Question 1: Does a company with a contract to maintain software equipment in Vietnam with a foreign enterprise (which has no permanent establishment in Vietnam) through the Internet fall under the scope of Foreign Contractor Tax (“FCT”)?
Answer:
According to Clause 1, Article 1 of Circular No. 103/2014/TT-BTC (“Circular 103”) on applicable subjects:
“Article 1. Applicable subjects
The guidance in this Circular applies to the following subjects (except for cases specified in Article 2, Chapter I):
1. Foreign organizations doing business with or without a permanent establishment in Vietnam; foreign individuals doing business who are residents or non-residents in Vietnam (hereinafter collectively referred to as Foreign Contractors, Foreign Subcontractors) doing business in Vietnam or having income arising in Vietnam based on contracts, agreements, or commitments between Foreign Contractors and Vietnamese organizations or individuals or between Foreign Contractors and Foreign Subcontractors to perform a part of the work of a Contractor’s Contract…”
Based on the above regulations, if a company signs a contract for software equipment maintenance in Vietnam with a foreign enterprise (without a permanent establishment in Vietnam) via the Internet, this activity is subject to FCT in Vietnam.
Question 2: The parent company of a subsidiary in Vietnam purchased liability insurance for the subsidiary’s Director in Vietnam according to the group’s insurance policy. The insurance premium will be paid by the parent company to the insurer. Afterward, the subsidiary will reimburse the parent company for the corresponding cost. In this case, the parent company only collected the insurance premium on behalf of the subsidiary and did not provide insurance services, thus it is not subject to FCT in Vietnam, right?
Answer:
- Clause 1, Article 1 of Circular 103 stipulates the subjects applicable to FCT:
“1. Foreign organizations doing business with or without a permanent establishment in Vietnam; foreign individuals doing business who are residents or non-residents in Vietnam (hereinafter collectively referred to as Foreign Contractors, Foreign Subcontractors) doing business in Vietnam or having income arising in Vietnam based on contracts, agreements, or commitments between Foreign Contractors and Vietnamese organizations or individuals or between Foreign Contractors and Foreign Subcontractors to perform a part of the work of a Contractor’s Contract.”
- Article 6 of Circular 103 stipulates subjects subject to VAT;
- Clause 2, Article 12 of Circular 103 stipulates the percentage (%) for calculating VAT on taxable revenue;
- Clause 2, Article 13 of Circular 103 stipulates the percentage (%) for calculating CIT on taxable revenue.
Based on the above grounds, if a foreign parent company purchases liability insurance for the Director of its subsidiary in Vietnam, and the parent company pays the insurance premium to the insurer abroad, then collects the insurance premium from the subsidiary, the parent company is subject to foreign contractor tax in Vietnam as stipulated in Circular No. 103. The subsidiary in Vietnam is responsible for withholding the foreign contractor tax before making payment to the parent company and for declaring and paying the foreign contractor tax on behalf of the parent company as stipulated by the Law on Tax Administration.
Question 3: A company signs a master purchase and sale agreement with a foreign supplier for on-the-spot import-export, where the delivering party is a domestic company. According to Circular 103, this activity is subject to FCT, and the company pays tax on behalf of the foreign contractor (as clearly stated in the contract). However, for this supplier, the company must pay for the goods in advance to receive them (50% advance payment). When the company makes the 50% advance payment, does it have to calculate FCT corresponding to this 50% advance? And how is FCT calculated when the remaining 50% is paid?
Answer:
According to Article 4 of Circular No. 103, taxpayers as guided in Clause 2, Article 4, Chapter I are responsible for withholding the value-added tax and corporate income tax as guided in Section 3, Chapter II before making payment to Foreign Contractors and Foreign Subcontractors.
Therefore, the Company shall withhold the value-added tax and corporate income tax before making the 50% advance payment to the Foreign Contractor and shall declare and pay tax on behalf of the foreign contractor. Subsequently, when the Company makes the remaining 50% payment for the goods, before making payment to the foreign contractor, the Company shall withhold the value-added tax and corporate income tax and shall declare and pay tax on behalf of the foreign contractor.
- Tax declaration dossier: Foreign Contractor Tax declaration form No. 01/NTNN issued with Circular No. 80/2021/TT-BTC dated September 29, 2021, of the Ministry of Finance.
- Calculation of payable VAT and CIT: The Company shall comply with the provisions in Article 12, Article 13, Section 3, Chapter II of Circular No. 103/2014/TT-BTC dated August 6, 2014, of the Ministry of Finance mentioned above.
- Deadline for submitting tax declaration dossier: No later than the 10th day from the date the tax obligation arises. In cases where the Company makes multiple payments to the foreign contractor within a month, it may declare monthly instead of for each transaction, with the deadline for submitting the tax declaration dossier being no later than the 20th day of the month following the month in which the tax obligation arises.
- Deadline for tax payment: No later than the last day of the deadline for submitting the tax declaration dossier.
- Place of submitting tax declaration dossier: The Company shall submit the tax declaration dossier to the directly managing tax authority.
Question 4: A company signs a master purchase contract with a foreign supplier, with a contract validity of 1 year (e.g., October 1, 2020 – October 1, 2021) in the form of on-the-spot import-export. The payment term is 60 days from the delivery date, and foreign contractor tax arises. If the contract expires but the company has not yet made payment to the foreign supplier, is it required to make a tax finalization within 45 days from the contract expiration date?
Answer:
Upon the conclusion of the contractor contract, the Company shall declare the finalization of value-added tax and corporate income tax as stipulated in Point e, Clause 6, Article 8 of Decree No. 126/2020/ND-CP dated October 19, 2021, of the Government.
- Tax finalization dossier: Contractor Tax Finalization Declaration Form No. 02/NTNN and appendices listing foreign contractors issued with Circular No. 80/2021/TT-BTC dated September 29, 2021, of the Ministry of Finance.
- Calculation of payable VAT and CIT: The Company shall comply with the provisions in Article 12, Article 13, Section 3, Chapter II of Circular No. 103.
- Deadline for submitting tax finalization dossier: No later than the 45th day from the date the contractor contract ends.
- Deadline for tax payment: No later than the last day of the deadline for submitting the tax declaration dossier.
