A Vietnamese company leases excavators or CNC machines from Japan or Korea — what taxes apply, on what base, and who pays? The current framework from 1 July 2026: 5% VAT + 5% CIT (foreign contractor tax), calculated on the total lease payments; the Vietnamese party withholds, declares and pays on behalf of the foreign contractor. Meanwhile, Circular 103/2014/TT-BTC — long the bible of contractor tax — has expired in full and can no longer be cited as current law.
Circular 103/2014 is dead: the timeline to remember
- 12 March 2026: the CIT provisions for foreign contractors in Circular 103/2014 were repealed (Circular 20/2026/TT-BTC);
- 1 July 2026: Circular 103/2014/TT-BTC expired in full (Article 99 of Circular 89/2026/TT-BTC).
The practical consequence: machinery and equipment leases from abroad paid from 1 July 2026 fall under the new framework; all internal documents and advisory memos still citing Circular 103/2014 as current law must be updated.
Transitional exception: for mixed contracts (applying the mixed method under Circular 103/2014/TT-BTC) signed before 12 March 2026, the CIT obligation is still determined under the legal instruments in force at the time the contract was signed (Circular 20/2026/TT-BTC) — the new framework is not applied retroactively to these contracts.
The current framework: 5% VAT + 5% CIT
- VAT: 5% — under the Value Added Tax Law 48/2024/QH15 and Circular 69/2025/TT-BTC;
- CIT: 5% — under Article 12(3) of Decree 320/2025/ND-CP and Article 7 of Circular 20/2026/TT-BTC.
Both taxes are calculated on the total lease payments — including any costs the Vietnamese party pays on the foreign contractor’s behalf. The Vietnamese party must withhold, declare and pay the tax to the tax authority on the contractor’s behalf.
Worked example: VND 1 billion lease
Take an excavator lease from a Japanese contractor at VND 1,000,000,000 (excluding contractor tax):
- VAT to be withheld and paid: 1,000,000,000 × 5% = VND 50,000,000;
- CIT to be withheld and paid: 1,000,000,000 × 5% = VND 50,000,000;
- Total contractor-tax obligation: VND 100,000,000, withheld by the Vietnamese party from the payment to the foreign contractor and remitted to the state budget.
The big change vs. the Circular 103/2014 era
The most important difference lies in the CIT taxable revenue:
- Under Circular 103/2014: CIT taxable revenue was revenue excluding VAT;
- New framework: CIT taxable revenue is the entire revenue before any tax deduction — the gross amount the foreign contractor receives, with no VAT stripped out first.
For the same contract value, the CIT payable under the new framework may be higher than under the old calculation — accountants should factor this into lease-cost budgeting.
Filing and payment procedures
Contractor-tax filing and payment follow Article 30 of Circular 89/2026/TT-BTC (effective 1 July 2026). The Vietnamese party files and pays on behalf of the foreign contractor for each payment; the payment receipts serve as the basis for cost accounting and (for VAT) for considering input-VAT credit under the applicable rules.
Before vs. after 1 July 2026
Before 1 July 2026 (Circular 103/2014): contractor tax on machinery leases was calculated as percentage rates on revenue, with CIT taxable revenue defined as revenue excluding VAT.
From 1 July 2026 (new framework): 5% VAT + 5% CIT; CIT taxable revenue is the entire pre-tax revenue; Circular 103/2014 has expired in full.
FAQs
1. The contract was signed before 1 July 2026 but payment is after — which framework applies?
It depends on when the tax obligation arises (the payment/withholding date). Payments from 1 July 2026 fall under the new framework; review the tax clauses of signed contracts.
2. Can the Vietnamese party credit the VAT paid on the contractor’s behalf?
VAT paid on behalf of a foreign contractor may be creditable as input VAT if the documentation conditions are met and the lease relates to VAT-taxable business activities — check the current credit rules.
3. What if the lease bundles installation or operation services?
Each component’s value (machinery lease vs. services) should be separated, as contractor-tax rates may differ by income type; contracts should state this clearly to avoid disputes at settlement.
Need help reviewing the tax obligations of your representative office or branch? Reach us via the Contact page of FLAT Law Firm.
Transparency note: This article was researched and reviewed by FLAT Law Firm’s AI Legal Council under its internal process; it has not been reviewed by a human lawyer. The content is for reference only, not legal advice.