The Vietnam Investment Review recently reported: The Ministry of Finance of Vietnam has just issued a new circular 103/2014/TT-BTC regarding taxes for foreign contractors, replacing circular 60/2012/TT-BTC, which will be implemented starting October 1, 2014.
The report states that Circular 103 contains many new regulations that will have far-reaching impacts on the business activities of both domestic and foreign enterprises in Vietnam:
Expansion of the tax scope: According to Circular 103, even if foreign companies do not have a physical presence in Vietnam, as long as they engage in activities such as product agency or service provision through a Vietnamese institution, they may become subject to foreign contractor tax. Vietnamese companies acting as agents for foreign companies’ products, providing services, or negotiating and signing contracts on behalf of foreign companies must declare and pay foreign contractor tax for these foreign companies. For example, if a foreign company delivers goods to a Vietnamese company for sale, but the foreign company retains ownership, remains responsible for the quality of the goods, or retains pricing rights, then the foreign company will be liable for foreign contractor tax on this business activity in Vietnam.
No tax on after-sales warranty and sales activities without accompanying services: Circular 103 stipulates that if the seller has warranty obligations, delivers goods at the port, and only bears the costs and risks incurred until the goods reach the Vietnamese port, no foreign contractor tax will be collected. For instance, if a foreign seller only supplies goods to Vietnamese ports on FOB or CIF terms without providing any related services in Vietnam, they will not be subject to foreign contractor tax, even if the contract includes warranty clauses.
Enterprises can split the contract amount for construction and installation contracts into separate business activities, choosing a method that suits the enterprise to reduce the proportion of foreign contractor tax. Circular 103 stipulates that if the price of each business activity cannot be separated, the foreign contractor tax rate will be 2% of the contract enterprise’s business tax and 3% of VAT. For example, if machinery and equipment account for a large portion of the contract amount, it may be advantageous to split the contract amount. Conversely, if services account for a larger proportion of the contract, not splitting the contract might be more beneficial for the enterprise.
