Foreign Contractor Tax (FCT) 2025: New Regulations, Net/Gross Calculation Methods & Optimal Solutions for FDI Enterprises

In the context of deep international integration in 2025, Vietnamese enterprises are increasingly expanding their global cooperation — from purchasing SaaS software and hiring foreign consultants to importing technical equipment and entering into cross-border service contracts. One of the most critical yet often overlooked legal and financial issues is the Foreign Contractor Tax (FCT).

Many enterprises still confuse FCT with import tax or fail to understand the distinction between Net and Gross payment methods, leading to unexpected costs and potential tax arrears. Some even miss the opportunity to benefit from FDI tax incentives or from Vietnam’s Double Taxation Avoidance Agreements (DTA) with other countries.

So, what are the key updates on Foreign Contractor Tax in 2025? How should enterprises declare and manage FCT to ensure compliance while optimizing costs?
This article, prepared by the FDI Advisory Team at LexConsult & Partners, provides practical legal insights and actionable guidance for any contract involving foreign elements.

1. What is Foreign Contractor Tax (FCT)?

Foreign Contractor Tax (FCT) is a tax regime applicable to foreign organizations and individuals who are non-residents in Vietnam but derive income from the supply of goods, provision of services, or performance of part of a project in Vietnam under a contract with a Vietnamese organization or individual. This tax is levied based on the revenue generated from commercial, service, or project contracts involving foreign elements.

According to Circular No. 103/2014/TT-BTC, the Foreign Contractor Tax consists of the following components:

– Value-Added Tax (VAT) – imposed on the value of goods or services provided in Vietnam;

– Corporate Income Tax (CIT) or Personal Income Tax (PIT) – depending on whether the foreign contractor is an organization or an individual.

FCT is not merely a financial obligation but also a key compliance factor in all contracts involving foreign partners. Proper assessment of tax obligations helps enterprises avoid legal risks and unnecessary costs during contract performance.

Common transactions subject to Foreign Contractor Tax include:
Vietnamese enterprises purchasing software or cloud computing services from international providers; technical consultancy or training contracts with foreign entities; leasing of machinery and equipment, royalty payments, or cross-border advertising services, among others.

2. Subjects Liable to Foreign Contractor Tax (FCT)

2.1. Foreign Contractors and Sub-Contractors Conducting Business in Vietnam

This category includes foreign organizations and individuals, with or without a permanent establishment in Vietnam, that generate income in Vietnam under any contract, agreement, or commitment entered into with:

• Vietnamese organizations or individuals;

• Or with other foreign contractors or sub-contractors.

Such contracts may include the provision of services, technology transfer, consultancy, software supply, training, construction, installation, and other activities performed within the territory of Vietnam.

2.2. Foreign Organizations or Individuals Supplying Goods in Vietnam Under On-the-Spot Import and Export Arrangements

Foreign organizations or individuals that participate in on-the-spot import and export activities, thereby generating revenue in Vietnam; or that distribute goods domestically; or supply goods under delivery conditions stipulated in international commercial terms (Incoterms), shall fall within the scope of FCT application.

This situation typically arises where:

• The foreign entity signs a sales contract with an enterprise in Vietnam;

• The goods are produced or stored by a third party in Vietnam and delivered directly to the domestic buyer at the request of the foreign seller.

However, if a foreign enterprise only conducts processing activities and re-exports the processed goods, without generating any income from the sale of goods in Vietnam, it shall not be subject to FCT.

2.3. Foreign Enterprises Distributing Goods or Providing Services in Vietnam

This includes cases where a foreign enterprise:

• Retains ownership of the goods while they are delivered to a Vietnamese partner;

• Bears expenses for advertising, marketing, transportation, or distribution within Vietnam;

• Determines the selling prices or service fees charged to the Vietnamese party;

• Or authorizes or hires a Vietnamese organization to perform distribution-related services in connection with sales activities in the domestic market.

Even if the foreign enterprise does not have a physical presence in Vietnam, it shall still be subject to FCT if it participates in, controls, or conducts commercial activities within Vietnam.

2.4. Foreign Enterprises Entering into Contracts Through Organizations or Individuals in Vietnam

Where a foreign organization or individual acts through a Vietnamese organization or individual to carry out negotiation or conclusion of a contract, while such contract remains under the name of the foreign legal entity,

Then the foreign enterprise shall be deemed to be conducting business activities in Vietnam and therefore subject to Foreign Contractor Tax (FCT).

2.5. Foreign Enterprises Exercising Export, Import, or Distribution Rights in Vietnam

Foreign organizations or individuals that are registered and exercising commercial rights directly in Vietnam, including:

• Export rights;

• Import rights;

• Distribution rights;

• Or the purchase and sale of goods with Vietnamese traders;

Shall be regarded as conducting business activities in Vietnam and therefore obliged to fulfill FCT obligations.

3. Applicable Foreign Contractor Taxes and Current Tax Rates

Foreign organizations and individuals that generate income in Vietnam and fall within the scope of the Foreign Contractor Tax (FCT) regime are required to declare and pay two principal types of taxes, depending on their business activities and operational form.

3.1. Applicable Taxes

• For foreign organizations (with or without a permanent establishment in Vietnam):
  Value-Added Tax (VAT); and Corporate Income Tax (CIT).

• For foreign individuals conducting business in Vietnam:
  Value-Added Tax (VAT); and Personal Income Tax (PIT).

In addition, in certain specific cases, foreign contractors may also be subject to other types of taxes, charges, or fees in accordance with Vietnamese tax laws and regulations, if applicable.

3.2. FCT Rates by Business Sector

a. Corporate Income Tax (CIT) – Applicable to Foreign Organizations

• Declaration Method:
  In cases where the declaration method applies, the foreign contractor shall fulfill its CIT obligations in accordance with the Law on Corporate Income Tax and relevant guiding regulations currently in effect.

• Direct Method (Tax calculated as a percentage of taxable revenue):
  Foreign contractors and sub-contractors may alternatively fulfill CIT obligations on a deemed-profit basis, i.e., by applying a prescribed percentage rate on gross taxable revenue.

Depending on the business sector, the applicable CIT rate as a percentage of taxable revenue is as follows:

• For contracts comprising multiple components or activities, the applicable tax rate shall be determined based on the respective revenue attributable to each component.

• Where the values of each activity cannot be separately identified, the highest applicable rate among the relevant activities shall be applied by the tax authority.

b. Value-Added Tax (VAT) – Calculated as a Percentage of Revenue

Value-Added Tax (VAT) on foreign contractors may be applied under two different methods as follows:

• Deduction Method:
  Under the deduction method, the foreign contractor shall declare and pay VAT in accordance with the Law on Value-Added Tax and its implementing regulations currently in effect.

• Direct Method (Percentage on Gross Revenue):
  Under the direct method, VAT is determined by applying a prescribed percentage on gross revenue, depending on the nature of the business activity.

Pursuant to Clause 2, Article 12 of Circular No. 103/2014/TT-BTC, the VAT rates applicable to each line of business are as follows:

4. Methods of Calculating Foreign Contractor Tax (FCT)

4.1. Declaration Method

According to Article 8 of Circular No. 103/2014/TT-BTC, the declaration method is applicable to foreign organizations, individuals, and subcontractors when all of the following conditions are satisfied:

– They have a fixed place of business or are recognized as residents in Vietnam;

– The contract term is 183 days or more from the effective date of the contract;

– They have obtained a tax identification number (TIN) and maintain accounting records in accordance with Vietnamese regulations.

Tax declaration and payment under this method must comply with the provisions of the Law on Value-Added Tax (VAT) and the Law on Corporate Income Tax (CIT).

4.2. Direct Method

The direct method applies to foreign contractors who do not meet one or more of the above conditions.
Under this method, taxes are calculated as follows:

VAT Payable = Taxable Revenue × Applicable VAT Rate (%)
CIT Payable = Taxable Revenue × Applicable CIT Rate (%)

Where taxable revenue refers to the total income received under the contract, including any expenses paid on behalf of the foreign contractor by the Vietnamese party (if any), exclusive of tax amounts.

4.3. Calculation Based on Gross or Net Contract Value

– Gross Contract Value (inclusive of tax):
Under this method, VAT is calculated first, followed by CIT:

• VAT = Contract Value × VAT Rate (%)

• CIT = (Contract Value – VAT) × CIT Rate (%)

This approach is suitable when the contract stipulates a lump-sum payment inclusive of taxes.

– Net Contract Value (exclusive of tax):
Under this method, CIT is calculated first, then VAT:

• • Taxable Revenue for CIT = Net Value / (1 – CIT Rate (%))

  • CIT = Taxable Revenue for CIT × CIT Rate (%)

  • Taxable Revenue for VAT = Taxable Revenue for CIT / (1 – VAT Rate (%))

  • VAT = Taxable Revenue for VAT × VAT Rate (%)

5. Deadline for Paying Foreign Contractor Tax and Required Documentation

– Tax declaration per occurrence:
Where a Vietnamese enterprise enters into a contract with a foreign contractor and withholds and remits the tax on behalf of the contractor, both the tax declaration and payment must be made within 10 working days from the date on which the tax liability arises.

– Monthly or quarterly tax declaration:
If the foreign contractor has obtained a tax identification number (TIN) and carries out periodic tax declarations in Vietnam with multiple payments during the month, the deadlines are as follows:

• • Monthly declaration: No later than the 20th day of the following month;

  • Quarterly declaration: No later than the 30th day of the first month of the subsequent quarter.

– Required documentation for tax declaration:

• • Tax declaration form No. 03/NTNN, issued together with Circular No. 156/2013/TT-BTC;

  • Contract between the foreign contractor/subcontractor and the Vietnamese party, certified by the taxpayer (for the first declaration under that contract);

  • Business license or professional practice license, certified by the taxpayer;

  • Bank payment vouchers evidencing non-cash transactions;

  • Detailed statement of contract value and service contents;

  • If applying a Double Taxation Avoidance Agreement (DTA): Certificate of Residence and Form No. 01/HTQT.

6. Key Considerations When Implementing Foreign Contractor Tax (FCT)

First, distinguish clearly between Foreign Contractor Tax and import tax: Many enterprises mistakenly confuse FCT with taxes arising from import activities. It is important to note that:

– Foreign Contractor Tax applies when a foreign entity provides services or transfers value within the territory of Vietnam, regardless of whether goods are imported;

– Import tax applies only to goods imported through customs checkpoints.

Second, determine whether the contract value is Gross or Net: The contract value between the Vietnamese enterprise and the foreign contractor must clearly state whether it is inclusive of tax (Gross) or exclusive of tax (Net).
If the contract does not specify this, the tax authority will presume the value to be Net, meaning the Vietnamese party must withhold and remit FCT on behalf of the foreign contractor, thereby increasing the actual cost of the contract.

Third, consider the application of Double Taxation Avoidance Agreements (DTA): If the foreign contractor resides in a country that has signed a DTA with Vietnam, the Vietnamese enterprise may apply for corporate income tax (CIT) exemption or reduction, provided that the beneficial owner of the income is a tax resident of the treaty country. However, tax exemption or reduction is only valid upon submission of proper documentation, including:

– Certificate of Residence; and

– Notification dossier for tax exemption or reduction, using Form No. 01/HTQT.

Fourth, the responsibility for declaration and tax payment lies with the Vietnamese enterprise: Under Circular No. 103/2014/TT-BTC, the obligation to declare, withhold, and pay FCT generally rests with the Vietnamese party. This legal obligation applies regardless of whether the contract price includes tax or not. Late payment or incorrect declaration may result in tax arrears, administrative penalties, and late-payment interest in accordance with the Law on Tax Administration.

Fifth, comply with deadlines for filing and payment: According to Circular No. 80/2021/TT-BTC, the deadline for submitting the FCT return and payment is:

– By the 20th day of the following month, for monthly declarations; or

– By the last day of the following quarter, for quarterly declarations.

Enterprises should ensure that all documentation is properly prepared and retained, including: contracts, payment vouchers, tax payment receipts, and tax returns in accordance with the prescribed forms.

7. Frequently Asked Questions on Foreign Contractor Tax (FCT)

Who is responsible for paying Foreign Contractor Tax?
→ The Vietnamese party entering into a contract with a foreign contractor is responsible for withholding and remitting FCT in accordance with Vietnamese law.
This mechanism is known as a “withholding tax” system — meaning the Vietnamese party pays the tax on behalf of the foreign contractor and subsequently deducts or adjusts the amount from the total contract payment.

Can FCT be treated as a deductible expense for Corporate Income Tax purposes?
→ Yes. Vietnamese enterprises may recognize FCT as a deductible expense when determining taxable income for Corporate Income Tax (CIT), provided all legal conditions are met.

Is it possible to obtain an exemption from FCT?
→ Yes. Foreign contractors from countries that have signed a Double Taxation Avoidance Agreement (DTA) with Vietnam may be eligible for tax exemption or reduction, subject to compliance with treaty conditions (e.g., holding a Certificate of Residence and filing Form No. 01/HTQT).

How is FCT calculated when the contract specifies a Net price?
→ In such cases, the contract value must be “grossed up” to convert it to a tax-inclusive amount, upon which the applicable taxes are calculated.

Can a contract be signed under either Net or Gross terms – and which is preferable?
→ Enterprises may enter into contracts based on either Net (exclusive of tax) or Gross (inclusive of tax) pricing.
However, to clearly define tax obligations and avoid disputes, it is recommended that the contract explicitly states the party responsible for FCT, particularly where the price is Net. In that case, the Vietnamese party should undertake the FCT payment on behalf of the foreign contractor.

Is a DAP (Delivered at Place) delivery term subject to FCT?
→ No. As DAP deliveries are not performed within the territory of Vietnam, such transactions are not subject to FCT.

In conclusion, Foreign Contractor Tax is not merely a fiscal obligation but a strategic element in the legal and financial planning of FDI enterprises and companies engaged in international transactions.
A sound understanding and proper application of FCT regulations enable businesses to:

– Avoid unnecessary financial costs;
– Ensure strict legal compliance and maintain credibility with partners;
– Maximize available tax incentives for FDI enterprises, thereby enhancing their competitive advantage.

If your enterprise is preparing to sign a contract with a foreign partner or is uncertain about FCT obligations and DTA application procedures, contact LexConsult & Partners Law Firm today.
With extensive experience in FDI legal services and foreign company establishment in Vietnam, our expert team will help you develop comprehensive legal and financial solutions, ensuring compliance, safety, and efficiency in every cross-border transaction.

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