Foreign Contractor Tax (FCT) is the mechanism Vietnam uses to tax foreign companies and individuals that earn income from Vietnam without setting up a local entity. If your Vietnamese company pays an overseas supplier for services, software, equipment leasing, royalties, loan interest or construction work, there is a good chance FCT applies, and it is your company, not the foreign supplier, that must withhold, declare and pay it. This guide explains who FCT applies to, how it is calculated, the current rates for 2026, the filing deadlines, how tax treaties can reduce the bill, and the mistakes that most often trigger penalties during a tax audit.
What is Foreign Contractor Tax?
FCT is not a separate tax in its own right. It is a collection method that bundles two existing taxes, Value Added Tax (VAT) and Corporate Income Tax (CIT) (or Personal Income Tax where the contractor is an individual), and applies them to income that a foreign contractor earns from a Vietnamese counterparty. Because the foreign contractor usually has no legal presence in Vietnam, the law shifts the compliance burden onto the Vietnamese party making the payment.
The core rules are set out in Circular 103/2014/TT-BTC, which continues to govern the calculation methods and withholding mechanism. Since 2025 it operates alongside a modernised statutory framework: the Law on VAT No. 48/2024/QH15 (effective 1 July 2025, with guidance in Decree 181/2025/ND-CP and Circular 69/2025/TT-BTC) and the Law on CIT No. 67/2025/QH15 (effective 1 October 2025, with guidance in Decree 320/2025/ND-CP). Administrative procedures follow the Law on Tax Administration and Circular 80/2021/TT-BTC.
Watch: Foreign Contractor Tax in Vietnam explained
Prefer to watch rather than read? This short video from MSA Asia walks through who pays Foreign Contractor Tax in Vietnam, how much it costs, and what your Vietnamese company needs to do when paying an overseas supplier.
Who Does FCT Apply To?
FCT applies to foreign organisations and individuals, whether or not they have a permanent establishment (PE) in Vietnam, that do business in Vietnam or earn Vietnam-sourced income under a contract with a Vietnamese party. Typical situations include:
- Services performed in Vietnam, or performed offshore but consumed in Vietnam, such as consulting, legal, engineering, marketing, management and technical support.
- Software, SaaS and digital services supplied by overseas providers to Vietnamese businesses.
- Supply of goods with associated services in Vietnam, for example machinery delivered with installation, training or warranty, or goods delivered under Incoterms where the seller bears risk inside Vietnam (DDP, DAP).
- Construction and installation projects carried out by foreign contractors, with or without the supply of materials.
- Leasing of machinery, equipment, vehicles or vessels used in Vietnam.
- Interest on loans from foreign lenders, including shareholder loans from an overseas parent.
- Royalties for the use of trademarks, patents, know-how, copyrights and technology transfers.
- Transfers of securities and certain financial derivative transactions.
FCT generally does not apply to the pure supply of goods delivered at a foreign border or Vietnamese port with no accompanying services in Vietnam, to services performed and consumed entirely outside Vietnam, or to a short list of specifically exempt services such as certain offshore advertising, marketing, training and repairs. Getting the classification right at contract stage is the single most important step, because it determines whether tax is due at all and at what rate.
The Three FCT Calculation Methods
Circular 103 sets out three ways a foreign contractor’s Vietnamese tax liability can be calculated. In practice the choice depends on whether the contractor is willing and able to register in Vietnam and keep local books.
1. Direct method (withholding method)
This is the default and by far the most common approach. The foreign contractor does not register for tax in Vietnam. Instead, the Vietnamese customer withholds FCT from each payment by applying fixed deemed percentages to the gross contract value, files a return and pays the tax to the State Treasury on the contractor’s behalf. No local accounting records are needed and the withheld tax is a final settlement for the foreign party. The VAT component withheld can generally be claimed by the Vietnamese payer as input VAT credit if it is a VAT deduction-method taxpayer.
2. Declaration method (Vietnamese Accounting System method)
A foreign contractor that has a PE or project office in Vietnam, operates under a contract of 183 days or more, and adopts the Vietnamese Accounting System can register for a tax code and file tax like a domestic company: VAT under the credit method and CIT at the standard 20% rate on actual net profit. This gives a lower effective tax rate on high-margin work but requires a full set of Vietnamese books, a Chief Accountant and an annual audit, so it only makes commercial sense for large, long-running projects.
3. Hybrid method
The hybrid method combines the two: the contractor registers in Vietnam and pays VAT under the credit method (issuing VAT invoices and deducting input VAT), while CIT is still calculated on a deemed percentage of revenue. It suits contractors with significant local subcontracting or material purchases who want to recover input VAT without adopting full Vietnamese accounting for profit purposes.
FCT Rates in Vietnam for 2026
Under the direct method, the deemed VAT and CIT percentages depend on the nature of the income. The table below summarises the main categories. Where a contract covers several activities, each part should be priced and taxed separately; if it is not, the tax authority will generally apply the highest applicable rate to the whole contract.
| Type of payment | Deemed VAT rate | Deemed CIT rate | Combined FCT |
|---|---|---|---|
| Distribution and supply of goods with services in Vietnam (including DDP/DAP delivery) | Exempt / 1% | 1% | 1% – 2% |
| Services (consulting, management, technical, marketing, etc.) | 5% | 5% | 10% |
| Digital platform and e-commerce services supplied by foreign suppliers | 5% / 10% | 5% | 10% – 15% |
| Software services and technology / IP transfers | Exempt | 5% (services) / 10% (IP) | 5% – 10% |
| Machinery and equipment leasing | 5% | 5% | 10% |
| Construction and installation with supply of materials or equipment | 3% | 2% | 5% |
| Construction and installation without supply of materials or equipment | 5% | 2% | 7% |
| Transportation (international transport is 0% VAT) | 3% | 2% | 5% |
| Loan interest | Exempt | 5% | 5% |
| Royalties (trademarks, patents, know-how) | Exempt / 5% | 10% | 10% – 15% |
| Transfer of securities | Exempt | 0.1% | 0.1% |
| Financial derivatives | Exempt | 2% | 2% |
| Other business activities | 2% | 2% | 4% |
Two changes introduced with the new VAT law are worth flagging. First, Circular 69/2025/TT-BTC re-published the deemed VAT percentages in an appendix that should now be checked for the specific business line. Second, certain digital services supplied by foreign platforms moved from 5% to 10% VAT. The CIT rates above may be reduced or eliminated under an applicable double taxation agreement, discussed below.
How to Calculate FCT: Gross vs Net Contracts
How much tax is due depends heavily on how the contract prices the payment.
Under a gross contract, the contract value includes Vietnamese taxes. The Vietnamese payer simply applies the deemed rates to the invoice value, withholds the tax and remits the balance to the contractor. On a USD 100,000 consulting contract at 5% VAT and 5% CIT, the payer withholds USD 10,000 and the contractor receives USD 90,000.
Under a net contract, the foreign contractor insists on receiving the full contract amount “net of all Vietnamese taxes”. The Vietnamese payer must then gross up the payment to find the taxable revenue before applying the rates:
- Revenue for CIT = Net payment ÷ (1 – CIT rate)
- Revenue for VAT = Revenue for CIT ÷ (1 – VAT rate)
- CIT payable = Revenue for CIT × CIT rate; VAT payable = Revenue for VAT × VAT rate
On the same USD 100,000 contract paid net, the CIT base becomes USD 105,263, the VAT base USD 110,803, and total FCT comes to about USD 10,803 rather than USD 10,000. The Vietnamese company’s total cash cost is therefore roughly USD 110,800. This is why the tax clause in a cross-border contract deserves as much attention as the price itself. Note also that CIT borne by the Vietnamese party under a net contract is only deductible for its own CIT if the contract explicitly states that the price is net of Vietnamese taxes.
Filing and Payment Deadlines
Under the direct method, the Vietnamese payer is responsible for registering the contract with its tax office, withholding FCT, filing the return and paying the tax. The key deadlines are:
- Tax registration: the Vietnamese party must register a withholding tax code for the foreign contractor within 10 working days of signing the contract.
- Per-payment declaration: for one-off or irregular payments, the FCT return (Form 01/NTNN) must be filed and the tax paid within 10 days of the date of payment to the foreign contractor.
- Monthly declaration: where payments to the same contractor are frequent, the payer may register to declare monthly, by the 20th of the following month.
- Finalisation: a contract finalisation return (Form 02/NTNN) is due within 45 days of the contract ending.
Foreign suppliers of digital and e-commerce services that sell directly to Vietnamese customers without a PE are treated differently. They must register directly on the tax authority’s foreign supplier portal, obtain a tax code and declare and pay tax themselves, quarterly until mid-2026 and monthly from 1 July 2026. Where a foreign supplier is registered on the portal and provides its Vietnamese tax code, the Vietnamese business customer does not need to withhold; where it is not registered, the customer must withhold FCT in the normal way.
Double Taxation Agreements and FCT Relief
Vietnam has signed double taxation agreements (DTAs) with around 80 countries and territories, including Singapore, Hong Kong, Japan, Korea, China, the UK, Germany, France, the Netherlands and Australia. Where a foreign contractor is tax resident in a treaty country and has no PE in Vietnam, the DTA can reduce the CIT component of FCT, sometimes to zero for business profits, or cap the rate on interest and royalties. DTAs do not affect the VAT component.
Treaty relief is not automatic. The contractor (or the Vietnamese payer on its behalf) must submit a treaty notification dossier to the tax office, including a consular-legalised or apostilled certificate of tax residence, a copy of the contract and the prescribed notification form, before or shortly after the first payment. The tax authority reviews the dossier and will notify a rejection, but is not obliged to issue a formal approval, so keep a complete filing record. Since the CIT Law of October 2025 formally treats foreign e-commerce and digital platforms supplying into Vietnam as having a PE, DTA claims for digital services have become materially harder and should be reviewed case by case.
Penalties for Non-Compliance
Because FCT is withheld at source, the exposure sits with the Vietnamese payer. The consequences of getting it wrong include:
- Back taxes on any under-withheld amount, computed on the grossed-up basis where the contract was net.
- An administrative penalty of 20% of the under-declared tax.
- Late payment interest at 0.03% per day of the outstanding tax, running from the original due date.
- Disallowance of the expense for CIT purposes where the Vietnamese company cannot show valid FCT payment receipts, which effectively adds another 20% cost on top.
- Loss of input VAT credit on the withheld VAT where the paperwork is incomplete.
Records supporting FCT positions, including contracts, payment vouchers, tax receipts and any treaty dossiers, should be retained for at least 5 years, and 10 years for accounting records.
Common FCT Mistakes to Avoid
- Assuming offshore services are out of scope. Services performed entirely abroad are still taxable if they are consumed in Vietnam, for example a market study or software development delivered to a Vietnamese company.
- Not splitting mixed contracts. A single price covering equipment, installation and training will be taxed at the highest rate unless each component is separately identified.
- Applying rates to net amounts. Forgetting the gross-up formula on net-of-tax contracts is the most common cause of under-withholding.
- Paying foreign SaaS and advertising invoices without checking portal registration. If the supplier is not registered on the foreign supplier portal, the Vietnamese customer must withhold.
- Missing the 10-day deadline. Corporate approval cycles often mean the payment is made before finance is aware, so the return is filed late.
- Claiming treaty relief without a legalised residence certificate. Incomplete dossiers are rejected and the domestic rate applies retroactively.
- Ignoring shareholder loan interest. Interest paid to an overseas parent is subject to 5% CIT even when no cash changes hands and interest is merely accrued or capitalised.
FCT Compliance Checklist for Vietnamese Companies
- Before signing, classify each component of the contract and confirm the applicable VAT and CIT percentages.
- Agree clearly whether the price is gross or net of Vietnamese taxes, and model the cash cost of each.
- Register the contract and withholding tax code with your tax office within 10 working days of signing.
- Collect the contractor’s certificate of tax residence early if you intend to claim DTA relief, and file the notification dossier before the first payment.
- Withhold, file Form 01/NTNN and pay FCT within 10 days of each payment.
- Keep tax payment receipts on file to protect the CIT deduction and input VAT credit.
- File the finalisation return within 45 days of contract completion.
Frequently Asked Questions
Who actually pays Foreign Contractor Tax in Vietnam?
Legally the tax is levied on the foreign contractor’s income, but under the direct method the Vietnamese company making the payment must withhold it, file the return and pay it to the State Treasury. If the tax is not withheld, the Vietnamese company is liable for it.
Does FCT apply to software subscriptions and cloud services?
Yes. Digital services supplied by overseas providers to Vietnamese businesses are within scope, typically at 5% VAT and 5% CIT (10% VAT for certain platform services). If the provider is registered on Vietnam’s foreign supplier portal and declares tax itself, the Vietnamese customer does not withhold.
Is FCT deductible for my Vietnamese company?
The VAT component withheld can be claimed as input VAT if your company uses the VAT credit method. The CIT component is deductible only where the contract states the price is net of Vietnamese taxes and your company bears the tax.
Can a tax treaty eliminate FCT entirely?
A DTA can reduce or eliminate the CIT component for treaty-resident contractors without a Vietnamese PE, subject to filing a compliant treaty dossier. VAT is not covered by treaties and remains payable.
What is the deadline for paying FCT?
For per-payment declarations, within 10 days of paying the foreign contractor. Companies making frequent payments can opt for monthly filing by the 20th of the following month.
Managing Foreign Contractor Tax with MSA
FCT is one of the most frequently misapplied taxes in Vietnam because it sits at the intersection of procurement, legal and finance, and the rules have shifted with the new VAT and CIT laws of 2025. MSA’s Vietnam accounting and tax compliance team reviews cross-border contracts before signature, calculates gross-up and withholding amounts, registers contracts and files FCT returns on time, and prepares treaty relief dossiers so your company pays no more than it should.
Get in touch with MSA’s Vietnam tax experts to review your foreign contractor arrangements and make sure your withholding, filing and documentation are audit-ready.
