Withholding Tax Payments for Foreign Contractors in Vietnam

Foreign contractors are subject to withholding tax on payments for work done in the country based on contracts signed between them and Vietnamese partners.

The foreign contractor withholding tax (FCWT) will be applicable for payments received from Vietnam for services in the country not including the pure supply of goods, services performed and consumed outside Vietnam and other services performed wholly outside the country.

This means that no FCWT will be applied for payment for overseas services as well as for services performed and consumed outside the country. Foreign contractors have three options for tax payments:

• Deduction method wherein a foreign contractor can register for VAT if: they have permanent establishment in Vietnam; the duration of the project is more than 182 days and they use the Vietnamese accounting system. The Vietnamese client must inform tax authorities that this method will be used by the foreign contractor within 20 working days from contract signing
• Direct method wherein a foreign contractor does not register for VAT but rather the VAT and BIT will be withheld by the Vietnamese contracting party at deemed percentages of taxable turnover.
• Hybrid method wherein foreign contractors are allowed to register for VAT and pay VAT based on the conventional method and with BIT continuing to be subject to deemed rates. This method is allowed if the foreign contractor has: a permanent resident in Vietnam, operate in Vietnam under a contract with a 183 days or more term and maintain accounting records following accounting regulations and guidelines from the Ministry of Finance

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