Short answer: In 2026, the legal framework for Foreign Contractor Tax (FCT) — tax on foreign contractors (NTNN) earning income in Vietnam — has been renewed: Circular 20/2026/TT-BTC (effective 12 March 2026, applicable from the 2025 tax period) guides the 2025 CIT Law and Decree 320/2025, and abolishes the CIT rules for foreign contractors under Circular 103/2014 (Clause 4, Article 10); then Circular 89/2026/TT-BTC abolishes Circular 103/2014 in its entirety from 1 July 2026. Notable new points: coverage of cross-border e-commerce and digital platforms, and a capital-transfer tax exemption for internal restructuring (Clause 2, Article 7). This article updates the new legal framework without going into specific scenarios.
1. The new framework: Circular 20/2026/TT-BTC
Circular 20/2026/TT-BTC takes effect on 12 March 2026 and applies from the 2025 tax period — i.e., with retroactive effect on the tax period. It guides implementation of the 2025 Corporate Income Tax Law and Decree 320/2025/ND-CP for contractor tax. A key transitional point: under Clause 4, Article 10, Circular 20/2026 abolishes the CIT provisions for foreign contractors in Circular 103/2014/TT-BTC — the instrument that governed FCT for over a decade.
2. Circular 89/2026: abolishing Circular 103/2014 entirely
Following on, Circular 89/2026/TT-BTC abolishes Circular 103/2014/TT-BTC in its entirety from 1 July 2026. From mid-2026, the entire old FCT rulebook ceases to apply, and enterprises apply only the new framework under Circular 20/2026 and the guiding instruments of the 2025 CIT Law. Enterprises with ongoing foreign-contractor contracts should review the tax clauses in their contracts for alignment with the new framework.
3. Two notable new points
- Coverage of e-commerce and cross-border digital platforms: the new framework extends to cross-border e-commerce and digital platform activities — categories previously outside or disputed under FCT scope;
- Capital-transfer tax exemption for internal restructuring (Clause 2, Article 7): capital transfers arising from a group internal restructuring are exempt — reducing the tax burden on intra-group ownership reorganizations.
4. Unsettled point: the combined-tax calculation — both views presented
Important note: there is an ongoing professional debate on the combined-tax calculation method under FCT, with no settled conclusion:
- View 1 — one-step gross-up: the tax is grossed up in a single step;
- View 2 — two-step gross-up: the gross-up must be performed in two separate steps.
The two methods produce different tax amounts, directly affecting the Vietnamese party withholding obligation and the foreign contractor real cost. This article does not endorse either view. Practical recommendation: enterprises with FCT-bearing transactions should seek a written opinion from the tax authority on the calculation method for their specific case before filing and withholding — the authority written reply protects the enterprise in later audits.
5. What enterprises should do during the transition
- Review all foreign-contractor contracts: price clauses (tax-inclusive or not), withholding obligations, change-of-law adjustment clauses;
- Reassess FCT exposure on payments to digital platforms and cross-border services under the new framework;
- For intra-group capital transfers: check the exemption conditions in Clause 2, Article 7;
- Where the gross-up method is unclear: request a written opinion from the tax authority instead of self-selecting one view.
Frequently asked questions
Is Circular 103/2014 on contractor tax still in force?
Not in full. Circular 20/2026/TT-BTC abolished the CIT rules for foreign contractors in Circular 103/2014 (Clause 4, Article 10), and Circular 89/2026/TT-BTC abolishes Circular 103/2014 entirely from 1 July 2026.
Which instrument governs contractor tax from 2026?
Circular 20/2026/TT-BTC (effective 12 March 2026, applicable from the 2025 tax period), guiding the 2025 CIT Law and Decree 320/2025/ND-CP.
Is capital transfer from internal restructuring subject to contractor tax?
Exempt under Clause 2, Article 7 of the new framework — for capital transfers arising from internal restructuring.
Does the FCT gross-up use one step or two steps?
This is subject to professional debate with no settled conclusion. Enterprises should seek a written opinion from the tax authority for their specific case rather than deciding alone.
Are cross-border digital platforms within FCT scope?
The new framework extends coverage to cross-border e-commerce and digital platforms — enterprises paying such parties should reassess their FCT obligations.
Legal references
- Circular 20/2026/TT-BTC (effective 12 March 2026, applicable from the 2025 tax period): new contractor-tax guidance; abolishing CIT rules for foreign contractors in Circular 103/2014 (Clause 4, Article 10);
- Circular 89/2026/TT-BTC (abolishing Circular 103/2014 entirely from 1 July 2026);
- New points: coverage of cross-border e-commerce/digital platforms; capital-transfer tax exemption for internal restructuring (Clause 2, Article 7).
An enterprise paying foreign contractors that needs to reassess its foreign contractor tax obligations under the new 2026 framework — from withholding and filing to handling the combined-tax calculation debate? Reach us via the Contact page of FLAT Law Firm for advice on a suitable compliance approach.
The legal content of this article is reviewed by the FLAW AI Legal Council and submitted to the owner for approval; it is not an opinion of a licensed lawyer and does not replace legal advice for specific cases.
For reference only, not legal advice.