Foreign contractor tax and tax treaties: what is taxed, the deemed VAT and CIT rates, who withholds and when, dividends, interest and royalties, double taxation agreements and Circular 95/2026

What foreign contractor tax is

Foreign contractor tax (thuế nhà thầu nước ngoài, FCT) is not a separate tax. It is the collection mechanism for the VAT and CIT due on income that a foreign organisation or individual without a permanent establishment in Vietnam earns from a contract with a Vietnamese party, or from goods and services supplied and consumed in Vietnam. It applies whether the payment is made in Vietnam or abroad, and whether the contract is called a service agreement, a licence, a loan, a lease or a cost-sharing arrangement. A Vietnamese company that pays its foreign parent a management fee, interest on a shareholder loan or a royalty, or pays a foreign software vendor, consultant, freight forwarder or equipment lessor, is dealing with FCT.

The framework is Circular No. 103/2014/TT-BTC, as amended. Circular No. 20/2026/TT-BTC, issued and effective on 12 March 2026 under Law No. 67/2025/QH15, annulled and replaced its CIT provisions, and the CIT percentages are now in Article 12(3) of Decree No. 320/2025/ND-CP. Circular No. 69/2025/TT-BTC, effective 1 July 2025 under the new VAT Law, replaced its VAT provisions, with the VAT percentages in its Article 9. Declaration and payment follow Law No. 108/2025/QH15 on Tax Administration, Decree No. 252/2026/ND-CP and Circular No. 89/2026/TT-BTC. A foreign organisation that does have a permanent establishment in Vietnam pays CIT on the profits of that establishment instead (Corporate income tax).

What falls outside FCT

Not every payment abroad bears FCT. The guidance excludes the pure supply of goods delivered at a point outside Vietnam, where the foreign seller bears no risk in Vietnam and supplies no services with the goods; where the seller does bear risk in Vietnam or supplies installation, training or warranty services, the goods element bears CIT at 1% and the service element at the service rate. It also excludes services performed and consumed outside Vietnam, such as repair of aircraft, ships and equipment abroad, advertising and marketing abroad, training delivered abroad and certain international telecommunications and transport services, and supplies of raw materials to export processing and bonded enterprises in the cases Decree No. 320/2025/ND-CP describes. The line between a service consumed abroad and one consumed in Vietnam is a frequent dispute: a market study prepared abroad but used to make decisions in Vietnam is generally treated as consumed in Vietnam.

Dividends are also outside FCT. A Vietnamese company pays dividends to a foreign corporate shareholder out of profit that has already borne CIT, and Vietnam levies no withholding tax on them, a position that has been stable for many years and remains so in 2026 (FAQ 23). Dividends paid to individual shareholders are taxed under PIT (Tax on share transfers and dividends).

The methods: deemed withholding is now the rule

Under the deemed method (often called the direct or withholding method), the Vietnamese party withholds from each payment a VAT element and a CIT element, each a fixed percentage of the taxable revenue, and declares and pays them on the contractor's behalf. The contractor files nothing and keeps no Vietnamese accounts. Circular No. 20/2026/TT-BTC abolished the deduction method for the CIT element that Circular No. 103/2014/TT-BTC had allowed to contractors that registered in Vietnam, kept Vietnamese accounts and were present for more than 183 days, so a foreign contractor without a permanent establishment now pays CIT on the deemed basis whatever the length of its contract. Contracts signed before 12 March 2026 and already registered under the hybrid method, VAT by deduction and CIT on a deemed basis, continue under the rules that applied when they were signed until they end.

The circular also changed the base: under the deemed method, taxable revenue for the CIT element now includes VAT, which slightly increases the CIT element compared with the former rules. A foreign contractor carrying out a long construction or engineering contract should consider whether its activity creates a permanent establishment, in which case it registers and pays CIT on actual profits, and how the VAT element is to be accounted for under Circular No. 69/2025/TT-BTC.

Computing the tax: gross and net contracts

Taxable revenue is the whole amount the contractor receives, before any deduction of tax, including expenses reimbursed by the Vietnamese party, such as travel and accommodation of the contractor's staff, unless the guidance excludes them. Where the contract price is inclusive of Vietnamese taxes (a gross contract), the VAT element is the stated percentage of the contract value and, since Circular No. 20/2026/TT-BTC, the CIT element is the CIT percentage of the same value including VAT; the contractor receives the contract value less both. Where the contract states a price net of Vietnamese taxes (a net contract), the Vietnamese party bears the tax and must gross up the net amount using the formula in the guidance before applying the percentages; the grossed-up tax is a cost of the Vietnamese company, and the Vietnamese company may credit the VAT element it pays as input VAT if it uses the credit method.

Where a contract covers several activities whose values can be separated, each is taxed at its own rates; where they cannot, the highest rates apply to the whole value. Contracts with foreign group companies should therefore separate goods, services, licences and reimbursements in the price schedule, state whether prices are gross or net of Vietnamese tax, and allocate responsibility for the tax and for claiming treaty relief.

Who withholds, and when

The withholding party is the Vietnamese organisation that contracts with or pays the foreign contractor: a company, a branch, a project management board or a State body. It declares the FCT for each payment, on the form prescribed under Circular No. 89/2026/TT-BTC, and pays it within ten days of the payment; a payer making several payments to foreign contractors in a month may register to declare monthly instead. Where the contract ends and the tax already declared needs to change, a finalisation is filed no later than the 45th day after the termination of the contract (Article 10(5)(b), Decree No. 252/2026/ND-CP). The withheld tax is a cost of the contractor, not the payer, unless the contract is net.

Banks commonly ask for evidence that FCT has been declared before they process a service, royalty or interest payment abroad, and the tax authority cross-checks foreign payments in the company's accounts against its FCT returns at audit; an expense paid abroad without the FCT declared on it invites both an FCT assessment and challenge to the CIT deduction. Interest on a registered offshore loan bears FCT at 5% on each payment, and the loan itself must be registered with the State Bank (Offshore loans and State Bank registration); payments to group companies generally are covered in Paying foreign suppliers and group companies.

Double taxation agreements: what they can and cannot do

Vietnam has signed double taxation agreements with around 80 jurisdictions, including the United Kingdom, Singapore, Japan, South Korea, China, Hong Kong, France, Germany, the Netherlands, Luxembourg, Switzerland, Australia, Canada, India, Thailand and the United Arab Emirates. The agreement signed with the United States in 2015 is not in force, so American companies receive no treaty relief from FCT and should consider whether a group company in a treaty jurisdiction, with real substance, is the better contracting party. The OECD Multilateral Instrument entered into force for Vietnam on 1 September 2023 and modifies most of its treaties, adding the anti-abuse preamble and, for treaties covered by it, a principal purpose test (FAQ 24).

A treaty can reduce or remove the CIT element of FCT. Business profits, including fees for services, are taxable in Vietnam only if the contractor has a permanent establishment in Vietnam under the treaty definition, so a treaty-resident service provider that stays within the treaty's day-count pays no Vietnamese CIT on its fees. Interest and royalties remain taxable in Vietnam, but not above the treaty maximum; because Vietnam's domestic CIT element on interest is already 5%, below most treaty rates, the practical benefit is usually on royalties and on technical service fees that some treaties treat as royalties. A treaty cannot reduce the VAT element, which is a tax on consumption in Vietnam, and the Vietnamese customer bears it in economic terms where it uses the credit method. Treaties also allocate the right to tax gains on shares, which is relevant to the 2% tax on gross proceeds (Tax on share transfers and dividends), and the treaty network sits alongside the investment treaties described in Investment guarantees and treaties.

Circular 95/2026: claiming relief from 1 July 2026

Circular No. 95/2026/TT-BTC, issued and effective on 1 July 2026, replaced Circular No. 205/2013/TT-BTC on the application of tax treaties and Circular No. 45/2021/TT-BTC on advance pricing agreements. It covers treaty application, the mutual agreement procedure, advance pricing agreements, exchange of information and assistance in collection. Relief is not automatic: it is claimed by filing a complete dossier, and under Article 10(1) the date of application is the date on which the complete dossier is submitted under Circular No. 89/2026/TT-BTC and Decree No. 252/2026/ND-CP. A claim must be made within three years.

Three provisions deserve attention. First, Article 10(3) states that a treaty is not intended to create opportunities for non-taxation in both states, and lists, in points (a) to (g), circumstances in which the applicant is not regarded as the beneficial owner of the income; in substance they are directed at conduit companies that must pass the income on, that have little business activity, assets or staff of their own, or that do not control the income they receive. A holding or financing company with no substance in its treaty state should expect relief to be refused. Second, Article 14(2)(a) treats an e-commerce or digital platform through which a foreign enterprise supplies goods or services in Vietnam as capable of constituting a permanent establishment, and a representative office that negotiates or concludes contracts may also be one. Third, Article 30 addresses gains on direct and indirect share transfers, and the immovable-property ratio test is applied using the average of the ratio at specified times, on financial statements that need not be audited. Individual residence for treaty purposes is determined under Article 4 of Decree No. 253/2026/ND-CP.

How to claim treaty relief on payments to a foreign contractor

1. Identify the treaty and the articleConfirm the contractor's state of residence, that a treaty with that state is in force, and which article governs the payment: business profits for services, interest, royalties or another article. Check whether the Multilateral Instrument modifies the treaty.
2. Test permanent establishment and beneficial ownershipFor services, count the contractor's staff days in Vietnam against the treaty threshold. For interest and royalties, confirm that the recipient is the beneficial owner and not a conduit, against the circumstances in Article 10(3) of Circular No. 95/2026/TT-BTC.
3. Obtain the residence certificate and contractObtain a certificate of tax residence issued by the treaty state's tax authority for the relevant year, legalised or apostilled as required, together with the contract and evidence of payment.
4. File the dossierThe Vietnamese payer, or the contractor, files the treaty relief dossier with the tax authority in the form required by Circular No. 89/2026/TT-BTC, ideally before the first payment so that the reduced rate is applied at source.
5. Withhold at the treaty rate and keep the fileDeclare the FCT at the reduced rate within ten days of each payment and keep the dossier for audit. Where tax was withheld in full, a refund claim may be filed within the three-year period.