Guidance on choosing tax declaration method for foreign contractors

According to current regulations, foreign organizations and individuals (referred to as foreign contractors and subcontractors) that generate revenue in Vietnam must declare and pay contractor tax according to regulations. Pursuant to Circular 103/2014/TT-BTC dated August 6, 2014 of the Ministry of Finance , there are currently 3 tax declaration methods for foreign contractors to choose to declare.

1- Pay contractor tax according to the declaration method: Pay VAT according to the deduction method, pay corporate income tax based on declared revenue and expenses to determine taxable income.

- Applicable subjects and conditions:

Foreign contractors and foreign subcontractors pay tax by declaration method if they meet the following conditions:

+ Have a permanent establishment in Vietnam, or be a resident in Vietnam;

+ Business term in Vietnam under the contractor contract or subcontractor contract is from 183 days or more from the effective date of the contractor contract or subcontractor contract;

+ Apply Vietnamese accounting regime and carry out tax registration, be granted tax code by tax authority.

- Tax declaration method: Foreign contractors calculate VAT and CIT in the same way as domestic enterprises according to the provisions of the Law on VAT, the Law on CIT and their implementing instructions.

2 - Pay contractor tax by direct method: Pay VAT and corporate income tax by the rate method calculated on revenue.

- Applicable subjects and conditions:

If foreign contractors and foreign subcontractors do not meet the conditions for applying the declaration method (above), the Vietnamese party shall pay tax on behalf of the foreign contractor and foreign subcontractor.

- How to declare tax: In this case, contractor tax is declared each time payment to the foreign contractor occurs and final settlement is declared upon the end of the contractor contract. If the Vietnamese party pays the foreign contractor many times in a month, it can register to declare tax monthly.

3 - Pay contractor tax by mixed method: Pay VAT by deduction method, pay corporate income tax by percentage calculated on revenue.

- Applicable subjects and conditions:

Having a permanent establishment in Vietnam, or being a resident in Vietnam; conducting business in Vietnam under a contractor contract or subcontractor contract for 183 days or more from the effective date of the contractor contract or subcontractor contract; organizing accounting in accordance with the provisions of the law on accounting and instructions of the Ministry of Finance.

- How to declare tax:

+ VAT: Foreign contractors calculate VAT in the same way as domestic enterprises according to the provisions of the Law on VAT and its implementing documents.

+ Corporate income tax: Perform the same calculation of corporate income tax using the direct method stated in section 2 above.

Source: https://baoquangninh.vn/huong-dan-lua-chon-phuong-phap-khai-thue-doi-voi-nha-thau-nuoc-ngoai-3324097.html