What is the VAT rate in contractor tax for consultancy or training service provision in Vietnam?

What is the VAT rate in contractor tax for consultancy or training service provision in Vietnam?

Based on Clause 2, Article 12 of Circular 103/2014/TT-BTC guiding the implementation of tax obligations applicable to foreign organizations and individuals doing business in Vietnam or earning income arising in Vietnam as issued by the Minister of Finance, the provisions are as follows:

- Percentage (%) for calculating VAT on revenue:

+ Percentage (%) for calculating VAT on revenue by business sector:

- Determining the percentage (%) for calculating VAT on revenue for specific circumstances:

+ For contractor agreements and subcontractor agreements that include many different business activities or have part of the contract value not subject to VAT, the application of the percentage (%) to calculate VAT on revenue when determining the VAT payable should be based on the VAT taxable revenue of each business activity executed by the foreign contractor or subcontractor as stipulated in the contract. In cases where the value of each business activity cannot be separately identified, the highest applicable VAT percentage for the industry will be used for the entire contract value.

Accordingly, enterprise consulting activities fall under Services, for which the VAT in contractor tax in this case will apply a 5% rate as per regulations.

What is the VAT rate in contractor tax for consultancy or training service provision in Vietnam? (Image from the Internet)

Are non-resident foreigners engaged in business in Vietnam subject to contractor tax?

Based on Clause 1, Article 1 of Circular 103/2014/TT-BTC guiding the implementation of tax obligations applicable to foreign organizations and individuals doing business in Vietnam or having income arising in Vietnam as issued by the Minister of Finance, the provisions are as follows:

Applicable Subjects

The guidance in this Circular applies to the following subjects (except as stated in Article 2, Chapter I):

1. Foreign organizations conducting business with or without a permanent establishment in Vietnam; foreign individuals engaged in business who are or are not residents of Vietnam (hereinafter collectively referred to as Foreign Contractors, Foreign Subcontractors) conducting business in Vietnam or earning income arising in Vietnam based on a contract, agreement, or commitment between the Foreign Contractor and a Vietnamese organization or individual or between the Foreign Contractor and a Foreign Subcontractor to execute part of the Contractor's contract.

2. Foreign organizations and individuals supplying goods in Vietnam in the form of on-site import and export and having income arising in Vietnam based on contracts signed with Vietnamese enterprises (except for processing and returning goods to foreign organizations and individuals) or performing goods distribution in Vietnam or supplying goods based on delivery conditions of international trade terms - Incoterms where the seller bears risk relating to goods entering Vietnamese territory.

As such, foreign individuals engaged in business, whether they are residents or non-residents of Vietnam, as long as they are doing business in Vietnam or earning income arising in Vietnam as guided, are subject to contractor tax.

What are VAT subjects in contractor tax?

Based on Article 6 of Circular 103/2014/TT-BTC, the VAT subjects are defined as follows:

- Services or services associated with goods subject to VAT provided by Foreign Contractors, Foreign Subcontractors based on contractor agreements, subcontractor agreements used for production, business, and consumption in Vietnam (except as stipulated in Article 2, Chapter I), including:

+ Services or services associated with goods subject to VAT provided by Foreign Contractors, Foreign Subcontractors in Vietnam and consumed in Vietnam;

+ Services or services associated with goods subject to VAT provided by Foreign Contractors, Foreign Subcontractors outside of Vietnam and consumed in Vietnam.

- In cases where goods are supplied under a contract in the form of: the delivery point located within Vietnamese territory (except as stipulated in Clause 5, Article 2, Chapter I); or the supply of goods accompanied by services conducted in Vietnam, such as installation, trial operation, warranty, maintenance, replacement, and other accompanying services (including cases where services are provided free of charge), even if such services are not included in the contract's total value, the value of goods is only subject to import VAT as regulated, while the value of services is subject to VAT as guided in this Circular. If the contract does not separately identify the value of goods and the associated service value (including free services), VAT is calculated for the entire contract.

Example 9:

Company A in Vietnam signs a contract to purchase a machinery line for a Cement Plant Project with Company B overseas. The total contract value is 100 million USD, including the value of machinery and equipment of 80 million USD (in which there is equipment subject to a 10% VAT rate), and the value of installation guidance services, installation supervision, warranty, maintenance is 20 million USD.

- Determining VAT obligations of Company B concerning the contract value signed with Company A is as follows:

+ VAT is calculated on the service value (20 million USD), not on the value of the machinery line imported.

+ If the contract does not separate the value of the machinery line and the service value, VAT is calculated on the entire contract value (100 million USD).