You've landed a consulting contract with a Vietnamese company. Or you're invoicing a client in Ho Chi Minh City from your home office abroad. The work is done, the invoice is sent, and then your Vietnamese client tells you they need to withhold tax from your payment — but they're not sure at what rate, or who is responsible for filing.
This is Foreign Contractor Tax (FCT) — Vietnam's mechanism for taxing foreign organizations and individuals who earn income from Vietnam without having a licensed presence in the country. If you're a freelancer or independent contractor providing services to Vietnamese clients, FCT almost certainly applies to you.
This guide breaks down the legal basis under Circular 103/2014/TT-BTC, what FCT means for expat freelancers, the critical 2025-2026 changes to the tax base calculation, and the mistakes that lead to tax assessments and penalties.
What Is Foreign Contractor Tax and Who Does It Apply To?
Foreign Contractor Tax (FCT) is not a single tax. It is a combined tax mechanism applied to foreign organizations and individuals that do business in Vietnam or earn income sourced from Vietnam under a contract with a Vietnamese party, without establishing a licensed entity or permanent establishment in the country .
The FCT regime consists of:
- Value Added Tax (VAT) — applied to services and goods provided in Vietnam
- Corporate Income Tax (CIT) — for foreign corporate contractors
- Personal Income Tax (PIT) — for foreign individual contractors
Under Circular 103/2014/TT-BTC, the scope explicitly covers foreign individuals — whether resident or non-resident in Vietnam — who conduct business in Vietnam or generate income from Vietnam on the basis of a contract or agreement with a Vietnamese organization or individual .
For expat freelancers and independent contractors, this means: if you sign a contract with a Vietnamese company to provide services, FCT applies to your income. The Vietnamese party is legally responsible for withholding the tax before paying you.
Who Is Legally Responsible for Paying FCT?
This is the single most important thing to understand: the Vietnamese contracting party is the taxpayer responsible for FCT.
Under Article 4 of Circular 103/2014/TT-BTC, Vietnamese organizations and individuals that purchase services from foreign contractors or pay Vietnam-sourced income to foreign contractors are responsible for withholding VAT and CIT/PIT before making payment to the foreign contractor .
This means your Vietnamese client must:
- Register for FCT with the tax authority
- Declare and pay the withheld tax to the state budget
- Provide you with documentation of the tax paid
If you are the foreign contractor, you do not file the FCT return yourself — your Vietnamese client does. However, you should verify that they are doing it correctly, because if they fail to withhold and remit, the tax authority can pursue the Vietnamese party for the tax plus penalties.
How FCT Is Calculated: The 2025-2026 Rule Change
Foreign contractors typically pay FCT under the direct method, where VAT and CIT/PIT are calculated as percentages of taxable revenue. The rates depend on the type of activity.
According to PwC's tax summary, standard rates for foreign contractors under the direct method include :
- Services and service-attached goods: VAT 5% (or 10% for some), CIT 5% (or 10% for some)
- Construction and installation: VAT 3% (or 5%), CIT 2%
- Transportation: VAT 3%, CIT 2%
- Royalties: CIT 10%
For individual foreign contractors: The applicable tax is VAT plus Personal Income Tax (PIT) instead of CIT. Under Circular 103/2014/TT-BTC, foreign individual contractors are subject to VAT under the FCT rules and PIT under the Law on Personal Income Tax .
For non-resident individuals, business income from Vietnam is taxed at rates of 1% for trading, 2% for manufacturing and other activities, according to investment guide summaries .
Critical Change: New CIT Tax Base from 2025-2026
Circular No. 69/2025/TT-BTC (effective July 1, 2025) and Circular No. 20/2026/TT-BTC (effective March 12, 2026) significantly changed how the CIT tax base is calculated for foreign contractors .
What changed: Previously, when calculating CIT taxable revenue, you had to deduct VAT first. Under the new rules, VAT is no longer deducted when determining CIT taxable revenue — VAT taxable revenue and CIT taxable revenue are now always equal .
Practical impact: For net contracts (where the foreign contractor's payment does not include Vietnamese taxes), the gross-up conversion now needs to be done only once instead of twice. The new formula is:
Taxable revenue = Payment amount ÷ (1 − CIT rate − VAT rate)
Result: For the same net contract, the total tax payable increases. For example, for a USD 1,000,000 net contract with 5% VAT and 5% CIT, the total tax under the new rules is approximately USD 111,111 — an increase of about 2.85% over the former rules .
Copyable Invoice Template for Foreign Contractor Services
Use this template when invoicing Vietnamese clients. It clearly separates your service fee from the FCT that the Vietnamese party must withhold and remit.
INVOICE FOR FOREIGN CONTRACTOR SERVICES Invoice Number: [Your Invoice Number]
Date: [DD/MM/YYYY] TO: [Vietnamese Client Company Name]
[Client Address] FROM: [Your Full Name / Business Name]
[Your Address]
[Your Tax Identification Number (if any)] CONTRACT REFERENCE: [Contract Number / Date] DESCRIPTION OF SERVICES:
[Detailed description of services performed] CONTRACT VALUE: [Amount] [Currency]
(Note: This amount is [net of / inclusive of] Vietnamese Foreign Contractor Tax) FOREIGN CONTRACTOR TAX (FCT) OBLIGATIONS:
The Vietnamese contracting party is responsible for withholding and remitting Foreign Contractor Tax under Circular 103/2014/TT-BTC. Applicable FCT rates for this service:
- VAT: [X]%
- CIT/PIT: [X]% TOTAL PAYMENT DUE TO CONTRACTOR: [Amount after FCT withholding] PAYMENT INSTRUCTIONS:
Bank: [Your Bank Name]
Account Name: [Your Account Name]
Account Number: [Your Account Number]
SWIFT Code: [SWIFT Code] This invoice is issued for services rendered under the referenced contract. The undersigned confirms that the information provided is accurate.
Common Mistakes and Compliance Risks
1. Assuming FCT Doesn't Apply to Individuals
Many expat freelancers believe FCT only applies to foreign companies. This is incorrect. Circular 103/2014/TT-BTC explicitly covers foreign individuals — resident or non-resident — who conduct business in Vietnam or earn Vietnam-sourced income .
2. Vietnamese Client Fails to Withhold
If your Vietnamese client does not withhold FCT, the tax authority can assess the tax against the Vietnamese party, plus late payment interest and penalties. This can strain your business relationship and delay your payment.
3. Incorrect Rate Application
FCT rates vary by service type. Applying the wrong rate — for example, using the services rate for construction work — results in underpayment or overpayment. Verify the correct rate for your specific activity with the tax authority or a qualified advisor.
4. Missing the Declaration Deadline
Under the Law on Tax Administration 38/2019/QH14, tax declaration dossiers for taxes filed on a per-occurrence basis must be submitted no later than the 10th day from the date the tax obligation arises . For FCT paid when the Vietnamese party remits payment to the foreign contractor, this is a per-occurrence declaration.
5. Ignoring Double Tax Treaties
Vietnam has signed double tax agreements (DTAs) with many countries. These treaties may reduce or eliminate CIT on certain payments — for example, interest or royalties. However, claiming treaty benefits requires specific procedures and documentation. The tax authority has 30 days to assess claims, with a possible 10-day extension .
Frequently Asked Questions
Does Foreign Contractor Tax apply to expat freelancers working for Vietnamese clients?
Yes. Under Circular 103/2014/TT-BTC, foreign individuals — whether resident or non-resident in Vietnam — who conduct business in Vietnam or earn Vietnam-sourced income under a contract with a Vietnamese party are subject to FCT. The tax consists of VAT plus Personal Income Tax for individuals .
Who is responsible for paying Foreign Contractor Tax in Vietnam?
The Vietnamese contracting party is the taxpayer responsible for FCT. Under Article 4 of Circular 103/2014/TT-BTC, Vietnamese organizations and individuals that purchase services from foreign contractors must withhold VAT and CIT/PIT before making payment and remit the tax to the state budget .
What are the FCT rates for individual foreign contractors in Vietnam?
For individuals, FCT consists of VAT plus Personal Income Tax. VAT rates vary by activity type (typically 3% or 5% for services). PIT for non-resident business income is generally 1% for trading activities and 2% for manufacturing and other activities. The exact rate depends on the specific service provided .
Did FCT calculation rules change in 2025 or 2026?
Yes. Circular No. 69/2025/TT-BTC (effective July 1, 2025) and Circular No. 20/2026/TT-BTC (effective March 12, 2026) amended the CIT tax base calculation for foreign contractors. The key change: VAT is no longer deducted when determining CIT taxable revenue, which increases the total tax payable for net contracts .
What happens if my Vietnamese client does not withhold FCT?
The Vietnamese party remains legally liable for the FCT, plus late payment interest and penalties. The tax authority can assess the tax against the Vietnamese company. For the foreign contractor, this may cause delays in payment and potential complications with your own tax compliance in your home country.