Taxes applicable to foreign entities doing business in Vietnam or earning income in Vietnam

Taxes applicable to foreign entities doing business in Vietnam or earning income in Vietnam (Internet image)

Regarding this issue, LawNet would like to answer as follows:

1. Taxes applicable to foreign entities doing business in Vietnam or earning income in Vietnam

Taxes applicable to foreign entities doing business in Vietnam or earning income in Vietnam according to Article 5 of Circular 103/2014/TT-BTC are as follows:

- Taxpayers defined in Circular 103/2014/TT-BTC are obliged to withhold VAT and corporate income tax as prescribed in Section 3 Chapter II before paying foreign contractors and foreign sub-contractors.

- Foreign contractors and foreign sub-contractors are foreign businesspeople that pay VAT as prescribed in Circular 103/2014/TT-BTC or pay personal income tax as prescribed by regulations of law on personal income tax.

- Foreign contractors and foreign sub-contractors shall pay other taxes, fees and charges in accordance with applicable regulations of law on taxes, fees and charges.

2. Items of foreign entities doing business in Vietnam or earning income in Vietnam subject to VAT

Items of foreign entities doing business in Vietnam or earning income in Vietnam subject to VAT according to Article 6 of Circular 103/2014/TT-BTC are as follows:

* Services or services attached to goods subject to VAT that are provided by foreign contractors and foreign sub-contractors under main contracts and subcontracts and used for manufacture, sale, and consumption in Vietnam (except for the case in Article 2 of Chapter I of Circular 103/2014/TT-BTC), including:

- Services or services attached to goods subject to VAT that are provided in Vietnam by foreign contractors and foreign sub-contractors and consumed in Vietnam;

- Services or services attached to goods subject to VAT that are provided outside Vietnam by foreign contractors and foreign sub-contractors and consumed in Vietnam.

* If a contract stipulate that goods shall be delivered to a location in Vietnam (except for the case in Clause 5 Article 2 Chapter I of Circular 103/2014/TT-BTC);

Or goods supply is attached to services provided in Vietnam such as installation, test run, warranty, maintenance, replacement, or other services (including complimentary services), the value of goods is only subject to VAT at importation, whether or not such services are part of the goods supply contract.

The value of services is subject to VAT as prescribed in Circular 103/2014/TT-BTC.

If the contract does not separate the value of goods from that of attached services (including complimentary services), the whole contract is subject to VAT.

Example 9:

Company A in Vietnam signs a contract to buy a production line for a cement factory contract with company B overseas. The total contract value is USD 100 million, including USD 80 million of machinery and equipment (some of them are subject to 10% VAT) and USD 20 million of installation guide, supervision, warranty, and maintenance.

VAT payable by company B is determined as follows:

- VAT applies to value of services (USD 20 million), not value of imported machinery and equipment.

- If the value of services cannot be separated from the value of machinery and equipment, VAT shall apply to the whole contract value (USD 100 million).

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