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Hiring Foreign Equipment Maintenance: Contractor Tax with Goods/Service Split

3 min readFLAT LAW FIRM
Technician maintaining equipment — illustrating foreign equipment maintenance hire and contractor tax computation

Scenario: your factory signs a maintenance contract with a German equipment supplier — German engineers fly in for periodic maintenance, and spare parts are supplied. Total contract USD 140,000 (net). Maintenance contracts are always goods-plus-services “hybrids” — how is contractor tax computed without overpaying?

Step 1 — Split the contract into goods and services

The golden rule for maintenance contracts: split when you can. Under the 2026 contractor-tax framework (CIT Law 67/2025, Decree 320/2025, Circular 20/2026):

  • Spare parts (goods): goods supplied in Vietnam — VAT exempt, 1% CIT on the goods value.
  • Maintenance labor (services): ordinary services — 5% VAT + 5% CIT on service revenue (VAT-inclusive).
  • Inseparable (lump-sum, no value allocation): the service rate applies to everything — overpayment versus splitting.

Step 2 — The numbers on USD 140,000 split 50,000 parts / 90,000 services

  • Parts USD 50,000: VAT 0; CIT = 50,000 × 1% = USD 500.
  • Services USD 90,000: VAT = 90,000 × 5% = USD 4,500; CIT = 94,500 × 5% = USD 4,725.
  • Total withholding: USD 9,725 — the supplier nets USD 130,275.

Compare: unsplit (all-services), withholding totals USD 14,350 — splitting saves USD 4,625 (32%). The lesson: when negotiating maintenance contracts, always demand a parts/services value schedule.

Step 3 — Treaty relief and filing on behalf

Tax treaty: Germany has a treaty with Vietnam (1995). German engineers on short periodic visits — monitor the cumulative 183 days/12 months; below the threshold with no PE, the service portion is CIT-exempt under Article 7 (Form 01/HTQT). The goods portion (parts) sits outside Article 7 — still 1% CIT.

Declaring and paying on behalf: the Vietnamese factory deducts the tax when paying the maintenance contract, then declares and pays on behalf using Form 01/NTNN (Circular 80/2021). For contracts signed from 12/3/2026: the hybrid method has been abolished and the withholding method applies uniformly.

Frequently asked questions

1. How is maintenance-contractor tax computed?

Split goods (parts: VAT-exempt, 1% CIT) and services (5% VAT, 5% CIT) — splitting saves materially.

2. On USD 140,000 split 50,000/90,000?

Total withholding USD 9,725 (parts 500 + services 9,225) — versus USD 14,350 unsplit.

3. What if it can’t be split?

The service rate applies to the whole contract — overpayment. Demand a value schedule when negotiating.

4. Can a treaty exempt it?

The service portion may be CIT-exempt under Article 7 without a PE; the goods portion still bears 1% CIT.

5. Who declares and pays?

The Vietnamese factory is responsible for withholding at payment and for the on-behalf declaration and payment (Form 01/NTNN) — remember to split the goods and service lines on the return.

This article has been quality-reviewed by the FLAW AI Legal Council

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