This circular stipulates the application of taxation for foreign contractors when conducting construction activities in Vietnam, including foreign-invested enterprises. Foreign contractors are exempt from turnover tax and income tax on the value of imported machinery and equipment if they provide the import value (CIF or CF).
Scope of application
Foreign contractors operating in Vietnam, Vietnamese economic organizations (including foreign-invested enterprises), provincial and centrally-administered city Tax Departments.
Key points
- Foreign contractors operating in Vietnam that do not fall under the form of foreign investment as prescribed by the Law on Foreign Investment must comply with the tax regulations set forth in Circular No. 37 TC/TCT dated May 10, 1995 issued by the Ministry of Finance.
- In cases where foreign contractors provide the full import value (CIF or CF) of machinery and equipment, the taxable turnover and income do not include this value. The contractors are also exempt from turnover tax and income tax on their commercial trading activities.
- If foreign contractors cannot provide the full import value (CIF or CF) of machinery and equipment, the taxable turnover and income are the total revenue paid to the contractor according to the contract.
- In cases where the tax authority has calculated the tax liability of the contractor differently from the guidance above and the contractor has already paid the tax into the state budget, there will be no additional tax collection and the previously paid tax will be refunded.
🌐 Social impact of this document
- Positive impact: Reducing the tax burden for foreign contractors who can provide the import value of machinery and equipment, thereby enhancing investment and construction activities in Vietnam.
- Negative impact: It may cause difficulties in tax management if contractors fail to provide complete information about the import value.
❓ Frequently asked questions
What taxes must foreign contractors pay when conducting construction activities in Vietnam?
Foreign contractors operating in Vietnam that do not fall under the form of foreign investment as prescribed by the Law on Foreign Investment must comply with the tax regulations set forth in Circular No. 37 TC/TCT dated May 10, 1995 issued by the Ministry of Finance.
What information must foreign contractors provide to be exempt from turnover tax and income tax?
Foreign contractors must provide the full import value (CIF or CF) of machinery and equipment when signing construction and installation contracts.
How is taxable revenue calculated if the contractor cannot provide information about the import value?
If foreign contractors cannot provide the full import value (CIF or CF) of machinery and equipment, the taxable turnover and income are the total revenue paid to the contractor according to the contract.
Can additional tax be collected or tax refunds be made if errors in tax calculation are discovered after payment?
In cases where the tax authority has calculated the tax liability of the contractor differently from the guidance above and the contractor has already paid the tax into the state budget, there will be no additional tax collection and the previously paid tax will be refunded.
What regulations must foreign contractors comply with to enjoy tax benefits?
Foreign contractors operating in Vietnam that do not fall under the form of foreign investment as prescribed by the Law on Foreign Investment must comply with the tax regulations set forth in Circular No. 37 TC/TCT dated May 10, 1995 issued by the Ministry of Finance.
Full text
LETTER
OF THE MINISTRY OF FINANCE NO. 4082 TC/TCT DATED NOVEMBER 15, 1997
ON TAXATION FOR FOREIGN CONTRACTORS
Dear: Provincial Tax Departments
The Ministry of Finance has received several documents from provincial tax departments, foreign-invested enterprises, and foreign economic organizations operating in Vietnam requesting guidance on withholding tax for construction activities carried out in Vietnam by foreign organizations and individuals according to Circular No. 37 TC/TCT dated May 10, 1995 of the Ministry of Finance. To uniformly manage tax collection for construction and installation activities in Vietnam conducted by foreign organizations and individuals engaged in business operations in Vietnam not under forms of investment stipulated by the Law on Foreign Investment in Vietnam, the Ministry of Finance provides guidance on handling specific cases as follows:
1. Foreign organizations and individuals conducting business in Vietnam not under forms of investment stipulated by the Law on Foreign Investment in Vietnam (hereinafter referred to as Contractors) must comply with the tax payment regulations set forth in Circular No. 37 TC/TCT dated May 10, 1995 of the Ministry of Finance when undertaking construction and installation works for Vietnamese economic organizations (including foreign-invested enterprises).
2. For construction and installation contracts signed by foreign contractors on a turnkey basis or key delivery method, where the foreign contractor undertakes all tasks including construction, installation, and supply of machinery and equipment, the turnover for calculating turnover tax and profit tax does not include the CIF or CFR value of imported machinery and equipment fully brought in pursuant to the permit of the investor and the contractor shall not be subject to turnover tax and profit tax on commercial transactions related to the value of imported machinery and equipment.
In case the contractor cannot provide the CIF or CFR value of the imported machinery and equipment, the turnover for calculating turnover tax and profit tax is the entire turnover paid to the contractor according to the contract.
The guidance on handling tax collection for the above cases shall be used to calculate and collect taxes from foreign contractors carrying out construction and installation works in Vietnam. If the tax authority has calculated the tax liability of the contractor with another entity responsible for withholding tax differently from the guidance above and the contractor has already paid that tax into the state budget, no additional tax will be collected and the tax already paid will be refunded.
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