Pursuant to Clause 1, Article 1, Chapter 1 of Decree 90/2007/ND-CP dated May 31, 2007 of the Government stipulating:
“1. Foreign trader means a trader established and registered for business in accordance with foreign laws or recognized by foreign law.”
Pursuant to Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance guiding the implementation of the Law on Personal Income Tax, the Law amending and supplementing a number of articles of the Law on Personal Income Tax and Decree No. 65/2013/ND-CP dated by the Government detailing a number of articles of the Law on Personal Income Tax and the Law amending and supplementing a number of articles of the Law on Personal Income Tax.
+ In Article 1, regulations on taxpayers (amended and supplemented in Article 2 of Circular 119/2014/TT-BTC):
“Article 1. Taxpayers
Taxpayers being residents and non-residents as prescribed in Article 2 of the Law on Personal Income Tax, Article 2 of Decree No. 65/2013/ND-CP dated June 27, 2013 of the Government detailing a number of articles of the Law on Personal Income Tax and the Law amending and supplementing a number of articles of the Law on Personal Income Tax (hereinafter referred to as Decree No. 65/2013/ND-CP), having income subject to tax according to the provisions of Article 3 of the Law on Personal Income Tax and Article 3 of Decree No. 65/2013/ND-CP.
…”
+ Article 2 stipulates the amounts subject to PIT:
“According to Article 3 of the Law on Personal Income Tax and Article 3 of Decree No. 65/2013/ND-CP, incomes subject to personal income tax include:
1. Income from business
Income from business is income earned from production and business activities in the following fields:
a) Incomes from the production and trading of goods and services in all fields and business lines as prescribed by law, such as: production and trading of goods; construction; transportation; catering business; business services, including rental services, land use rights, water surface, other assets.
…2. Income from salaries and wages
Income from salaries and wages is the income an employee receives from an employer, including:
a) Salaries, wages and other amounts of salary and wage nature in cash or non-cash forms.
…”
+ In Clause 1, Article 18, for the case of foreigners present in Vietnam:
“Personal income tax on income from salaries and wages of non-residents is determined by taxable income from salaries and wages (x) at the tax rate of 20%.”
+ In Article 25, regulations on tax deduction and tax deduction documents:
“1. Tax deduction
Tax deduction means the fact that income-paying organizations and individuals deduct the payable tax amount from the taxpayer’s income before paying the income, specifically as follows:
a) Income of non-resident individuals
Organizations and individuals paying taxable incomes to non-residents are responsible for deducting personal income tax before paying income, the tax to be deducted is determined according to the guidance in Chapter III (from Articles 17 to 23) This Circular.
b) Income from salaries and wages
…
b.3) For individuals who are foreigners working in Vietnam, the organizations and individuals shall pay income based on the taxpayer’s working time in Vietnam as stated in the contract or written assignment to work in Vietnam to temporarily deduct tax according to the Partial Progressive Tariff (for individuals working in Vietnam from 183 days in the tax year) or under the Full Tariff (for individuals working in Vietnam under 183 days in the tax year)
…
i) Tax deduction for some other cases
Organizations and individuals that pay wages, remunerations and other expenses to resident individuals do not sign labor contracts (under the guidance at Points c, d, Clause 2, Article 2 of this Circular) or sign contracts for less than three (03) months and has a total income of two million VND (2,000,000)/time or more, tax must be deducted at the rate of 10% of the income before paying it to the individual…”
Pursuant to Circular No. 92/2015/TT-BTC dated June 15, 2015 of the Ministry of Finance guiding the implementation of VAT and PIT for resident individuals conducting business activities:
+ In Article 1, taxpayers:
“1. Taxpayers as guided in Chapter I of this Circular are resident individuals, including individuals, groups of individuals and households engaged in production and trading of goods and services in all fields and industries, production and business professions as prescribed by law (hereinafter referred to as business individuals).
Production and business fields and lines include some of the following cases:
…
2. Taxpayers mentioned in Clause 1 of this Article do not include business individuals with a turnover of 100 million VND/year or less.”
+ In Article 3, the tax calculation method for business individuals that pay tax each time it is incurred:
“1. Principles of application
a) Business individuals that pay tax each time they are incurred include: residents who generate business revenue outside the Vietnamese territory; individuals who do business on a regular basis and do not have a fixed place of business; individuals doing business with organizations in the form of determining the individual’s business revenue.
…b) For a business individual that pays tax each time it is incurred, the turnover rate of VND 100 million/year or less to determine that the individual is not required to pay value added tax and is not required to pay personal income tax is total revenue from business for the calendar year.
…b) Tax rate on sales
Value-added tax rate, personal income tax rate for individuals paying tax each time it is incurred, is the same as for business individuals paying tax according to the presumption method guided at Point b, Clause 2, Article 2 of this Circular.
…”
+ At Point b.1 Clause 2 Article 2 and Point 2 Appendix 01 issued together with Circular No. 92/2015/TT-BTC dated June 15, 2015 of the Ministry of Finance guiding:
“b.1) The tax rate on turnover includes the rate of value added tax and the rate of personal income tax applicable to each business field as follows:
…
– Services, construction excluding raw materials: the value-added tax rate is 5%; personal income tax rate is 2%.
…”
“Consultancy, design and supervision services for basic construction; For other services, the tax rate for calculating VAT is 5%, and the PIT rate is 2%.
+ In Article 7 regulations on tax declaration and payment for business individuals paying tax each time it is incurred:
“1. Tax declaration rules
a) Business individuals who pay tax each time it is incurred shall declare value-added tax and personal income tax upon each arising if the total turnover in the calendar year is over VND 100 million.
…2. Tax return dossier
A tax return dossier for a business individual paying tax each time it is incurred includes:
– A tax return made according to form No. 01/CNKD issued together with this Circular;
– A copy of the economic contract for the provision of goods and services;
– A copy of the minutes of acceptance and liquidation of the contract;
– Photocopies of documents proving the origin of goods such as: A list of agricultural products purchased if they are domestic agricultural products; A list of goods purchased, sold and exchanged by border residents, if they are imported by border residents; Invoices delivered by the seller if they are imported goods purchased from a domestic business organization or individual; relevant documents to prove if the goods are self-produced, etc.
– In case individuals doing business in the form of business cooperation authorize the organization to declare and pay tax on their behalf, the organization shall declare tax instead according to tax return No. 01/CNKD enclosed with Appendix form No. 01-1/BK-CNKD promulgated together with this Circular and a photocopy of the business cooperation contract (if it is the first tax declaration of the contract).
…”
Pursuant to Circular No. 103/2014/TT-BTC dated April 6, 2014 of the Ministry of Finance guiding the implementation of tax liabilities applicable to foreign organizations and individuals doing business in Vietnam or earning income in Vietnam:
+ In Clause 1, Article 1 stipulates the subjects of application:
“1. Foreign business organizations having a permanent establishment in Vietnam or without a permanent establishment in Vietnam; foreign individuals being residents in Vietnam or not being residents in Vietnam (hereinafter collectively referred to as foreign contractors and foreign sub-contractors) doing business in Vietnam or earning income arising in Vietnam on the basis of a contract, agreement, or commitment between a foreign contractor and a Vietnamese organization or individual or between a foreign contractor and a foreign sub-contractor to perform a part of the work of a Contractor contract.”
+ In Clause 2, Article 5 stipulates applicable taxes:
“2. Foreign contractors and foreign sub-contractors being foreign individuals doing business shall fulfill their VAT liabilities under the guidance in this Circular, personal income tax (PIT) in accordance with the law on PIT”.
+ In Article 8, Section 2, Chapter II, subjects and conditions for applying VAT and CIT payment according to the declaration method:
“Foreign contractors and foreign sub-contractors pay VAT by the deduction method, pay CIT on the basis of revenue and expense declarations to determine taxable income if they fully satisfy the following conditions:
- Having a permanent establishment in Vietnam, or being a resident in Vietnam;
- The duration of business in Vietnam under the contractor contract or sub-contractor contract is 183 days or more from the effective date of the contractor contract or sub-contractor contract;
- Apply the Vietnamese accounting system and carry out tax registration, and be granted a tax identification number by the tax authority.”
+ In Article 11, Section 3, Chapter II, subjects and conditions for applying VAT and CIT payment according to percentage-of-sales method:
If a foreign contractor or foreign sub-contractor fails to satisfy one of the conditions mentioned in Article 8 Section 2 Chapter II, the Vietnamese party shall pay tax on behalf of the foreign contractor or foreign sub-contractor according to the guidance at Point a of this Clause. Article 12, Article 13 Section 3 Chapter II”.
+ At Point a, Clause 2, Article 12, Section 3, VAT:
“a) Percentage for calculating VAT on turnover for business lines:
– Services, machinery and equipment rental, insurance; construction and installation excluding raw materials, machinery and equipment is 5%”
Based on the above provisions, the principles are as follows:
In case a foreign individual signs a contract, then:
+ If the foreign individual is a trader, it is determined to be a business individual, and their income is subject to contractor tax on income from business. The company is responsible for deducting and declaring on behalf of and paying VAT and PIT for foreign business individuals according to the declaration form No. 01/CNKD issued in Circular No. 92/2015/TT-BTC dated June 15, 2015 of the Ministry of Finance.
+ If the foreign individual is not a trader, it is not identified as a business individual, the individual’s income from service provision activities is subject to PIT only on income from salaries and wages. The company is responsible for deducting personal income tax at the rate of 10% if it is a resident individual, or 20% if it is a non-resident individual, or according to the progressive tariff if it is a resident individual and the contract is a labor contract.
Foreign individuals being traders must have business registration in accordance with foreign laws or documents proving that they are traders recognized by foreign laws. Foreign papers and documents, when used in Vietnam, must be legalized according to the provisions of Circular No. 01/2012/TT-NG dated March 20, 2012 of the Ministry of Foreign Affairs guiding on consular certification and legalization.