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Value Added Tax for foreign contactor (VAT)

Foreign contractor (FC) is entitled to choose one of two incorporate tax regimes available under Vietnam Law., i.e.
(i) Paying Value Added Tax according to declared revenue and expense which is similar to tax regime applicable to domestic enterprises and (ii) Paying Value Added Tax according to fixed rates which is only applicable to foreign contractor.
 
i. Paying Value Added Tax according to declared revenue and expense
In order to be entitled to this Option, FC must satisfy following conditions:
(a) The contractor/subcontractor has a permanent establishment in Vietnam or the contractor/subcontractor is a resident of Vietnam;
(b) The period of business operation on Vietnam under the main contract or subcontract is 183 days or longer from the effective date of the contract.
(c) The contractor/subcontractor applies Vietnam’s accounting practice, has applied for tax registration and issued with a taxpayer ID number (TIN) by a tax authority
In case FC selects this option, Value Added Tax Regimes applicable to domestic Enterprise shall be applicable.

According to the Article 8, the Value Added Tax Law No. 13/2008/QH12 dated 3rd June 2008, the standard Value Added Tax Rate shall be as follows:
Value Added Tax Rate Taxable objects
0% Exported goods and services, international transportation and goods and services not liable to value-added tax upon exportation, except cases of transfer of technologies or intellectual property rights abroad; offshore reinsurance services; credit provision, capital transfer and derivative financial services; post and telecommunications services; and exported products which are unprocessed mined resources and minerals.
5% a/ Clean water for production and daily life;
b/ Fertilizers; ores for fertilizer production; insecticides, pesticides and plant and animal growth stimulators;
c/ Feeds for cattle, poultry and other domestic animals;
d/ Services of digging, embanking and dredging canals, ditches, ponds and lakes for agricultural production; growing, tending, and preventing pests and insects for, plants; preliminary processing and preservation of agricultural products;
e/ Unprocessed cultivation, husbandry and fishery products, except cultivation and husbandry products, and reared and fished aquatic products which have not yet been processed into other products or have been just preliminarily processed and sold by producing and fishing organizations and individuals, and products at the stage of importation;
f/ Preliminarily processed rubber latex; preliminarily processed turpentine; nets, main ropes and fibers for making fishing-nets;
g/ Fresh and live food; unprocessed forest products, except timber, bamboo shoots and cultivation and husbandry products, and reared and fished aquatic products which have not yet been processed into other products or have been just preliminarily processed and sold by producing and fishing organizations and individuals, and products at the stage of importation;
h/ Sugar; by-products in sugar production, including molasses, bagasse and
sludge;
i/ Products made of jute, rush, bamboo, leaf, straw, coconut husks and shells and Eichhornia crassipes, and other handicrafts made of agricultural raw materials; preliminarily processed cotton; paper for newspaper printing;
j/ Special-purpose machinery and equipment for agricultural production, including ploughing machines, harrowing machines, rice-planting machines, seeding machines, rice-plucking machines, reaping machines, combine harvesters, agricultural product harvesters, insecticide or pesticide pumps or sprayers;
k/ Medical equipment and instruments; medical cotton and bandage; preventive and curative medicines; pharmaco-chemistry products and pharmaceuticals used as raw materials for the production of curative and preventive medicines;
l/ Teaching and learning aids, including models, figures, boards, chalk, rulers, compasses, and equipment and tools exclusively used for teaching, research and scientific experiments;
m/ Cultural, exhibition, physical training and sports activities; art performances; film production; film import, distribution and screening;
n/ Children toys; books of all kinds, except publication, import and distribution of newspapers, journals, specialized bulletins, political books, textbooks, teaching materials, law books, scientifictechnical books, books printed in ethnic minority languages as well as propaganda postcards, pictures and posters, including those in the form of audio or visual tapes or discs or electronic data; money printing;
o/ Scientific and technological services under the Law on Science and Technology.
10% Other goods and services taxable to Value Added Tax.
 
Under this option, FC shall be entitled refund of Input Value Added Tax.
(ii) Paying Value Added Tax according to fixed rates
In case FC fails to satisfy conditions outlined in the Item (i) of this Section, the option of Paying Value Added Tax (VAT) according to fixed rates shall be applied.
According to the Item 1, Article 12 of the Circular No. 103/2014/TT-BTC of the Ministry of Finance dated 06 August 2014 guiding the fulfillment of tax liability of foreign entities doing business in Vietnam or earning income in Vietnam, the basis for tax calculation under this option is the revenue subject to VAT and tax rate (%).

VAT payable = Revenue subject to VAT x VAT rate

In which, the revenue subject to VAT is total revenue from provision of services and services attached to goods subject to VAT received by the foreign contractor or foreign sub-contractor inclusive of subtracting taxes payable and any costs (if any) paid by the Vietnamese party instead of the foreign contractor or foreign sub-contractor.
According to the Item 2, Article 12 of the Circular No. 103/2014/TT-BTC of the Ministry of Finance dated 06 August 2014 guiding the fulfillment of tax liability of foreign entities doing business in Vietnam or earning income in Vietnam, the VAT rates applicable under this Option shall be as follows:
No. Trade VAT rate
1 Services, rental of machinery and equipment, insurance; construction, installation exclusive of raw materials, machinery and equipment. 5
2 Production, transportation, services attached to goods; construction, installation inclusive of raw materials, machinery and equipment. 3
3 Other trades 2
Under this option, Client shall not be entitled refund of Value Added Tax.
 
» Corporate Income Tax for Foreign contractor in Vietnam
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