What regulations must foreign contractors comply with? What types of taxes do foreign contractors have to pay when doing business in Vietnam?
Which regulations must foreign contractors comply with in Vietnam?
Pursuant to Article 4 Circular 103/2014/TT-BTC as follows:
Taxpayers
1. Foreign contractors and foreign subcontractors must meet the conditions stipulated in Article 8, Section 2, Chapter II, or Article 14, Section 4, Chapter II, conducting business in Vietnam or earning income in Vietnam. The business must be conducted based on a contractor agreement with Vietnamese organizations or individuals, or with other foreign organizations or individuals conducting business in Vietnam under a subcontractor agreement.
The determination of whether the foreign contractor or foreign subcontractor has a permanent establishment in Vietnam or is a resident entity in Vietnam shall be in accordance with the provisions of the Law on Corporate Income Tax, the Law on Personal Income Tax, and relevant guiding documents.
In cases where a Double Taxation Avoidance Agreement signed by the Socialist Republic of Vietnam provides differently regarding permanent establishment or residency status, the provisions of such Agreement shall apply.
2. Organizations established and operating under Vietnamese law, organizations registered to operate under Vietnamese law, other organizations, and individuals engaged in production and business activities: purchasing services, services associated with goods, or paying for income derived in Vietnam based on a contractor or subcontractor agreement; purchasing goods through on-spot export-import or based on international commercial terms (Incoterms); distributing goods and providing services on behalf of foreign organizations or individuals in Vietnam (collectively referred to as the Vietnamese Party) include:
- Business organizations established under the Law on Enterprises, the Law on Investment, and the Law on Cooperatives;
- Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, armed units, public service organizations, and other organizations;
- Petroleum contractors operating under 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;
- Ticketing offices, agents in Vietnam of foreign airlines authorized to operate routes to and from Vietnam, either directly or through joint ventures;
- Individuals and organizations providing shipping services for foreign shipping companies; agents in Vietnam of foreign logistics and courier companies;
- Securities companies, securities issuing organizations, fund management companies, commercial banks where foreign investment funds or foreign organizations open their securities investment accounts;
- Other organizations in Vietnam;
- Individuals engaged in production and business activities in Vietnam.
Taxpayers as guided in Clause 2 Article 4 Chapter I are responsible for withholding the value-added tax (VAT) and corporate income tax (CIT) as guided in Section 3 Chapter II before making payments to foreign contractors or foreign subcontractors.
Thus, foreign contractors must comply with the conditions stipulated in Article 8, Section 2, Chapter II, or Article 14, Section 4, Chapter II of Circular 103/2014/TT-BTC.
What regulations must foreign contractors comply with? What taxes must foreign contractors pay when conducting business in Vietnam?
What taxes must foreign contractors pay when conducting business in Vietnam?
Pursuant to Article 5 Circular 103/2014/TT-BTC as follows:
Applicable Taxes
1. Foreign contractors and foreign subcontractors as business organizations are obligated to fulfill their value-added tax (VAT) and corporate income tax (CIT) obligations as guided in this Circular.
2. Foreign contractors and foreign subcontractors as individuals conducting business must fulfill VAT obligations as guided in this Circular, and fulfill personal income tax (PIT) obligations as per the law on PIT.
3. For other types of taxes, fees, and charges, foreign contractors and foreign subcontractors must comply with current tax, fee, and charge regulations.
Thus, foreign contractors must pay the following taxes when conducting business in Vietnam:
- Foreign contractors as business organizations must fulfill their VAT and CIT obligations.- Foreign contractors as individuals conducting business must fulfill VAT obligations as guided in this Circular, and PIT obligations as per the law on PIT.- For other taxes, fees, and charges, foreign contractors must comply with current tax, fee, and charge regulations.
Who is liable for VAT in Vietnam for foreign organizations and individuals conducting business?
VAT liabilities for foreign organizations and individuals conducting business or earning income in Vietnam are stipulated in Article 6 Circular 103/2014/TT-BTC as follows:
* Services or services associated with goods subject to VAT provided by foreign contractors or foreign subcontractors under a contractor agreement, subcontractor agreement for production, business, or consumption in Vietnam (except for cases stipulated in Article 2 Circular 103/2014/TT-BTC), including:
- Services or services associated with goods subject to VAT provided by foreign contractors or foreign subcontractors within Vietnam for consumption in Vietnam;- Services or services associated with goods subject to VAT provided by foreign contractors or foreign subcontractors outside of Vietnam for consumption in Vietnam.
* In cases where goods are supplied under a contract where the point of delivery is within the territory of Vietnam (except for cases stipulated in Clause 5, Article 2 Circular 103/2014/TT-BTC);
Or where goods supply is accompanied by services conducted in Vietnam such as installation, trial operation, warranty, maintenance, replacement, or other services accompanying the goods supply (including cases of free accompanying services), regardless of whether these accompanying services are included in the value of the supply contract:
The value of goods is subject to VAT at the import stage as regulated, while the value of services is subject to VAT as guided in Circular 103/2014/TT-BTC.
In cases where the contract does not separate the value of goods and the value of accompanying services (including cases of free accompanying services), VAT shall be calculated on the total contract value.
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