presenting them when requested by the tax authority.

- In case a foreign transport company or its agent authorizes a legal representative to carry out the procedure to apply the tax agreement, an additional original power of attorney must be submitted.

- At the end of the year, the foreign transport company or its agent shall submit to the tax authority the certificate of residence that has been legalized for that year.

- If, in the previous year, an application for tax exemption and reduction under the tax agreement was submitted, in the subsequent years, the foreign transport company or its agent only needs to notify any changes in the information previously submitted in form No. 01/HTQT of the previous year and provide corresponding applications for the changes.

- In cases where foreign transport companies have agents in various localities in Vietnam or agents of the foreign transport company have branches or representative offices (collectively referred to as branches) in various localities in Vietnam, the foreign transport companies or agents of the foreign transport company shall submit the original (or certified copy) certificate of residence that has been legalized to the local Tax Department where the agent of the foreign transport company has its headquarters; and send a copy of the legalized certificate of residence to the local Tax Department where the foreign transport company has branches, indicating the location where the original (or certified copy) was submitted in the written request for tax exemption or reduction under the tax agreement.

For foreign reinsurance companies:

Foreign reinsurance recipients directly submit their application for applying the tax agreement for each year for all reinsurance contracts they have signed or intend to sign in that year. Foreign reinsurance recipients may authorize tax agents, representative offices in Vietnam, or Vietnamese reinsurance companies to submit the application. In such cases, foreign reinsurance recipients submit to the tax authority two applications for requests: the preliminary request and the formal request. Specifically, as follows:

- For the preliminary request: 05 days before signing the contract; or 05 days after performing the contract; or 05 days before payment, whichever occurs first, foreign reinsurance recipients are responsible for submitting to the tax authority the preliminary request and related materials. Foreign reinsurance recipients with representative offices in Vietnam submit their applications at the Provincial or City Tax Department where the representative office is located. For foreign reinsurance recipients without representative offices in Vietnam:

+ If foreign reinsurance recipients directly submit their application, they shall submit it at the Provincial or City Tax Department where the first Vietnamese reinsurance company intends to sign the contract is located;

+ If foreign reinsurance recipients authorize a legal representative in Vietnam (Tax agent, Auditing firm, or first Vietnamese reinsurance company intending to sign the contract, etc.) to submit the application: Submit it at the Provincial or City Tax Department where the legal representative is registered to pay taxes.

+ The preliminary request includes: A preliminary request application according to form No. 01/TBH-TB issued together with Appendix I of Circular 80/2021/TT-BTC; The original (or certified copy) of the certificate of residence issued by the tax authority of the resident country that has been legalized (for the year immediately preceding the year of submitting the preliminary request); A list of reinsurance contracts that have been or are intended to be signed according to form No. 01-1/TBH-TB issued together with Appendix I of Circular 80/2021/TT-BTC; A power of attorney in case the taxpayer authorizes a legal representative to carry out the procedure to apply the tax agreement.

- For the formal request: Within the first quarter of the following year, foreign reinsurance recipients are responsible for submitting to the tax authority the formal request and related materials similar to those for submitting the preliminary request.

The formal request includes:

+ A formal request application according to form No. 02/TBH-TB issued together with Appendix I of Circular 80/2021/TT-BTC;

+ The original (or certified copy) of the certificate of residence issued by the tax authority of the resident country that has been legalized for that tax year;

+ Copies of reinsurance contracts executed during the year, confirmed by the taxpayer (including both those contracts included in the previously submitted plan and those not included in the plan but sent to the tax authority already) but not yet submitted to the tax authority;

+ A contract list by each type according to form No. 02-1/TBH-TB issued together with Appendix I of Circular 80/2021/TT-BTC.

At the time of submitting the formal request application, the taxpayer will classify contracts and submit a contract list by each type (with certain criteria); each type of contract only sends one certified copy by the taxpayer as a sample. The taxpayer is responsible for this statistics; a power of attorney in case the taxpayer authorizes a legal representative to carry out the procedure to apply the tax agreement.