Is contractor tax included in the reasonable costs of businesses in Vietnam?

Is contractor tax included in the reasonable costs of businesses in Vietnam?

According to the provisions of Clause 1, Article 5, Circular 103/2014/TT-BTC stipulates as follows:

1. 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.

According to the provisions of Clause 1, Article 15 of Circular 219/2013/TT-BTC amended by Clause 10, Article 1 of Circular 26/2015/TT-BTC, it is stipulated as follows:

1. Legitimate VAT invoices for purchases or receipts for payment of VAT on imported goods, or receipts for payment of VAT on behalf of foreign organizations that do not have Vietnamese legal status and the organizations and individuals, and the foreigners that do business or earn income in Vietnam.

Therefore, the amount of value-added tax that the enterprise has paid on behalf of the foreign organization providing services to the company will be deducted from the value-added tax and not included in deductible expenses upon determination of unit's corporate income tax according to the provisions of Point 2.37, Clause 2, Article 6, Circular 78/2014/TT-BTC:

2.37. Input value-added tax which has been credited or refunded; input value-added tax on fixed assets which are cars with 9 seats or under in excess of the credit level specified in legal documents on value-added tax; CIT, except the cases in which enterprises pay CIT for foreign contractors as agreed in the contracts with foreign contractors or foreign subcontractors that revenues received by foreign contractors or foreign subcontractors are exclusive of CIT; personal income tax, except the case in which enterprises sign labor contracts which stipulate that salaries or wages payable to laborers are exclusive of personal income tax.

Based on the above regulations, the CIT amount that your business has paid on behalf of the foreign contractor can be deducted to determine your unit's CIT. However, to be counted as deductible expenses, businesses need to ensure the following documents in Vietnam:

- Have a service contract with a foreign organization, the contract stipulates your business's tax payment obligation

- Liquidation records

- Have documents to pay corporate income tax on behalf of foreign contractors...

Is contractor tax included in the reasonable costs of businesses in Vietnam? (Image from the Internet)

Can parties bear contractor tax according to the contractual agreement in Vietnam?

Pursuant to Article 1 of Circular 103/2014/TT-BTC regulating subjects to which contractor tax applies include:

This Circular is applied to the entities below (except for the cases in Article 2 Chapter I):

1. Foreign business organizations having permanent establishments in Vietnam or not; foreign business individuals that are residents of Vietnam or not (hereinafter referred to as foreign contractors and foreign sub-contractors) who do business in Vietnam or earn income in Vietnam under contracts, agreements, or commitments between the foreign contractor and a Vietnamese entity or between a foreign sub-contractor and a foreign sub-contractor to perform part of the main contract.

2. Foreign entities providing goods in Vietnam in the form of domestic export and earn income in Vietnam under contracts between them and Vietnamese companies (except for cases in which goods are processed and then returned to foreign entities) or distribute goods in Vietnam or provide goods under Incoterms rules that require the sellers to be responsible for goods that have been taken into Vietnam’s territory.

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Best regards!