Vietnam Foreign Contractor Tax (FCT): Rates, regulations 2025

This 2025 guide outlines the latest FCT rates, regulations, and compliance methods to help foreign companies and individuals avoid penalties and optimize tax planning. Whether you’re providing services, licensing software, or supplying goods with installation, understanding how FCT works is key to operating legally and efficiently in Vietnam.

 For a full overview of tax duties, see Vietnam Tax System: What Foreigners Need to Know.

What is Vietnam’s foreign contractor tax?

Vietnam’s foreign contractor tax (FCT) – also known as FCT tax Vietnam – is a withholding tax applied to foreign entities earning income from Vietnam without a legal presence in the country.

FCT ensures that foreign suppliers, consultants, and service providers contribute to the Vietnamese tax system when conducting business activities locally.

Learn more about Vietnam’s legal framework for foreign investment to understand how FCT complements overall compliance.

The tax applies to cross-border transactions involving:

• Services provided to Vietnamese clients
• Licensing of software, trademarks, or intellectual property
• Online advertising or digital services
• Supply of goods with onshore services (e.g., installation or maintenance)

FCT consists of two components:

• Value Added Tax (VAT)
• Corporate Income Tax (CIT) for entities or Personal Income Tax (PIT) for individuals

Whether you’re an investor, service provider, or foreign company entering the Vietnamese market, understanding how the Vietnam foreign contractor tax works is crucial to remain compliant, avoid penalties, and structure contracts effectively.

Who is subject to foreign contractor tax in Vietnam?

Foreign contractor tax (FCT) applies when foreign parties generate income in Vietnam through commercial activities, without establishing a legal presence such as a representative office or company.

If your company has a presence in Vietnam,setting up a representative office may exempt you from FCT in some cases.

Vietnam imposes this tax obligation on various types of foreign contractors engaging in cross-border transactions.

Types of foreign entities subject to FCT

Foreign companies with no legal entity in Vietnam

FCT applies if the foreign company does not have a registered business entity, such as:

• No Vietnamese subsidiary
• No representative office
• No permanent establishment

Even without a physical office, these companies are subject to FCT if:

• They sign contracts with Vietnamese clients
• Their services, goods, or IP are used or consumed in Vietnam

Examples include:

• A marketing agency in Singapore providing ad services to a Vietnamese brand
• A software company in the US licensing cloud platforms to Vietnamese users
• A Korean firm installing machinery for a Vietnamese manufacturer

Overseas service providers

This is one of the most frequently taxed cases under fct tax Vietnam rules.

Exemptions and non-taxable cases

Not all foreign transactions are subject to FCT. Vietnam’s foreign contractor tax regime outlines specific exemptions and non-taxable cases, primarily based on where the service is performed, where the goods are delivered, and the nature of the contract.

FCT tax components

Vietnam’s foreign contractor tax (FCT) includes two key components: Value-Added Tax (VAT) and either Corporate Income Tax (CIT) or Personal Income Tax (PIT), depending on the contractor’s legal status. VAT, typically ranging from 2% to 5%, applies to services or goods with onshore services and is withheld by the Vietnamese party. CIT, applicable to foreign companies, is calculated using a deemed-profit method, with rates from 0.1% to 10% based on the industry. For individual contractors, PIT replaces CIT and is generally applied at rates between 1% and 5%. Understanding these FCT tax Vietnam components is essential for compliance and accurate tax planning in cross-border business activities. (PwC Vietnam Tax Summaries 2024)

See related details in Vietnam Company Tax Rate: Corporate Tax, VAT, Incentives

Value-Added Tax (VAT)

Corporate Income Tax (CIT)

Personal Income Tax (if individual contractors apply)

How do you declare foreign contractor tax in Vietnam?

Foreign contractors conducting business in Vietnam must fulfill tax obligations through one of three available methods: direct, deduction, or hybrid. The direct method—also referred to as the withholding method—is the most commonly used under the vietnam foreign contractor tax system, especially for contractors without a legal entity or permanent establishment in Vietnam. In this approach, the Vietnamese party is responsible for calculating, withholding, and remitting the FCT tax in Vietnam to the local tax authority on behalf of the foreign contractor.

If you’re planning to incorporate, start with How to Set Up a Company in Vietnam to assess your tax obligations more clearly

Direct method (or withholding method)

The direct method is straightforward and widely applied when foreign contractors operate through cross-border transactions without a local presence. Under this method, FCT is calculated based on a deemed revenue approach, using fixed tax rates depending on the nature of the goods or services provided.

The contract can be structured in two ways:

• Net contract: FCT is included in the total contract value. The Vietnamese company withholds taxes from the payment and the foreign contractor bears the tax cost.
• Gross contract: FCT is calculated on top of the contract value. The Vietnamese company must gross up the payment so the foreign contractor receives the full agreed amount, with taxes added and withheld separately.

This method is efficient for both parties when the foreign contractor does not wish to register for tax in Vietnam or maintain local accounting records. It’s also the default approach used in short-term service contracts, technology transfers, and cross-border licensing agreements.

Net contracts

In a net contract, the contract value agreed between the Vietnamese client and the foreign contractor is exclusive of taxes. This means the foreign contractor receives the full contract amount as net income, and the Vietnamese party must gross up the value to calculate and withhold the required tax.

Example:

• Contract value (net): USD 100,000
• Applicable FCT: 10% (combined VAT and CIT)
• Grossed-up payment: ~USD 111,111
• Tax withheld and paid to tax authority: USD 11,111
• Amount remitted to contractor: USD 100,000

This structure ensures the contractor receives the agreed payment without bearing the FCT burden directly. However, it increases the total cost for the Vietnamese company. Net contracts are commonly used when the foreign contractor explicitly requires a tax-exclusive pricing model.

Gross contracts

In a gross contract, the total contract value includes foreign contractor tax. This means the foreign contractor agrees to bear the FCT cost, and the Vietnamese client will withhold the tax portion directly from the contract value before making payment.

• Taxes are embedded in the contract value
• The amount paid to the contractor is net of tax
• The contractor bears the tax burden, unless otherwise negotiated

Gross contracts are often used when the foreign contractor has no preference or does not explicitly request tax to be calculated on top of the contract value. It’s also common when local clients want to fix the overall project cost without gross-up complications.

Tax rates using the direct method

Under the direct method – commonly used in the FCT tax Vietnam framework – foreign contractor tax is calculated based on a deemed revenue approach, where both Value-Added Tax (VAT) and Corporate Income Tax (CIT) or Personal Income Tax (PIT) are applied to the gross contract value. The applicable rates vary depending on the nature of the services or business activities provided by the foreign contractor.

These rates apply to the gross contract value under the direct method and are withheld by the Vietnamese payer.

Deduction method (also known as the VAS method)

The deduction method, also referred to as the VAS method (Vietnamese Accounting Standards), allows foreign contractors to calculate FCT based on their actual revenue and expenses in Vietnam. Unlike the direct method which uses fixed deemed rates, this method requires the contractor to register for tax in Vietnam and maintain full accounting books that comply with local standards.

To be eligible, the foreign contractor must meet all of the following conditions:

• Have a permanent establishment or project office in Vietnam
• Register for VAT with the Vietnamese tax authority
• Maintain proper accounting records in accordance with VAS
• Appoint a chief accountant or authorized tax agent in Vietnam

Under this method:

• VAT is declared based on input and output, allowing for VAT credit claims
• CIT is calculated on actual net profit, similar to how local enterprises report

This method is preferred by long-term contractors, foreign-invested construction firms, and service providers with a continuous presence in Vietnam who wish to optimize tax costs through proper deductions and maintain full transparency.

See Vietnam Labor Law for Foreigners if your project office hires foreign staff

Hybrid method

The hybrid method is a combination of the deduction method for VAT and the direct method for Corporate Income Tax (CIT). It is available to foreign contractors who register for VAT and maintain partial compliance with Vietnamese tax requirements, but choose not to apply full Vietnamese Accounting Standards (VAS) for CIT purposes.

This approach is particularly useful for contractors who want to benefit from VAT input credits but do not wish to keep complete accounting books in Vietnam.

Key features of the hybrid method:

• VAT is declared on the deduction basis, meaning the contractor can offset input VAT against output VAT and issue VAT invoices in Vietnam.
• CIT is calculated based on the deemed profit rate, similar to the direct method, and applied to gross revenue.

Eligibility conditions:

• Must register for VAT in Vietnam
• Must issue VAT invoices and declare VAT monthly or quarterly
• No need to maintain full accounting under VAS or declare actual expenses for CIT

The hybrid method is commonly used by foreign service providers or contractors with mid-term projects who want a simplified but cost-efficient tax approach under the fct tax Vietnam system.

Learn more: How to Set Up a Trading Company in Vietnam

Tax treaties that may affect foreign contractor withholding tax

Vietnam has signed Double Taxation Avoidance Agreements (DTAAs) with over 80 countries to prevent income from being taxed twice—once in Vietnam and again in the foreign contractor’s home country. These tax treaties can significantly affect how foreign contractor withholding tax is applied, especially in areas like royalties, interest, dividends, and service fees.

Under a valid tax treaty, foreign contractors may be entitled to:

• Reduced withholding tax rates for specific income categories
• Exemption from certain types of income tax if conditions are met
• Tax credits in their home country based on tax already paid in Vietnam

To benefit from treaty relief, the foreign contractor must:

• Be a resident of a country that has a tax treaty with Vietnam
• Submit a certificate of tax residence (CTR) issued by their home country
• Complete required forms such as Form 01/HTQT and submit them to the Vietnamese tax authority before or during the transaction

For contractors working across borders, understanding how tax treaties influence withholding tax obligations in Vietnam is essential to avoid double taxation and ensure optimal tax structuring.

Learn more about requirements in Vietnam Investor Visa: How to apply if your home country has an active tax treaty with Vietnam.

Frequently asked questions about Vietnam’s foreign contractor tax

Who pays FCT – the Vietnamese company or the foreign partner?

Under the fct tax Vietnam framework, the responsibility to declare, withhold, and pay foreign contractor tax lies with the Vietnamese party. When a Vietnamese company engages a foreign contractor, it must calculate and deduct the FCT from the payment and remit it to the tax authority. However, depending on the contract structure (net or gross), the economic burden of FCT may fall on either the Vietnamese client or the foreign partner.

Is VAT always included in FCT?

For most cross-border transactions subject to the Vietnam foreign contractor tax, Value-Added Tax (VAT) is a core component. In the direct (withholding) method, VAT is calculated at fixed rates (typically 2%–5%) depending on the service type. In the deduction or hybrid methods, VAT is treated as in domestic transactions—input and output VAT are declared, and credits can be claimed if eligible. Whether VAT is embedded in or added on top of the contract value depends on whether the contract is gross or net.

Can FCT be claimed as an expense?

Yes, FCT is generally deductible as a business expense in Vietnam, especially when it forms part of the cost of services or goods paid to the foreign contractor. For Vietnamese companies, the FCT withheld and paid can be recorded as part of the project or operational cost, assuming it is properly documented and directly related to revenue-generating activities. For foreign contractors, the ability to deduct FCT depends on their home country’s tax regulations and whether a tax treaty allows for foreign tax credits.

Understanding Vietnam’s Foreign Contractor Tax is essential for any foreign entity operating in or transacting with the Vietnamese market. By staying updated on 2025 rates and compliance rules, businesses can avoid penalties and structure contracts more efficiently. For tailored guidance, consult with a local tax advisor to ensure full FCT compliance.

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