The Foreign Contractor Tax (FCT) regime applies to payments made by a Vietnamese contracting  party to a foreign entity carrying out projects  in  Vietnam, or providing services to Vietnamese customers without setting up a legal entity in Vietnam, except for the pure supply of goods at border gates, services performed and consumed outside of Vietnam, and certain other services performed outside of Vietnam (such as repair of transportation means, machinery and equipment; advertising and marketing services; brokerage services; training, etc.).

A foreign contractor (FC) is defined to include a foreign individual or entity that does business in Vietnam or have income arising in Vietnam on the basis of a contract, agreement or undertaking between such foreign contractor and a Vietnamese organization or individual.

The FCT consists of two components (i.e. VAT and CIT). The rates vary depending on the nature of the payment.

FCT payment methods

A FC may choose either of the following methods for tax payment:

Deduction method

According to this method, FCs will file VAT under the deduction method in accordance with VAT Law and declare CIT on the actual net profits at the standard tax rate in accordance with CIT Law. The FC can recover the input VAT charged by the local subcontractors.

In order to adopt this method, FC is required to satisfy the following conditions:

i) FC has a PE in Vietnam or tax residents of Vietnam

ii) The duration of the project in Vietnam is more than 182 days

iii) FCs adopt the full Vietnamese Accounting System (VAS)

Direct method

FC who fails to satisfy one of the above-mentioned conditions shall adopt the direct method. Under this method, VAT and CIT shall be withheld and filed by the Vietnamese contracting party upon the payment to the FC. VAT and CIT shall be defined based on a deemed %age of taxable turnover. The deemed tax rates depend on the nature of service performance and the type of goods supplied. The VAT element withheld will be available as an input VAT credit to the Vietnamese contracting party if it supplies goods/services subject to VAT.

The deemed VAT and CIT rates under the Direct Method are as follows:

Industry Effective VAT



CIT rate

Trading: distribution, supply of goods, materials,

machinery and equipment in Vietnam

Exempt 1%
General services 5% 5%
Services together with provision of goods 3% 2%
Construction, installation without supply of materials or

machinery, equipment

5% 2%
Construction, installation with supply of materials or

machinery, equipment

3% 2%
Leasing of machinery and equipment 5% 5%
Leasing of aircraft, vessels (including components) Not specified 2%
Transportation 3% 2%
Interest Exempt 10%
Royalties Exempt 10%
Re-insurance Exempt 2%
Transfer of securities Exempt 0.1%
Manufacturing, other business activities 3% 2%

Hybrid method

Under this method, the FCT regime permits that where a FC adopts simplified VAS (instead of full VAS), it may choose to pay VAT under Deduction Method and CIT under Direct Method.

Foreign tax relief

Vietnam has signed tax treaties with many countries that provide relief from double taxation.