Foreign contractor tax in Vietnam: who pays it, what it covers and how the VAT and CIT parts work

Foreign contractor tax (FCT, in Vietnamese thuế nhà thầu nước ngoài) is the name Vietnamese practice gives to the tax collected when a foreign organisation or individual earns income from Vietnam under a contract, without being set up in Vietnam to pay tax like a local company. It is not a separate tax law. It is a collection mechanism that pulls two ordinary taxes — value added tax and corporate income tax (or personal income tax where the contractor is an individual) — out of the payment made to the foreign party.

In most cases the Vietnamese company that pays the invoice withholds the tax, files the return and pays it to the state. That is why FCT is a finance-team problem in Vietnam rather than the supplier's problem: if the tax is not withheld, the tax authority looks first to the Vietnamese payer, and the expense behind the payment becomes harder to defend in the corporate income tax return. This guide explains the scope, the two components and the routine a foreign-invested company should have in place before the first overseas invoice arrives.

Where the rules come from

The legal basis sits in several places at once. The CIT component follows Law 67/2025/QH15 on Corporate Income Tax, which covers foreign organisations earning income arising in Vietnam, and it applies from the 2025 tax year. The VAT component follows Law 48/2024/QH15 on Value Added Tax, in force from 1 July 2025. Registration, declaration, payment and deadlines follow the Law on Tax Administration (Law 38/2019/QH14) and its implementing documents, which were renewed in mid-2026: Decree 252/2026/NĐ-CP guiding the Law on Tax Administration and Circular 89/2026/TT-BTC guiding that law and its decree.

The detailed method — which activities fall inside the regime, how taxable revenue is computed and which deemed percentages apply to which kind of service — has for many years been set out in a dedicated Ministry of Finance circular on foreign contractors, read together with the new laws. We do not quote its percentages here. Rates for the VAT and CIT components depend on the activity, and the guidance has to be read against the current laws; use the current text or a written confirmation from your adviser before applying any figure. Our sister site ThueSuat keeps a Vietnamese-language section on foreign contractor tax ratios by activity if your team reads Vietnamese.

Who is a foreign contractor, and which payments are caught

A foreign contractor is a foreign organisation or individual that does business or earns income in Vietnam on the basis of a contract, agreement or commitment with a Vietnamese party, or with another foreign contractor working on a Vietnamese project (a foreign subcontractor). The test is the income, not the presence: a supplier that never sends anyone to Vietnam can still be inside the regime if it provides a service used in Vietnam.

Payments that routinely fall in scope for a foreign-invested enterprise include:

• Services supplied from abroad and used in Vietnam — consulting, design, IT support, marketing services, technical assistance, training delivered online.
• Royalties and licence fees — for trademarks, technology, know-how or software.
• Interest on loans from overseas lenders, including a parent company or a group finance entity.
• Goods supplied together with services in Vietnam — installation, commissioning, supervision, training or warranty work performed locally.
• Construction and installation contracts performed by a foreign contractor on a Vietnamese site.
• Leases of machinery, equipment or vessels from overseas lessors.

Some payments are outside the regime — for example goods sold to a Vietnamese buyer with delivery at the border and no associated service in Vietnam, or certain services both performed and consumed outside Vietnam. The boundary is narrower than many group finance teams assume, and it deserves its own review before you conclude that a payment is out of scope.

The VAT component and the CIT component

Under the method most FIEs use — the Vietnamese party withholding the tax — FCT is two calculations on the same payment:

Two features surprise newcomers. First, the tax is calculated on revenue, not on the contractor's profit, because the contractor keeps no Vietnamese books. Second, the taxable revenue is the full amount the contractor is entitled to, including any tax the Vietnamese party agreed to bear. If the contract says the supplier receives a net amount "free of Vietnamese taxes", the tax has to be grossed up, and the gross amount is the revenue on which both components are computed.

Hypothetical example. Suppose a Vietnamese subsidiary pays an overseas consultancy for a market study used by its Vietnamese sales team, under a contract stating a price that excludes Vietnamese taxes. The subsidiary must withhold the VAT and CIT components from the contract price (or gross up if the contract promises a net receipt), declare them and pay them. The FCT VAT it pays may then be claimed as input VAT, provided the usual conditions are met and it holds the tax payment documents. The CIT component is a cost of the foreign supplier, not of the subsidiary — unless the subsidiary agreed to bear it, in which case the question of deductibility becomes more delicate.

Why the Vietnamese payer carries the risk

Because the payer withholds, the payer is responsible if the withholding is wrong. In practice the consequences show up in three places:

1. Tax assessed on the payer. If an audit finds FCT that should have been withheld, the tax authority assesses it on the Vietnamese company, with late-payment interest running from the original due date. Late-payment interest has long been calculated at 0.03% per day on the amount paid late; check the rate in force.
2. The underlying expense. A service fee or royalty paid abroad without FCT compliance is harder to defend as a deductible expense in the CIT finalisation, especially for payments to related parties.
3. Input VAT. FCT VAT that was never declared cannot be claimed, so the cost of the error doubles: VAT paid late and no credit in the period.

A foreign supplier rarely resolves any of this for you. Its invoice will not show Vietnamese tax, and its standard terms may say nothing about Vietnam. The contract and the payment approval step in Vietnam are where FCT is either handled correctly or missed.

How payment, declaration and records fit together

The Vietnamese payer normally registers to pay tax on behalf of foreign contractors and declares FCT when payments are made, either per payment or periodically, as the tax administration rules allow for its situation. Registration now falls under the 2026 guidance on tax registration (Circular 90/2026/TT-BTC); the timing and form of each declaration follow the Law on Tax Administration and its 2026 implementing documents. Deadlines for per-payment declarations are shorter than the familiar monthly and quarterly ones, so the declaration step should be part of the payment run rather than a month-end task.

For each payment, keep a single file that an auditor can follow without asking questions:

• The signed contract and any amendment, with the clause on who bears Vietnamese taxes.
• The foreign invoice or debit note, and evidence that the service was actually delivered — reports, deliverables, time records, acceptance minutes.
• The FCT calculation, showing revenue, gross-up (if any), the activity classification and the ratios used, with a note of the source.
• The tax return and the payment slip for the FCT, and the bank transfer to the supplier.
• If a treaty exemption or reduction was claimed, the complete treaty file — residence certificate and notification — lodged at the right time.

Accounting documents used directly for bookkeeping and preparing financial statements must be kept for at least 10 years under the Law on Accounting. For foreign contracts this includes the evidence of service, which is the document most often missing when the tax office asks.

Common mistakes in foreign-invested companies

• Treating group charges as internal. Management fees, IT recharges and shared-service fees from the parent are payments to a foreign contractor like any other. Intercompany does not mean out of scope.
• Classifying by invoice description. "Services" on an invoice may hide a royalty or a software licence; the classification follows the substance of what is supplied, and different activities carry different deemed rates.
• Forgetting the gross-up. Paying the supplier its full price and then computing tax on that price, when the contract promised the supplier a net amount, understates the tax.
• Claiming a treaty exemption informally. A treaty may reduce or remove the CIT component, but only through the notification procedure; an email from the supplier saying "we are resident in a treaty country" is not enough.
• Paying first, declaring later. The tax obligation arises around the payment, not at the year end. Catching up at finalisation means late-payment interest on every payment in the year.

Where to check your own position

Three routine checks cover most of the exposure. First, in your company's e-tax account on the tax authority's portal, confirm that each FCT return filed during the year has a matching payment recorded and that nothing appears as outstanding. Second, reconcile the list of overseas payments in your bank statements against the FCT returns — every foreign payment should either have a return or a written note explaining why it is out of scope. Third, use the taxpayer information lookup to confirm which tax office manages your company, because FCT withheld is declared to the office managing the payer.

Since 1 July 2025 the tax administration works in three tiers — the Tax Department at central level, provincial and city tax offices, and grassroots tax offices — across 34 provinces and centrally run cities. If your company moved address or its managing office changed during the reorganisation, check the lookup before filing a late return or a treaty notification.