Scenario: your company hires a programming team in India to develop a mobile app — working remotely, delivering over the network. Fee USD 150,000 (net). Is software “goods” taxed differently? How is contractor tax computed?
Step 1 — Characterize: software is VAT-exempt
The key point: computer software (both software products and software services) is not subject to VAT (check current VAT non-taxable rules). Consequence for contractor tax (2026 framework: CIT Law 67/2025, Decree 320/2025, Circular 20/2026):
- Contractor VAT: 0% — none arises.
- Contractor CIT: 5% on taxable revenue.
Contract drafting matters: label it “software development outsourcing services” — if the contract mingles ordinary IT consulting or software copyright licensing, the tax treatment may differ (software royalties: 10% CIT). Characterize correctly at drafting.
Step 2 — The numbers on USD 150,000 (net)
- VAT withheld: 150,000 × 0% = USD 0.
- CIT withheld: 150,000 × 5% = USD 7,500.
- Total withholding: USD 7,500 — the India team nets USD 142,500.
Step 3 — Treaty relief and filing on behalf
Tax treaty: India has a treaty with Vietnam (1994). A team working entirely remotely from India — no Vietnamese permanent establishment — may have outsourcing fees CIT-exempt under Article 7 (Form 01/HTQT). The textbook CIT-exemption scenario for cross-border outsourcing.
Filing on behalf: the foreign team’s tax is handled by the Vietnamese side, which deducts it directly from the outsourcing fee, records it on Form 01/NTNN (Circular 80/2021), and pays on behalf. Note: contracts signed from 12/3/2026 can no longer elect the hybrid method — it has been abolished.
Frequently asked questions
1. How much contractor tax on software outsourcing?
Only 5% CIT — software (products and services) is VAT-exempt, so no contractor VAT arises.
2. Withholding on USD 150,000?
USD 7,500 (150,000 × 5% CIT, VAT 0%) — the foreign team nets USD 142,500.
3. Outsourcing vs software royalties?
Development outsourcing: 5% CIT. Software copyright licensing: 10% CIT — characterize correctly in the contract.
4. Does remote work qualify for treaty CIT exemption?
Potentially — entirely offshore work with no Vietnamese PE is CIT-exempt under Article 7 (Form 01/HTQT).
5. Who declares and pays?
The Vietnamese company — it withholds from each outsourcing-fee instalment, declares on Form 01/NTNN on the foreign team’s behalf, and pays the tax for them.
This article has been quality-reviewed by the FLAW AI Legal Council
