Foreign constructor is entitled to choose one of two incorporate tax regimes available under Vietnam Law., i.e. (i) Paying Corporate Income Tax according to declared revenue and expense which is similar to tax regime applicable to domestic enterprises and (ii) Paying Corporate Income Tax according to fixed rates which is only applicable to foreign contractor.
(i) Paying Corporate Income Tax according to declared revenue and expense
According to the Article 8, Section 2 of the Circular No. 103/2014/TT-BTC of the Ministry of Finance dated 06 August 2014 guiding the fulfillment of tax liability of foreign entities doing business in Vietnam or earning income in Vietnam, method of paying corporate income tax
according to declared revenue and expense shall be applicable to foreign contractor or foreign sub-contractor if they satisfy following conditions:
(a) The contractor/subcontractor has a permanent establishment in Vietnam or the contractor/subcontractor is a resident of Vietnam;
(b) The period of business operation on Vietnam under the main contract or subcontract is 183 days or longer from the effective date of the contract.
(c) The contractor/subcontractor applies Vietnam’s accounting practice, has applied for tax registration and issued with a taxpayer ID number (TIN) by a tax authority.
According to this option, Incorporate Income Tax of Client shall be accounted as follows:
Incorporate Income Tax = (Revenue – Deductable Expense under Vietnam Law) x 22%
In this case, foreign contractor already satisfied conditions mentioned in Item (a) and Item (b) above. Thus, in order to enjoy the method of paying corporate income tax according to declared revenue and expense, Client must register to apply Vietnam’s accounting practice and having applied for tax registration and having been issued with a taxpayer ID number by a tax authority.
We also further would like to note that, according to our practical experience, in case foreign contractor adopts the option of paying corporate income tax according to declared revenue and expense, the Vietnamese Parties who enter into Contract with foreign contractor shall have obligations to notice their Local Tax Agencies about the fact that Client enjoys this Option within 20 days from the signing date of the Contract.
In addition to this, the option of paying corporate income tax according to declared revenue and expense shall be applicable to all other projects of foreign contractor in Vietnam upon that foreign contactor (FC) registers this option with competent authorities.
(ii) Paying Corporate Income Tax according to fixed rates
According to the Article 11, Section 8 of the Circular No. 103/2014/TT-BTC of the Ministry of Finance dated 06 August 2014 guiding the fulfillment of tax liability of foreign entities doing business in Vietnam or earning income in Vietnam, foreign contractor or foreign sub-contractor failing to meet any of the requirements applicable for method of paying corporate income tax according to declared revenue and expense shall enjoy the option of Paying Corporate Income Tax according to fixed rates.
According to this option, the Vietnamese Party shall be required to pay tax on the behalf of FC.
Under this Option, the basis for tax calculation is the revenue subject to corporate income tax CIT and tax rate (%).
| CIT payable | = | Revenue subject to CIT | x | CIT rate |
In which:
– Revenue subject to CIT is the total revenue exclusive of VAT received by the foreign contractor or foreign sub-contractor, exclusive of taxes payable. Revenue subject to CIT includes the costs paid by the Vietnamese entity on behalf of the foreign contractor or foreign sub-contractor (if any).
– CIT rate applicable under this Option shall varied according source of income generated by Client in Vietnam Territory. According to the Item 2, Article 13, Section 8 of the Circular No. 103/2014/TT-BTC of the Ministry of Finance dated 06 August 2014 guiding the fulfillment of tax liability of foreign entities doing business in Vietnam or earning income in Vietnam, CIT Rate applicable under this Option shall be as follows:
| Trade | CIT rate | |
| 1 | Trading: distribution, supply of goods, raw materials, supplies machinery and equipment; distribution of goods, raw materials, supplies, machinery and equipment attached to services in Vietnam (including those provided in the form of domestic exports, except for goods processed under processing contracts with foreign entities); supply of goods under Incoterms | 1 |
| 2 | Lease of machinery and equipment, insurance, lease of oilrig. | 5 |
| – Restaurant, hotel, casino management services | 10 | |
| – Derivative financial services | 2 | |
| 3 | Lease of aircraft, aircraft engines, parts of aircrafts and ships | 2 |
| 4 | Construction, installation, whether or not inclusive of raw materials, machinery and equipment | 2 |
| 5 | Other business activities, transport (including sea transport and air transport) | 2 |
| 6 | Transfer of securities, certificates of deposit, ceding reinsurance abroad, reinsurance commission | 0.1 |
| 7 | Loan interest | 5 |
| 8 | Income from copyright | 10 |
