It is familiar to talk about value-added tax, corporate income tax, or personal income tax, but it is strange to talk about foreign contractor tax. Therefore, we would like to choose the topic of what is foreign contractor tax to share with you.

Foreign contractor tax can be known as a tax which is collected from foreign organizations and individuals that do not register their business in Vietnam but have benefits within the territory of Vietnam, benefit from: land, sea, airspace, underground, and cyberspace in the territory of Vietnam.

Foreign contractor tax includes: value-added tax, corporate income tax, and personal income tax. If contractor is an organization there will be value-added tax, and corporate income tax. If contractor is an individual there will be value-added tax, and personal income tax.

In this topic, we will talk about foreign contractor which is organization.

There are three methods of calculating foreign contractor tax in foreign:

The declaration method: is the same as the enterprise established according to the law on enterprises of Vietnam.

The combined method: value-added tax is applied according to the deduction method, and corporate income tax is applied according to define rate.

The direct method: value-added tax, and corporate income tax is applied according to define rate.

The direct method is the most chosen by enterprises to pay foreign contractor tax.

Example: A foreign company A in Germany has experts come to Vietnam to repair and replace elevator components for Company B in Vietnam. The package fee is one thousand VND (1,000 VND). When Company B pays to Company A, Company B have to declare and pay foreign contractor tax. For example, value added tax is five percent, corporate income tax is one percent, detail as follow:

• Value-added tax is one thousand VND multiplied by five percent is equal to fifty VND (1,000 VND x 5% = 50 VND).
• Corporate income tax is one thousand VND minus fifty VND and multiplied by one percent is nine point five VND. (1,000 VND – 50 VND) x 1% = 9.5 VND.
• The foreign contractor tax payable is fifty VND plus nine point five VND equal to fifty-nine point five VND (50 VND + 9.5 VND = 59.5 VND).

The law of foreign contractor tax stipulates that the payer is responsible for declaring and paying tax on behalf of foreign enterprises. Therefore, there are three points to remember as follows:

One: the transaction is related to foreign elements.

Two: the foreign organization is the seller.

Three: this transaction occurred within the territory of Vietnam. Particularly for online training, advertising, and network marketing services which occurred outside of Vietnam, but received money from Vietnam, they are still governed by the foreign contractor tax.

There are five cases of not paying foreign contractor tax as follows:

One: enterprise operates in Vietnam, established according to Vietnam enterprise law.

Two: delivery of goods in front of the border gate or at the border gate of Vietnam, and at the same time do not provide services attached to the goods within the territory of Vietnam.

Three: consumer services provided outside Vietnam.

Four: dividends paid to shareholders who are foreign investors.

Five: in case of exempting from value-added tax and corporate income tax according to the tax law.

Foreign contractor tax is considered as a mixed tax, so this tax is complicated, in this topic we can only share with you: who subject to foreign contractor tax, who pay foreign contractor tax, and who is exempt from foreign contractor tax, as well as points to note when purchasing goods and services with foreign elements.