In the course of their operations, Vietnamese businesses are increasingly engaging in transactions with foreign partners, such as hiring consultants, using software and SaaS services, online advertising, paying management fees, royalties, loan interest, leasing machinery and equipment, importing equipment with installa
In the course of their operations, Vietnamese businesses are increasingly engaging in transactions with foreign partners, such as hiring consultants, using software and SaaS services, online advertising, paying management fees, royalties, loan interest, leasing machinery and equipment, importing equipment with installation, or purchasing cross-border services.
One of the issues often overlooked when signing and making payments under these contracts is the foreign contractor tax obligation.
It is crucial to understand first that "contractor tax" is not a separate tax type. This is a practical term for the tax collection mechanism in Vietnam applicable to foreign organizations and individuals doing business in Vietnam or earning income in Vietnam. For foreign corporate contractors, the main obligations relate to Value Added Tax ("VAT") and Corporate Income Tax ("CIT"); for foreign individuals, tax obligations need to be considered under regulations on VAT and Personal Income Tax ("PIT"). Foreign Contractor Tax
Notably, from July 1, 2026, Circular 103/2014/TT-BTC will no longer be the central document governing all foreign contractor tax as before. Tax obligations must now be determined based on the respective tax laws, including laws on CIT, VAT, tax administration, PIT, and relevant Double Taxation Agreements. Foreign Contractor Tax
Not every transfer of money abroad triggers foreign contractor tax.
Conversely, it cannot be concluded that services performed entirely abroad are not subject to tax in Vietnam.
To assess a transaction, businesses need to look at the nature of the contract: what is being supplied; where the service is performed and consumed; where the goods are delivered; which party bears the risks and distribution costs; whether the income originates from Vietnam; whether the supplier has a permanent establishment in Vietnam; and whether a Double Taxation Agreement applies.
Under current law, taxable income arising in Vietnam may include income from service provision, goods distribution, e-commerce and digital platforms, loans, royalties, capital transfers, or certain rights and assets related to Vietnam; the place of contract signing or the actual place of payment is not always the determining factor. Foreign Contractor Tax
For example, a Vietnamese company signs a contract with a Singaporean company to provide strategic consulting services. All consulting personnel may work in Singapore, but the consulting results are provided and used for the business operations of the enterprise in Vietnam. Therefore, the analysis of tax obligations cannot stop at the question: "Do the supplier's employees come to Vietnam?".
One of the first steps when considering CIT obligations is to determine whether the foreign enterprise has a permanent establishment in Vietnam.
A permanent establishment is not just a branch or an office. Under current regulations, this concept may include factories, workshops, construction or installation sites, service provision facilities, agents, certain forms of representation in Vietnam, and even e-commerce platforms or digital platforms through which foreign enterprises provide goods and services in Vietnam. Foreign Contractor Tax
The presence or absence of a permanent establishment directly affects the tax calculation method, the scope of taxable income, and the entity responsible for tax declaration and payment.
This is where businesses often make the most mistakes.
A purely goods purchase transaction from abroad may not trigger foreign contractor tax if the delivery is structured such that the supplier's responsibilities, costs, and risks cease at the appropriate customs gate and no services are performed in Vietnam.
Current law also excludes certain cases where services are performed entirely outside Vietnam and not consumed in Vietnam; in addition, there are specific cases such as repair of machinery and equipment abroad, advertising and marketing not conducted via the Internet, trade promotion, certain brokerage activities or training conducted abroad.
Therefore, Incoterms, the point of risk transfer, the place of service performance, and the scope of services accompanying goods are very important factors in contract drafting.
A seemingly purely commercial clause can change the tax outcome.
For foreign contractors that are organizations/enterprises, the two most common components are:
| Component | Content |
|---|---|
| VAT | Levied on goods and services subject to VAT in Vietnam |
| CIT | Levied on taxable income arising in Vietnam |
For foreign individual contractors, VAT and PIT obligations need to be analyzed separately based on residency status and the nature of the income.
This also explains why saying "10% foreign contractor tax" is sometimes inaccurate. There is no single foreign contractor tax rate. The rate depends on the type of transaction.
Under the current mechanism, there are practically two main groups.
| Method | Key Characteristics |
|---|---|
| Declaration | Contractor meets conditions under Vietnamese law, registers for tax, and directly declares VAT/CIT obligations |
| Direct calculation on revenue | Common for contractors without a permanent establishment in Vietnam; tax is calculated as a percentage of revenue |
| Old hybrid mechanism | No longer applies to new contracts; some contracts signed before the transition period continue to be processed until completion |
For the direct method, the Vietnamese contracting party is usually responsible for withholding, declaring, and paying tax on behalf of the foreign contractor before or in conjunction with payment to the foreign contractor. The previous hybrid mechanism has been abolished for new cases; contracts signed before March 12, 2026, that are currently applying it have transitional provisions. Foreign Contractor Tax
For foreign suppliers operating e-commerce or digital platforms, the law also provides mechanisms for suppliers to register, declare, and pay tax directly, or for platform owners/Vietnamese organizations to withhold and pay on their behalf in certain cases.
For the direct tax calculation method on revenue, the common rates currently are as follows:
| Type of Transaction | VAT | CIT | Total on Gross Price |
|---|---|---|---|
| Normal Services | 5% | 5% | 10% |
| Management of restaurants, hotels, casinos | 5% | 10% | 15% |
| Cross-border services via digital platforms subject to application | 10% | 5% | 15% |
| Leasing of machinery, equipment, means of transport | 5% | 5% | 10% |
| Leasing of aircraft, helicopters, ships | 5% | 2% | 7% |
| Royalties / IP rights | Not subject to VAT | 10% | 10% |
| Loan interest | Not subject to VAT | 5% | 5% |
| Construction, installation without material supply | 5% | 2% | 7% |
| Construction, installation with material supply | 3% | 2% | 5% |
| International transport | 3% | 2% | 5% |
| Derivative financial services | Not subject to VAT | 2% | 2% |
| Distribution, supply of goods in Vietnam | 1% | 1% | 2% |
| Transfer of securities; outward reinsurance | Not subject to VAT | 0.1% | 0.1% |
| Capital transfer in Vietnamese enterprises | Not subject to VAT | 2% | 2% |
These rates correspond to the summary table in the document and the current CIT/VAT framework. Foreign Contractor Tax
Specifically for services provided by foreign suppliers without a permanent establishment to customers in Vietnam via e-commerce channels or digital platforms, the 10% VAT rate needs to be distinguished from the common 5% VAT rate for traditional contractor services.
This is particularly important for payments such as software, subscriptions, cloud services, online advertising, and foreign technology platforms.
Suppose a Vietnamese enterprise purchases a machinery line from abroad for a total value of USD 1 million, where the supplier also performs transportation, installation, commissioning, and training in Vietnam.
If the contract clearly states:
Machinery: USD 800,000
Installation: USD 100,000
Commissioning/training: USD 100,000
then tax obligations can be determined separately according to the nature of each item.
Conversely, if the entire contract only states:
“Supply, installation and commissioning: USD 1,000,000”
without separating each component, the law may require applying a less favorable tax rate to the entire contract value.
For VAT, if a contract includes multiple activities but revenue cannot be separated, the highest rate may be applied. Specifically for contracts supplying machinery and equipment with services performed in Vietnam, if the value of goods and services cannot be separated, a 3% VAT rate may be applied to the taxable revenue. For CIT, in cases where services are linked to goods, whether or not the value is separated also affects the applicable rate. Foreign Contractor Tax
Therefore, for foreign contractor tax, the way a contract is drafted can directly affect the amount of tax payable.
When signing a contract with a foreign supplier, businesses must clearly define whether the contract price is Gross or Net.
The contract price includes tax obligations in Vietnam.
For example, if the gross service price is USD 100,000, with a VAT rate of 5% and CIT rate of 5%:
| Content | Amount |
|---|---|
| Gross Price | USD 100,000 |
| VAT 5% | USD 5,000 |
| CIT 5% | USD 5,000 |
| Contractor's Net Receipt | USD 90,000 |
The contractor requests to receive the full USD 100,000, and all taxes in Vietnam are borne by the Vietnamese customer.
Therefore, the Vietnamese enterprise must "gross-up" the tax amount.
According to the current calculation method, if both VAT and CIT are calculated on the same Gross revenue:
Taxable Revenue = Net Price / [1 – (VAT rate + CIT rate)]
For example, for a typical service with a 5% VAT rate + 5% CIT rate:
100,000 / (1 – 10%) = 111,111.11 USD
In this case, the VAT would be approximately USD 5,555.56 and CIT approximately USD 5,555.56. The total cost for the Vietnamese enterprise would no longer be USD 100,000 but approximately USD 111,111.
This is why Legal and Finance need to agree on contract wording from the negotiation stage, such as:
“All prices are inclusive of Vietnamese taxes”
or
“The Supplier shall receive the Contract Price net of all taxes imposed in Vietnam.”
These two phrases can lead to entirely different financial outcomes.
According to the old regulations of Circular 103, the contractor's CIT taxable revenue was determined under a mechanism that did not include VAT.
According to current regulations, CIT taxable revenue is the entire revenue received by the foreign contractor, before deducting payable taxes, and also includes any expenses paid by the Vietnamese party on behalf of the contractor, if any. Contractor Tax
This is a technical change but can alter the gross-up results and actual costs of Net contracts that have been accustomed to the old calculation method. The Ministry of Finance has also provided guidance on applying the new taxable revenue regulations in Circular 20/2026/TT-BTC.
For cases applying the direct method, contractor tax is, in principle, declared for each payment arising to the foreign contractor. If the enterprise makes multiple payments within a month, it can register to declare monthly.
According to tax administration regulations from July 1, 2026, for taxes declared on an ad-hoc basis, tax declaration dossiers must be submitted no later than the 10th day from the day following the date of tax obligation accrual; in case of monthly declaration, the deadline is, in principle, the 20th day of the following month.
A notable new point of Circular 89/2026/TT-BTC is that for CIT calculated as a percentage of revenue, upon termination of a contractor contract, finalization declaration is only required if there is a change in the declared and paid tax amount, instead of automatically finalizing all contracts as before. Some accompanying documents have also been simplified.
The declaration form has also been adjusted, with Form 01/NTNN,NCCNN used for cases falling within the corresponding scope according to Circular 89/2026/TT-BTC.
Yes, but not every contractor from a country that has signed an Agreement with Vietnam is automatically exempt from tax.
Double Taxation Agreements primarily relate to taxes on income, so they need to be distinguished from VAT obligations.
For example, if an income under Vietnamese law is subject to contractor CIT, but under the Agreement, Vietnam only has the right to tax when the foreign enterprise has a permanent establishment in Vietnam, then the conditions for a permanent establishment under the Agreement need to be further analyzed.
To request tax exemption or reduction under the Agreement, the contractor or the Vietnamese party must follow the corresponding procedures. Under the current mechanism, the dossier for foreign contractors basically includes a Request Form according to Form 01/HTQT and a Certificate of Residence issued by the foreign tax authority, legalized by consular means, along with relevant documents. The dossier is submitted with the initial tax declaration dossier according to current regulations.
In practice, tax authorities may also consider factors such as the validity of the Certificate of Residence and the beneficial owner status before accepting Agreement benefits.
Case 1 – Hiring foreign consultants
A Vietnamese company hires a foreign company to consult on business strategy. The service is performed from abroad, but the results are provided and used in Vietnam.
Contractor tax cannot be excluded simply because the expert does not come to Vietnam. If it falls under ordinary services and the direct method is applied, the reference rate could be 5% VAT + 5% CIT.
Case 2 – Purchasing software or SaaS from a foreign provider
If the service is provided via the Internet or a digital platform to customers in Vietnam, a separate mechanism for foreign providers on digital platforms needs to be considered. If it falls within the scope of taxation, VAT for digital services may apply at 10%, while CIT obligations for ordinary services may be 5%.
Case 3 – Paying royalties
A Vietnamese enterprise pays royalties to a foreign company for the use of trademarks, technology, or intellectual property rights in Vietnam.
For royalties falling within the scope of application, the CIT rate may be 10%, while royalties belonging to the group not subject to VAT according to the corresponding contractor rate table.
Case 4 – Borrowing from a foreign parent company
Interest paid to a foreign lender may incur 5% contractor CIT, while loan interest belongs to the group not subject to VAT.
In addition to contractor tax, enterprises must also simultaneously consider regulations on foreign loans, related party transactions, deductible interest, and related party transaction prices. Therefore, 5% contractor tax should not be viewed as the entire tax issue of the loan.
Case 5 – Importing machinery
If the contract is purely for the sale of goods, delivery under appropriate mechanisms at the border gate, and no services are performed in Vietnam, the transaction may fall outside the scope of contractor CIT; import duties and VAT at the import stage still need to be handled according to customs and import tax laws.
However, if the supplier also performs installation, commissioning, training, or maintenance in Vietnam, the results can change significantly.
Before signing or making payments for a cross-border contract, Legal, Finance, and Accounting should jointly review at least the following:
In practice, contractor tax is often discovered at the payment stage, when the accountant asks:
“Does this contract require contractor tax withholding?”
But by then, it is sometimes too late.
If the contract stipulates that the supplier must receive the full Net amount, the Vietnamese enterprise may be forced to bear the entire tax obligation itself. If the contract does not separate the value of goods and services, a higher tax rate may be applied. If the Agreement dossier is not prepared from the beginning, the enterprise may not be able to apply tax benefits in time. If Incoterms or the scope of services are not clearly drafted, the contract itself can become the basis for disputes over tax obligations.
Therefore, contractor tax should be considered from the contract review stage, not after the invoice has been issued and payment is due.
OPLAW assists enterprises in reviewing transactions with foreign suppliers; identifying potential contractor tax liabilities; classifying transactions and tax rates; calculating Gross/Net prices; reviewing tax clauses in contracts; assessing the applicability of Double Taxation Agreements; and preparing relevant legal and tax dossiers.
For transactions with multiple components such as machinery purchase with installation, technology transfer, license/IP, SaaS, management services, foreign loans, or cross-border service contracts, reviewing the transaction structure before signing often helps enterprises better control both tax costs and legal risks.
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