What incomes are subject to corporate income tax of foreign contractors in Vietnam?

What incomes are subject to corporate income tax of foreign contractors in Vietnam?

Pursuant to Clause 1, Article 7 of Circular 103/2014/TT-BTC stipulated as follows:

Taxable Income under CIT

1. The taxable income under CIT for foreign contractors and foreign subcontractors is income arising from the provision and distribution of goods; provision of services, services associated with goods in Vietnam based on a contractor agreement, subcontractor agreement (excluding cases stipulated in Article 2, Chapter I).

2. In cases where goods are delivered under the form of: Delivery points located within the territory of Vietnam (except for cases stipulated in Clause 5, Article 2, Chapter I); or the provision of goods accompanied by certain services conducted in Vietnam such as marketing, trade promotion activities, after-sales services, installation services, testing, warranty, maintenance, replacement, and other accompanying services with goods provision (including cases where services are provided free of charge), even if the provision of these services is or is not included in the value of the goods supply contract, the taxable income under CIT for foreign contractors and foreign subcontractors is the total value of goods and services.

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Thus, the taxable income under CIT for foreign contractors is the income arising from the provision, distribution of goods; provision of services, services associated with goods in Vietnam based on a contractor agreement, subcontractor agreement (excluding cases stipulated in Article 2, Chapter I of Circular 103/2014/TT-BTC).

What incomes are subject to corporate income tax of foreign contractors in Vietnam? (Image from the Internet)

How to determine revenues subject to corporate income tax of foreign contractors in Vietnam?

According to Clause 1, Article 13 of Circular 103/2014/TT-BTC, the taxable revenue under CIT for foreign contractors is determined as follows:

The taxable revenue under CIT is the total revenue excluding VAT that foreign contractors, foreign subcontractors receive, before deducting taxes to be paid. The taxable revenue under CIT includes expenses paid by the Vietnamese party on behalf of the foreign contractor, foreign subcontractor (if any).

However, in certain cases, the taxable revenue under CIT is determined as follows:

- Case 1: If, according to the contractor agreement, subcontractor agreement, the revenue received by the foreign contractor, foreign subcontractor does not include CIT to be paid, then the taxable revenue under CIT is determined by the formula:

Taxable Revenue under CIT = Revenue excluding CIT / (1 - CIT Rate on taxable revenue)

- Case 2: If a foreign contractor signs an agreement with a Vietnamese subcontractor or foreign subcontractor who pays tax by the declaration method or the foreign subcontractor pays tax by the hybrid method to delegate a portion of the work or item stipulated in the contractor agreement signed with the Vietnamese party along with a list of Vietnamese subcontractors, foreign subcontractors executing the corresponding work or items attached to the contractor agreement, then the taxable revenue under CIT for the foreign contractor excludes the work value undertaken by the Vietnamese subcontractor or foreign subcontractor.

In cases where a foreign contractor signs agreements with suppliers in Vietnam to purchase materials, equipment to execute the contractor agreement, and goods, services for internal consumption, excluding items or work undertaken by the foreign contractor according to the contractor agreement, the value of such goods and services is not deducted when determining the taxable revenue under CIT for the foreign contractor.

- Case 3: If a foreign contractor signs an agreement with a foreign subcontractor who pays tax directly, the Vietnamese party declares and pays CIT on behalf of the foreign contractor, foreign subcontractor at a CIT rate applicable to the business sector performed under the contractor agreement, subcontractor agreement. The foreign subcontractor is not required to declare and pay CIT on the part of the work value they perform according to provisions stipulated in the subcontractor agreement signed with the foreign contractor for which the Vietnamese party has already declared and paid on their behalf.

- Case 4: The taxable revenue under CIT for the leasing of machinery, equipment, vehicles is the entire rental amount. If the leasing revenue includes costs directly paid by the lessor, such as vehicle insurance, maintenance, registration certification, operator costs, and transportation costs for machinery and equipment from abroad to Vietnam, then these costs are excluded from the taxable revenue under CIT if actual supporting documents are provided.

- Case 5: The taxable revenue under CIT for foreign airlines is the revenue from passenger tickets sales, air waybills, and other charges (excluding charges collected on behalf of the state or an organization as regulated by law) in Vietnam for transporting passengers, goods, and other conveyance subjects on the airline's or joint venture flights.

- Case 6: The taxable revenue under CIT for foreign shipping companies is the total freight collected from transporting passengers, goods, and other surcharges obtained from the port of loading in Vietnam to the final unloading port (including freight for shipments transshipped through intermediate ports) and/or freight collected from transporting goods between ports in Vietnam.

Freight used as the basis for calculating CIT excludes freight already subjected to CIT at the Vietnamese port concerning foreign shipowners and freight paid to Vietnamese transport enterprises for participating in transporting goods from the Vietnamese port to an intermediate port.

- Case 7: For international logistics services from Vietnam abroad, (regardless of the payer, whether the sender or receiver) the taxable revenue under CIT is the total revenue the foreign contractor receives, excluding the international transport charges paid to the carrier (airline, shipping line).

- Case 8: For international courier services from Vietnam abroad (regardless of the payer, whether the sender or receiver), the taxable revenue under CIT is the total revenue the foreign contractor receives.

- Case 9: For reinsurance, the taxable revenue under CIT is determined as follows:

+ For activities of reinsurance cession abroad, the taxable revenue under CIT is the reinsurance premium ceded abroad that the foreign contractor receives (including reinsurance commission and client reimbursement expenses as agreed).

+ For activities of accepting reinsurance from abroad, the taxable revenue under CIT is the reinsurance cession commission that the foreign contractor receives.

- Case 10: For securities transactions, the taxable revenue under CIT is determined as follows:

+ For securities transfer, deposit certificates, the taxable revenue under CIT is the total revenue from sales of securities, deposit certificates at the time of transfer.

- Case 11: The taxable revenue under CIT for interest rate swap transactions is the difference between the interest received and interest paid by the foreign contractor in one calendar year. The tax period for the calendar year is determined according to the Corporate Income Tax Law, the Tax Administration Law, and related guiding documents.

- Case 12: For treasury bills:

+ The determination of taxable revenue under CIT for treasury bills applies to each type of treasury bill held by investors at the time of maturity.

+ The taxable revenue under CIT for treasury bills is determined as follows:

+ Taxable Revenue under CIT = (Face value of treasury bill - Weighted average purchase price of treasury bills held by investors at maturity date) x + Number of treasury bills held by investors at maturity date

+ The calculation of weighted average purchase price of the treasury bills held by investors at maturity is performed in three steps:

(i) Step 1: Determine the quantity of treasury bills held at maturity date.

(ii) Step 2: Determine the quantity, purchase date, and corresponding purchase price of the treasury bills held at maturity date (determined in step 1) based on the first-in, first-out (FIFO) principle.

(iii) Step 3: Calculate the weighted average purchase price using the formula:

=∑( number of treasury bills held at maturity at each purchase date x corresponding purchase price at each purchase date) ÷ Number of treasury bills held at maturity date.

How to calculate the CIT for foreign contractors in Vietnam?

Based on Article 13 of Circular 103/2014/TT-BTC, the formula for calculating the CIT for foreign contractors is:

CIT Payable = Taxable Revenue under CIT x CIT Rate on taxable revenue

Where:

+ Taxable Revenue under CIT is the total revenue excluding VAT that foreign contractors, foreign subcontractors receive, before deducting taxes to be paid. Taxable Revenue under CIT includes expenses paid by the Vietnamese party on behalf of the foreign contractor, foreign subcontractor (if any). Taxable Revenue under CIT is determined in certain specific cases as per Clause 1, Article 13 of Circular 103/2014/TT-BTC.

+ CIT Rate on taxable revenue is specified in Clause 2, Article 13 of Circular 103/2014/TT-BTC.