What is contractor tax rate? Latest foreign contractor tax rates under current regulations

Nhấn VÀO ĐÂY để chuyển bài viết sang bản tin tiếng Việt

What are contractor tax rates?

Foreign Contractor Tax (FCT) is a type of tax applied to foreign organizations and individuals earning income in Vietnam through the provision of services, goods, or the performance of contracts with Vietnamese organizations and enterprises.

In particular, contractor tax rates are percentage rates used to calculate the payable tax amount based on the taxable revenue of foreign contractors. Depending on the business sector, contract type, and declaration method, the applicable tax rates may vary.

Generally, contractor tax includes:

• Value Added Tax (VAT)

• Corporate Income Tax (CIT)

In bidding activities, especially for EPC packages, international consulting services, procurement packages involving foreign elements, or contracts for hiring foreign experts, correctly determining contractor tax rates is very important. If tax rates are calculated incorrectly, contractors may:

• Incorrectly calculate bid prices;

• Reduce actual profits;

• Incur unexpected costs;

• Affect competitiveness when participating in bidding.

Latest foreign contractor tax rates under current regulations

According to Article 5 of Circular No. 103/2014/TT-BTC, the applicable taxes are regulated as follows:

1. Foreign contractors and foreign subcontractors being business organizations shall fulfill obligations for Value Added Tax (VAT) and Corporate Income Tax (CIT) in accordance with this Circular.

2. Foreign contractors and foreign subcontractors being foreign business individuals shall fulfill VAT obligations in accordance with this Circular and Personal Income Tax (PIT) obligations in accordance with the law on personal income tax.

3. Regarding other taxes, fees, and charges, foreign contractors and foreign subcontractors shall comply with the current laws on taxes, fees, and charges.

Accordingly, foreign contractor tax is determined based on the taxpayer and the applicable tax types. In practice, most foreign contractors conducting business activities in Vietnam are organizations; therefore, when referring to foreign contractor tax, the two most common taxes are Corporate Income Tax (CIT) and Value Added Tax (VAT).

Thus, foreign contractor tax rates are mainly discussed based on the following two taxes:

• Foreign contractor tax rates for Corporate Income Tax (CIT)

• Foreign contractor tax rates for Value Added Tax (VAT)

1. Foreign contractor tax rates for Corporate Income Tax (CIT)

Pursuant to Clause 3 Article 7 of Circular No. 20/2026/TT-BTC, the CIT policy is prescribed as follows:

Where:

Taxable revenue for Corporate Income Tax means the total revenue received by the foreign contractor or foreign subcontractor before deduction of payable taxes. Taxable revenue also includes expenses paid on behalf of the foreign contractor or foreign subcontractor by the Vietnamese party (if any).

In addition, the CIT percentage rates on taxable revenue are prescribed in Clause 3 Article 12 of Decree No. 320/2025/NĐ-CP as follows:

• Services: 5%; restaurant, hotel, and casino management services: 10%; where services are associated with goods, the goods portion is subject to 1%; where the value of goods and services cannot be separated: 2%;

• Supply and distribution of goods in Vietnam through on-the-spot import-export or according to international commercial terms (Incoterms): 1%;

• Royalties: 10%;

• Leasing of aircraft, helicopters, gliders (including engines and spare parts), and ships: 2%;

• Leasing of drilling rigs, machinery, equipment, and transportation vehicles (except those prescribed above): 5%;

• Loan interest: 5%;

• Securities transfer and offshore reinsurance: 0.1%;

• Derivative financial services: 2%;

• Capital transfer (except ownership restructuring transactions within a group that do not change the ultimate parent company and do not generate income): 2%;

• Construction, transportation, and other business activities: 2%.

2. Foreign contractor tax rates for Value Added Tax (VAT)

Pursuant to Clause 4 Article 9 of Circular No. 69/2025/TT-BTC, VAT calculation under the direct method is determined as follows:

Where:

VAT taxable revenue is the total revenue from the provision of services and services associated with goods subject to VAT received by the foreign contractor or foreign subcontractor before deduction of payable taxes, including expenses paid on behalf of the foreign contractor or foreign subcontractor by the Vietnamese party (if any), in accordance with Article 13 of Decree No. 181/2025/NĐ-CP.

The VAT percentage rates on revenue applicable to foreign organizations and individuals doing business in Vietnam are as follows:

• Distribution and supply of goods: 1%

• Services and construction without supply of materials: 5%

• Manufacturing, transportation, services associated with goods, and construction with supply of materials: 3%

• Other business activities: 2%

For contractor contracts or subcontractor contracts involving multiple business activities, or including portions not subject to VAT, the VAT percentage rate on revenue shall be determined corresponding to each business activity performed by the foreign contractor or foreign subcontractor according to the contract contents.

In cases where the value of each activity cannot be separately determined, the tax authority shall apply the highest VAT percentage rate corresponding to the relevant business sector to the total contract value.

Factors affecting foreign contractor tax rates

In bidding activities, especially for bidding packages involving foreign elements, foreign contractor tax rates may vary depending on the nature of the bidding package, contract type, and scope of work. Correctly identifying the factors affecting tax rates helps contractors accurately calculate bid prices and minimize risks arising during contract implementation.

• Scope of work performed in Vietnam: If a foreign contractor directly performs services, construction, or installation activities in Vietnam, foreign contractor tax obligations will generally arise. This is an important factor in international bidding packages or contracts involving foreign experts.

• Contract conditions and payment terms: Delivery terms under Incoterms, scope of responsibilities, and payment methods may directly affect the determination of tax obligations. In some cases, if the foreign contractor bears risks related to goods imported into Vietnam, it may be required to declare and pay foreign contractor tax in accordance with regulations.

• Contract structure of the bidding package: For mixed contracts consisting of multiple components such as goods supply, installation, training, or technology transfer, tax rates may be separately determined for each work component. If the value of each component cannot be separated, the tax authority may apply the highest tax rate to the entire contract value.

• Double taxation avoidance agreements: Some foreign contractors from countries that have signed double taxation avoidance agreements with Vietnam may be exempt from or entitled to reductions in certain tax obligations. This directly affects implementation costs and bid prices.

• Tax declaration and payment methods: Foreign contractors may apply the direct method, deduction method, or hybrid method. Choosing the appropriate method will affect the tax calculation approach and the total financial cost of the bidding package.

Conclusion

Foreign contractor tax rates are an important issue that enterprises need to clearly understand when participating in contracts involving foreign elements. Proper understanding of how tax rates are determined and applied not only helps ensure compliance with legal regulations but also supports enterprises in optimizing costs and minimizing risks during bid price preparation and contract implementation.

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