Foreign contractor tax (FCT) is a special kind of tax in Vietnam, which is imposed on Vietnam-sourced income of foreign enterprises, foreign organizations and foreign individuals from the sale of goods or supply of services to Vietnamese parties on a contractual basis. The foreign enterprises, organizations and individuals subject to FCT are referred to as foreign contractors.

FCT is not a separate tax, but a combination of value added tax (VAT) and corporate income tax (CIT), or personal income tax (PIT) for the income of foreign individuals.

Generally, the following transactions are subject to FCT:

1. Sale of goods in which the final delivery point is inside Vietnam
2. Sale of goods which associate to services rendered inside Vietnam
3. Services provided or consumed inside Vietnam
4. Construction and installation
5. Interest payment
6. Royalty payment
7. Transfer of securities

There are three methods to calculate and pay FCT in Vietnam, i.e., deemed method, declaration method, or mix/hybrid method.

The most common method is the deemed method. Under this method, the Vietnamese party will pay FCT to the local tax authority on your behalf, by withholding a part of the Vietnam-sourced payment made to your foreign enterprise. The calculation of tax payable are as follows: VAT=Taxable income x deemed VAT rate; CIT=Taxable income x deemed CIT rate; PIT=Taxable income x deemed PIT rate. The deemed VAT and income tax rates vary depending on the kind of the goods and the nature of services provided.

The declaration method and mix/hybrid method can only be selected when the following conditions are met:

1. The taxpayer is conducting a business in Vietnam under a contract with a duration of 183 days or more.
2. The taxpayer has a registered permanent establishment in Vietnam (e.g., project office).
3. The taxpayer applies the Vietnamese accounting systems.

KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advices and services in respect of the formation and registration of company, application for various business licences and permits, company compliance, tax planning, audit and accounting in China. Please call and talk to our professional consultants for details.