Vietnam expands Foreign Contractor Tax for foreign suppliers

HO CHI MINH CITY – Foreign suppliers of goods will be more exposed to Foreign Contractor Tax (FCT) in Vietnam from October 1 following changes announced by the Ministry of Finance. Lawyers Baker & McKenzie says contracts signed before October 1 will continue to be governed by regulations applicable at the time of contract signing.

Foreign suppliers of goods and service providers will now be exposed to FCT in Vietnam if they - retain title to the goods delivered to local distributors; or bear the cost for distribution, marketing, promotion, or are responsible for quality of goods or service delivered to local distributors; or they determine the selling price of goods or services to third parties; authorise or hire local organisations to perform a part of distribution service or other services relating to the sale of goods in Vietnam; or if they conduct negotiations and sign contracts in the name of the foreign organisation through local organisations or individuals.
FCT will also apply to foreign entities engaged in export, import, distribution activities in the Vietnam market, buying goods for export, or selling goods to Vietnamese merchants.
Baker and McKenzie says that with this broad tax exposure, it is important for foreign companies to review and/or restructure their current distribution arrangements in Vietnam for optimal tax planning and to assess any possibility for seeking protection from unnecessary income tax in accordance with the relevant agreements for avoidance of double taxation between Vietnam and other foreign countries.

 Claiming DTA protection is subject to notification procedure by submitting required documents to the tax authorities for their formal and substantive review. www.bakermckenzie.com (ATI).