Calculating contractor tax for enterprises working with foreign contractors that generate income in Vietnam?
- Guidance on regulations on how taxpayers are foreign contractors according to Vietnamese regulations?
- Guidance on subjects and conditions for paying tax as foreign contractors in Vietnam?
- How to calculate contractor tax for enterprises working with foreign contractors that generate income in Vietnam?
Guidance on regulations on how taxpayers are foreign contractors according to Vietnamese regulations?
According to Official Dispatch 32111/CTHN-TTHT in 2022 on contractor tax declaration issued by Hanoi Tax Department:
- Pursuant to Circular 103/2014/TT-BTC guiding the implementation of tax obligations applicable to foreign organizations and individuals doing business in Vietnam or earning income in Vietnam:
+ In Article 4, regulations on taxpayers:
“Article 4. Taxpayers
1. Foreign contractors and foreign sub-contractors who meet the requirements in Article 8 Section 2 Chapter II or Article 14 Section 4 Chapter II, do business in Vietnam, or earn income in Vietnam. The business is done under the main contract with a Vietnamese entity or another foreign entity doing business in Vietnam under the subcontract.
Foreign contractors and foreign sub-contractors that have permanent establishments in Vietnam or are residents of Vietnam shall be determined in accordance with the Law on Corporate income tax, the Law on Personal income tax, and guiding documents.
If permanent establishments and residents are defined otherwise by a Double Taxation Agreement to which Vietnam is a signatory, such Agreement shall apply.
2. Organizations established and operated under Vietnam’s law or registers its operation under Vietnam law; business entities that purchase services, services attached to goods, or pay income in Vietnam under main contracts or subcontracts; purchase goods in the form of domestic import or under Incoterms; distribute goods or provide services on behalf of foreign entities in Vietnam (hereinafter referred to as Vietnamese entities) include:
- Business organizations established under Company law, the Law on Investment, and the Law on Cooperatives;
- Business organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, armed force units, public service providers, and other organizations;
- Petroleum contractors defined in the Law on Petroleum;
- Branches of foreign companies permitted to operate in Vietnam;
- Foreign organizations or representatives of foreign organizations permitted to operate in Vietnam;
- Air ticket outlets or agents in Vietnam of foreign airlines that are entitled to enter and leave Vietnam to provide transport services directly or in cooperation;
- Organizations and individuals that provide sea transport services of foreign shipping companies; agents in Vietnam of foreign logistics companies;
- Securities companies, securities issuers, asset management companies, commercial banks where securities investment funds or foreign organizations open their securities investment accounts
- Other organizations in Vietnam;
- Businesspeople in Vietnam.
Taxpayers defined in Clause 2 Article 4 Chapter I are obliged to withhold VAT and corporate income tax as prescribed in Section 3 Chapter II before paying foreign contractors and foreign sub-contractors.”
Calculating contractor tax for enterprises working with foreign contractors that generate income in Vietnam?
Guidance on subjects and conditions for paying tax as foreign contractors in Vietnam?
According to Official Dispatch 32111/CTHN-TTHT in 2022 on contractor tax declaration issued by Hanoi Tax Department as follows:
- Pursuant to Circular 103/2014/TT-BTC guiding the implementation of tax obligations applicable to foreign organizations and individuals doing business in Vietnam or earning income in Vietnam:
+ In Article 8 stipulating the subjects and conditions for applying VAT payment by the credit method, CIT payment on the basis of revenue and expense declaration to determine taxable income (declaration method):
A foreign contractor or foreign sub-contractor shall pay tax in accordance with instructions in section 2 Chapter II if the requirements below are satisfied:
- The contractor/subcontractor has a permanent establishment in Vietnam or the contractor/subcontractor is a resident of Vietnam;
- The period of business operation on Vietnam under the main contract or subcontract is 183 days or longer from the effective date of the contract.
- The contractor/subcontractor applies Vietnam’s accounting practice, has applied for tax registration and issued with a taxpayer ID number (TIN) by a tax authority.
+ In Article 9 regulations on VAT in the declaration method: The Law on Value-added tax and its guiding documents shall apply.
+ Article 11 stipulates the subjects and conditions for applying VAT payment and CIT payment according to the ratio method on revenue (direct method): If the foreign contractor or foreign sub-contractor fails to meet any of the requirements mentioned in Article 8 Section 2 Chapter II, the Vietnamese party shall pay tax on their behalf in accordance with instructions in Article 12 and Article 13 Section 3 of Chapter II.
+ Article 14 stipulates the subjects and conditions for applying VAT payment according to the credit method, paying CIT according to the percentage calculated on turnover (mixed method): Foreign contractors and foreign sub-contractor that meet the requirements in Clause 1 and Clause 2 Article 8 Section 2 Chapter II, and the organizations that adhere to regulations of law on accounting of the Ministry of Finance shall register with tax authority to pay VAT using credit-invoice method and pay CIT according to fixed rates.
+ In Article 15, regulations on VAT in the mixed method: Follow the instructions in Article 9 Section 2 Chapter II.
How to calculate contractor tax for enterprises working with foreign contractors that generate income in Vietnam?
According to Official Dispatch 32111/CTHN-TTHT in 2022 on contractor tax declaration issued by Hanoi Tax Department:
- Pursuant to the above provisions, in case Facebook - a foreign contractor generates income in Vietnam on the basis of a contract signed by the contractor with the company if the foreign contractor fails to meet one of the conditions mentioned above: in Article 8 Section 2 Chapter II Circular No. 103/2014/TT-BTC of the Ministry of Finance, that company shall pay tax on behalf of the foreign contractor.
- In case the foreign contractor meets the conditions to declare directly to the tax agency according to the provisions of Circular No. 103/2014/TT-BTC of the Ministry of Finance of Vietnam, the company is not required to deduct and pay on behalf of the foreign contractor.
- Request the Center to study the above-mentioned legal bases and base on the actual situation of the contractor contract to comply with regulations.
- In the process of implementing tax policy, if there are still problems, the unit can refer to the guiding documents of the Hanoi Tax Department posted on the website http://hanoi.gdt.gov.vn or Contact the Tax Inspection Department No. 3 for assistance in solving.
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