Foreign Contractor In Vietnam: License & Tax

Foreign Contractor In Vietnam: License & Tax

 

License

No general requirements and conditions for an eligible foreign contractor are specified during the bidding process.

A foreign Contractor can acquire a Construction Operation Permit for each project if: Awarded a construction contract or selected as a subcontractor; andEnter into a Business Cooperation Contract (BCC) with a local contractor or subcontractor.

Post-Licensing Compliance

  1. Establish an executive office and notify the local Construction Department.
  2. Send reports on the project status annually.

Foreign Contractor Tax (FCT)

Foreign contractors can choose to pay FCT among 3 methods:

1. Deduction Method

  • Register as a VAT Operator and file quarterly CIT Returns and monthly VAT Returns, if he:
    1. maintains a contract for more than 182 days;
    2. has a PE; and
    3. maintains accounting records per Vietnam Accounting System.
  • CIT at 20% of net profits (Revenue – Deductible Expenses)
  • VAT at 10% on (Output VAT - Input VAT)

To adopt this, the client must notify the Tax Office within 20 working days from the contract date. Once chosen, it must apply to all other projects.

2. Direct (Withhold) Method

  • Allow its client to withhold CIT at 2%, and VAT at 3% of gross turnover. No need to register as a VAT Operator or file CIT returns.

3. Hybrid Method

  • With the same conditions as the Deduction Method, Register as a VAT Operator and pay VAT at 10% and allow its client to withhold CIT at 2% of gross turnover.

Note

  • VAT payable under each method is an allowable input credit in the client’s VAT returns.
  • A foreign contractor can claim CIT exemption (but not VAT) if the project duration does not exceed 6 months i.e. no PE.
  • No tax is imposed on remittance of profits out of Vietnam.

 

Reference:
1. The Ministry of Construction’s Circular No. 14/2016/TT-BXD
2. The Ministry of Finance’s Circular No. 103/2014/TT-BTC

Any application of the information needs a professional advice.


*By Dr. Anuphan Kitnitchiva, Senior Partner, Dherakupt International Law Office Ltd.

Date

18 June 2020

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