Foreign Contractor Tax (FCT) is the headline withholding regime for payments from Vietnamese entities to foreign parties without a Vietnamese permanent establishment. FCT has two components: VAT (typically 5% deemed) and PIT (typically 5% deemed), totalling 10% of the gross payment. This guide explains how FCT works in practice: who it applies to, how the deemed vs. direct filer regime differs, what the Vietnamese payer's obligations are, how tax-treaty relief is claimed, and how digital-services FCT operates. We have written it for CFOs, accounts payable leads, and tax managers of foreign-owned companies in Vietnam — the people who operate the actual cross-border payment flows and need to know what to withhold, what to register, and how to avoid the penalties.
What is Foreign Contractor Tax?
Foreign Contractor Tax (FCT) is the withholding regime for payments from Vietnamese parties to foreign parties without a Vietnamese permanent establishment. The regime is governed by Circular 103/2014 and its implementing regulations.
FCT applies to: services performed in Vietnam (or partly in Vietnam) by a foreign party without a PE; royalties, interest, and dividends paid to foreign parties; and certain other payments.
FCT does NOT apply where the service is performed entirely outside Vietnam and consumed outside Vietnam. The exemption requires documented evidence: contract identifying place of performance, beneficiary location, beneficiary bank evidence.
FCT has two regimes: deemed (default) and direct filer. The deemed regime applies VAT 5% + PIT 5% (totalling 10%) on the gross payment. The direct filer regime applies VAT 10% + CIT 20% on actual profit, requiring the foreign party to register for direct filing.
Deemed vs. direct filer
Deemed FCT (default): the Vietnamese payer withholds VAT 5% + PIT 5% (or treaty-rate PIT) on the gross payment. The foreign party has no Vietnamese filing obligation. The total burden is 10% of gross.
Direct FCT (optional): the foreign party registers as a direct filer with the GDT, maintains books in Vietnam, files returns, and pays VAT 10% on actual revenue plus CIT 20% on actual profit. The total burden depends on profitability but is typically lower than deemed for profitable operations.
Choosing the right regime is a critical tax planning decision. For low-margin businesses, the deemed regime may be more favourable. For high-margin businesses, the direct filer regime is usually better. We model both regimes before cross-border engagements.
Once chosen, switching regimes is difficult. The direct filer status is typically maintained for the duration of the engagement. The deemed regime is automatic on the next engagement if the direct filer status is relinquished.
VAT component: 5% deemed
Under the deemed regime, the Vietnamese payer withholds VAT at 5% of the gross payment. The VAT is remitted to the tax authority alongside the monthly VAT return.
The 5% deemed VAT is final. The foreign party cannot claim Vietnamese input credit (they have no Vietnamese registration). For Vietnamese recipients of services from foreign contractors, this is the cost — they cannot recover the FCT VAT as input credit.
The 5% rate applies to services, royalties, and certain other payments. Some categories have different rates (e.g. royalties 5%, interest 5%, certain construction 3%, etc.). The applicable rate depends on the type of payment and is set out in the law.
PIT component: 5% deemed
Under the deemed regime, the Vietnamese payer withholds PIT at 5% of the gross payment (before VAT). The PIT is remitted to the tax authority monthly.
The 5% deemed PIT is final. The foreign individual has no Vietnamese filing obligation. Treaty rates may reduce PIT for individuals from countries with a Vietnam DTA (the treaty rate is typically 5–10%).
Where the payment is to a foreign company (not an individual), the 5% PIT does not apply; instead, the payment is treated as taxable income of the foreign company subject to CIT (typically 20%). The FCT calculation depends on whether the recipient is an individual or an entity.
Vietnamese payer obligations
The Vietnamese payer is the FCT withholding agent. The payer must: identify the FCT status of the recipient (Vietnamese resident, foreign contractor with PE, foreign contractor without PE); determine the applicable FCT regime (deemed or direct); calculate and withhold FCT at the time of payment; remit FCT to the tax authority monthly; and file the FCT declaration.
The payer is liable for the unwithheld FCT if it fails to withhold correctly. Recovery from the foreign recipient is contractual but typically difficult in practice. We have seen VND billions of FCT assessments against payers for incomplete or incorrect withholding.
The payer must maintain documentation: contract identifying the recipient, description of services, place of performance, beneficiary details (including home-country CoR for treaty claims), payment evidence.
Pre-engagement review by the payer's tax advisor is the standard control. We conduct FCT reviews for clients before cross-border engagements.
Direct filer registration
A foreign contractor with a Vietnamese PE can register as a direct filer. The registration requires: a Vietnamese operating office (or an authorised representative), tax registration with the GDT, and ongoing compliance (VAT returns, CIT returns, payroll).
The direct filer regime typically applies where the foreign contractor has significant Vietnam operations (sales staff, marketing presence, local support). For pure service providers with no Vietnam presence, the deemed regime is the only practical option.
The direct filer must maintain VAS-compliant books, prepare annual financial statements, and have them audited by a Vietnamese-licensed audit firm. The compliance burden is similar to a Vietnamese subsidiary.
Tax treaty relief
Treaty relief from FCT is available for recipients in countries with a Vietnam DTA. The treaty typically reduces PIT (the deemed 5%) to a treaty rate (typically 5–10%). The VAT component is generally not reducible by treaty.
To claim treaty relief, the foreign recipient must provide a Certificate of Residence from its home tax authority, and the Vietnamese payer must submit the CoR with the FCT declaration. The CoR is typically valid for 1–2 years.
Common treaty rates: Singapore-Vietnam PIT treaty rate is 5% (with CoR); Australia-Vietnam 10% (CoR required); UK-Vietnam 5–10%; Japan-Vietnam 10%; Korea-Vietnam 5–10%; US-Vietnam has no comprehensive DTA (standard rates apply).
Digital services and e-commerce
Foreign providers of digital services to Vietnamese consumers (without a Vietnamese PE) are subject to FCT via the GDT's e-portal. The provider registers on the portal, declares quarterly, and pays FCT (VAT 5% + PIT 5% deemed, or actual VAT 10% + CIT 20% on direct filer basis).
Digital services include: online advertising, SaaS subscriptions, app stores, digital content, online education, online gaming, cloud services (where consumed in Vietnam), and certain financial technology services.
Vietnamese customers of foreign digital-service providers may be required to withhold FCT on payments to the provider. The withholding is typically only required for B2B transactions over a threshold; B2C transactions are handled via the e-portal.
We act as tax representative for foreign digital-service providers, handling registration, declaration, and payment on their behalf.
Common FCT mistakes
The most expensive FCT mistakes: (1) failing to withhold FCT on a payment to a foreign contractor, (2) applying the wrong FCT rate (e.g. using 10% when 5% applies), (3) failing to claim treaty relief (overpaying), (4) misclassifying an offshore service as performed in Vietnam.
The most common avoidable penalty: late FCT remittance. The penalty is small but triggers broader reviews.
The most expensive avoidable penalty: failing to withhold on a payment to a foreign contractor that the GDT later identifies as having Vietnam-source income. The assessment is the unwithheld amount plus 1–3x penalty plus interest.
Frequently asked questions
The most common questions our tax and accounting team receives about vietnam foreign contractor tax (fct): vat, pit, withholding.
What is Foreign Contractor Tax?
When does FCT apply?
What is the difference between deemed and direct FCT?
Can FCT be reduced by tax treaty?
What is the FCT rate on royalties?
How is FCT handled for digital services?
Can a foreign contractor register as direct filer?
What is the FCT rate on interest?
What happens if FCT is not withheld?
Are advertising services subject to FCT?
This guide is published by Vietnam Tax Advisory. It is general in nature and based on publicly available Vietnamese law and GDT practice as of 18 June 2026. It does not constitute professional tax or legal advice. For advice specific to your situation, contact us via the contact page.