What is contractor tax in Vietnam?

What is a contractor?

Based on the provisions of Clause 26, Article 4 of the Bidding Law 2023, the regulations regarding contractors are as follows:

Explanation of Terms

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

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26. A contractor is an organization, individual, or a combination of organizations or individuals in the form of a joint venture based on a joint venture agreement to participate in bidding, sign the bid documents, and directly execute the contract if selected. In the case of a joint venture, the joint venture agreement must clearly define the responsibility of the leading member and the shared and individual responsibilities of each member in the joint venture concerning the entire scope of the package.

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Thus, a contractor can be an organization, individual, or a combination of organizations or individuals in the form of a joint venture. Additionally, the contractor must ensure its legal status according to the provisions of Clause 1, Article 5 of the Bidding Law 2023, specifically, a contractor is recognized as legitimate if it meets the following conditions:

- For contractors: they are enterprises, cooperatives, federations of cooperatives, operational cooperation, public service providers, or foreign-invested economic organizations registered and operating under Vietnamese law. For foreign contractors: they are registered under foreign law and operating under foreign law;

- Independent financial accounting;

- Not undergoing dissolution procedures or having their enterprise registration certificate, cooperative registration certificate, or cooperative federation registration certificate revoked; not insolvent according to bankruptcy law;

- Listed on the national bidding network system before the approval of contractor selection results;

- Ensuring competition in bidding according to the provisions of Article 6 of the Bidding Law 2023;

- Not during the period of being banned from bidding by the decision of the competent authority, the Minister, the Head of an equivalent agency, or other central agencies, the Chairman of the Provincial People's Committee stipulated in Clause 3, Article 87 of the Bidding Law 2023;

- Not under criminal investigation;

- Listed in the shortlist in cases where a shortlist has been selected;

- For foreign contractors, they must partner with domestic contractors or use domestic subcontractors unless the domestic contractors are incapable of participating in any parts of the package.

What is contractor tax? (Image from the Internet)

What is contractor tax in Vietnam?

Currently, there is no specific regulation on the concept of contractor tax in any document, but it can be understood through several specific regulations:

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

- Subcontractor: is an organization or individual that signs a contract with the contractor to participate in performing construction, consulting, non-consulting, or related services or mixed package tasks.

- Special subcontractor: is a subcontractor performing important tasks in the package proposed by the contractor in the bid or proposal documents based on the capacity and experience requirements stated in the bidding invitation or request documents.

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

Simultaneously, according to Article 1 of Circular 103/2014/TT-BTC, the subjects of contractor tax application include:

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

[2] Foreign organizations or individuals supplying goods in Vietnam under on-site import-export and generating income in Vietnam based on contracts signed between foreign organizations or individuals and Vietnamese enterprises (excluding cases of processing and returning goods to foreign organizations or individuals) or carrying out distribution of goods in Vietnam or supplying goods under international commerce terms - Incoterms where the seller bears the risk related to goods up to Vietnamese territory.

[3] Foreign organizations or individuals conducting part or all business activities of distributing goods or providing services in Vietnam, whereby foreign organizations or individuals still own the goods delivered to Vietnamese organizations or bear the costs of distribution, advertising, marketing, service quality, quality of goods delivered to Vietnamese organizations, or set selling prices of goods or services delivered; including cases where a number of Vietnamese organizations are authorized or hired to perform part of the distribution services or other services related to the sale of goods in Vietnam.

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

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

Thus, from the above regulations, contractor tax can be understood as a type of tax applied to individuals, organizations that are foreign contractors, and foreign subcontractors doing business or having income in Vietnam.

Who is exempt from contractor tax in Vietnam?

Based on Article 2 of Circular 103/2014/TT-BTC, entities exempt from contractor tax include:

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

- Foreign organizations or individuals supplying goods to Vietnamese organizations or individuals without accompanying services performed in Vietnam under the forms of:

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

+ Delivery at a Vietnamese border checkpoint: The seller bears all responsibilities, costs, and risks related to the goods up to the delivery point at the Vietnamese border checkpoint; the buyer bears all responsibilities, costs, and risks related to receiving, transporting goods from the Vietnamese border checkpoint (including cases of delivery at a Vietnamese border checkpoint with accompanying warranty terms being the seller's responsibility and obligation).

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

- Foreign organizations or individuals providing services to Vietnamese organizations or individuals performed abroad:

+ Repairing means of transport (aircraft, aircraft engines, aircraft parts, ships), machinery, equipment (including submarine cables and transmission equipment), with or without accompanying replacement materials or equipment;

+ Advertising, marketing (excluding internet advertising and marketing);

+ Investment and trade promotion;

+ Brokerage: selling goods, providing services abroad;

+ Training (excluding online training);

+ Sharing international telecommunication services between Vietnam and foreign countries performed outside Vietnam, hiring foreign transmission lines and satellite bands according to the Telecommunications Law; Sharing international postal services between Vietnam and foreign countries according to the Postal Law, international postal agreements that the Socialist Republic of Vietnam has signed, performed outside Vietnam.

- Foreign organizations or individuals using bonded warehouses, inland container depots (ICDs) as goods warehouses to support international transportation, transit, transshipment, storage of goods, or to have other enterprises process goods.