Hiring a foreign contractor for construction, services or technology transfer in Vietnam — the Vietnamese payer may have to withhold, declare and pay foreign contractor tax (FCT) on the contractor’s behalf. From 1 July 2026, the entire legal map for contractor tax has changed: Circular 103/2014/TT-BTC has expired, replaced by Circular 89/2026/TT-BTC.
This article systematizes when withholding applies and how the tax is calculated under the current framework.
1. New rules from 1 July 2026: farewell to Circular 103/2014
Circular 89/2026/TT-BTC of the Ministry of Finance (issued 30 June 2026, guiding the 2025 Law on Tax Administration) officially repeals Circular 103/2014/TT-BTC along with nine other circulars from 1 July 2026. The contractor-tax filing mechanism is inherited in Article 30 of Circular 89/2026/TT-BTC: filing per payment or monthly, with finalization upon contract completion.
The fundamental difference: the tax base and percentage rates are no longer “packaged” in a standalone circular but refer back to current VAT and CIT law — the VAT Law 48/2024/QH15, the CIT Law 67/2025/QH15 and Decree 320/2025/ND-CP.
2. When the Vietnamese party must withhold and pay on behalf
Foreign contractor tax is the tax obligation of foreign organizations and individuals doing business in Vietnam or earning income arising in Vietnam (supplying goods with services, providing services, leasing machinery, technology transfer, royalties, etc.).
Where the foreign contractor does not meet the conditions for direct tax payment in Vietnam, the Vietnamese payer must withhold, declare and remit VAT and CIT on the foreign contractor’s behalf. This is a “pay on behalf” mechanism — the tax obligation belongs to the foreign contractor; the Vietnamese party only withholds and remits.
3. Calculating contractor tax under the current framework
General formula: Tax payable = Taxable revenue × Applicable tax rate (%), where:
- Taxable revenue is the total revenue received by the foreign contractor, including any expenses paid on its behalf by the Vietnamese party (if any);
- The tax rate (%) follows current VAT and CIT law corresponding to each line of business;
- For foreign-currency payments: convert to VND at the commercial bank’s selling rate at the time of payment.
Note: the specific rates previously set in Articles 12 and 13 of Circular 103/2014/TT-BTC (e.g., 5% VAT + 5% CIT for services) expired with that circular — businesses must look up rates under current instruments, not continue citing the old rates.
4. Filing and finalization
- Filing: per each payment to the foreign contractor, or monthly;
- Finalization: upon completion of the contractor agreement;
- Documentation: the Vietnamese party keeps withholding/remittance vouchers to book expenses and support input VAT deduction (subject to invoice and cashless-payment conditions).
5. Transition notes for ongoing contracts
Contracts currently citing Circular 103/2014/TT-BTC in their tax clauses should be reviewed upon renewal, amendment or addendum — update the legal basis (Circular 89/2026/TT-BTC and current tax law) to avoid a “citation gap” in withholding dossiers.
6. Frequently asked questions
Q: Must we withhold contractor tax for an overseas firm consulting via the internet?
A: Yes, if the foreign organization earns Vietnam-sourced income from providing services and does not pay tax directly in Vietnam — the Vietnamese payer withholds and remits under the contractor-tax mechanism.
Q: If the foreign contractor pays tax directly, must the Vietnamese party still withhold?
A: No — where the foreign contractor qualifies for and performs direct tax payment in Vietnam, the Vietnamese party need not withhold. Keep supporting records.
Q: Is VAT paid on behalf of a foreign contractor creditable?
A: The Vietnamese party may claim input VAT credit for tax paid on behalf when all deduction conditions are met (lawful invoices/vouchers; cashless payment under VAT Law 48/2024).
Does your business contract with foreign contractors and need to review withholding duties? Contact us for advice.
This article was prepared by the FLAW AI Legal Council. The content is pending QA Council review before submission for approval; it is for reference only and does not replace legal advice for your specific situation.
