The problem: the old FCT playbook expired in March 2026
Vietnam has no standalone “foreign contractor tax”. The label covers the VAT and corporate income tax (CIT) obligations arising when a foreign organisation or individual does business in Vietnam or earns Vietnam-sourced income without a local presence. For a decade, everyone applied Circular 103/2014. That era ended on 12 March 2026 — and contracts priced on the old deemed rates now need repricing against a new framework.
The legal basis — the new framework from 2026
- Corporate Income Tax Law 67/2025/QH15, Decree 320/2025/ND-CP and Circular 20/2026/TT-BTC (effective 12 March 2026, applied from the 2025 tax year): the CIT side of foreign-contractor taxation.
- Circular 20/2026 repealed the CIT provisions of Circular 103/2014 (Articles 1, 2, 7, 10, 13 except point 6.11 of clause 1 of Article 13, and Article 16). The old “hybrid method” no longer applies to new contracts. Contracts signed before 12 March 2026 continue under the rules in force at signing, until the contract ends — check the signing date before reclassifying.
- VAT side: VAT Law 48/2024/QH15, Decree 181/2025/ND-CP and Circular 69/2025/TT-BTC.
- Treaty relief: Vietnam has 81 double-taxation agreements. A DTA can reduce or eliminate the CIT portion — but only if the treaty exists and the foreign contractor qualifies (residence certificate, beneficial ownership). Verify the treaty; do not assume one.
How it works in practice for a Vietnamese payer
The Vietnamese party paying a Western contractor typically withholds, declares and pays the tax on the contractor’s behalf, then decides contractually who bears the cost (gross-up clauses matter enormously now). Analyse each payment separately: is the supply goods, services, or both? Where is the service actually performed? Does a DTA cap apply to the CIT element? The new framework keeps the economic logic of the old deemed-rate system for many common cases but changes the legal references, forms and filing mechanics — using Circular 103 citations on a 2026 filing is now simply wrong and invites adjustment. For service fees paid to German, French, British, Australian or Canadian providers, the standard pattern remains: VAT on the service element plus CIT on the income element, with DTA relief claimed through proper documentation, not assumed.
Action checklist before the next payment run
(1) Inventory every foreign-vendor contract: signing date (pre- or post-12 March 2026 decides the regime), payment type, DTA availability. (2) Confirm who bears the tax — silent contracts usually leave it with the Vietnamese payer in practice. (3) Collect treaty-relief dossiers early (tax residence certificates take weeks). (4) Update filing templates and legal citations to the 2026 framework. (5) For new contracts, negotiate the tax-burden clause explicitly against the new rules rather than copying old gross-up language.
Frequently asked questions
Our 2024 contract with a German supplier runs to 2027. Which rules apply?
The rules in force at signing — i.e. the Circular 103 framework — continue until that contract ends. Do not migrate it to the 2026 framework mid-stream.
Does paying a UK consultant working entirely remotely trigger FCT?
Very likely yes, if the income is Vietnam-sourced and no treaty relief applies — physical presence in Vietnam is not the test; the source of the income and the nature of the supply are. Analyse the service location and the DTA position before concluding otherwise.
Can the foreign contractor file and pay directly instead of withholding?
The old hybrid method allowed registration for direct filing; under the new framework the mechanics have changed — check current guidance under Circular 20/2026 and the tax administration procedures rather than assuming the old options survive.
This article has been quality-reviewed by the FLAW AI Legal Council