Withholding tax, or called Foreign contractor tax (FCT) is a specific kind of tax in Vietnam. The tax applies to overseas business entities, who perform business activities and receive income in Vietnam. FCT is not a separate tax but it combines corporate income tax (CIT) and value added tax (VAT) for the payments on overseas vendors.
In general, Withholding tax applies where a party in Vietnam (including a foreign-invested enterprise established in Vietnam) contracts with an overseas vendor that does not have a licensed presence in Vietnam.
Withholding tax shall not be applied to the wholly supply of goods (mean no associated services performed in Vietnam), certain services performed and consumed outside Vietnam…etc.
Various rates are specified according to the nature of the contract performed. With CIT, the Withholding tax rate varies from 0.1% to 10%. With VAT, the Withholding tax rate varies from 2% to 5%.
For example, a general management service shall be subject to 5% CIT and 5% VAT.