Correct understanding of contractor tax and brokerage fees
Contractor tax (Foreign Contractor Tax – FCT) is a tax applied to foreign organizations and individuals doing business or having income arising in Vietnam, through providing services or goods to Vietnamese organizations and individuals.
Meanwhile, brokerage fee is the commission that a business pays to a broker - which can be an individual or a legal entity - to support connecting transactions, finding customers, or promoting commercial activities.
According to Circular 103/2014/TT-BTC, brokerage fees paid to foreigners may or may not be subject to contractor tax, depending on the nature of the activity and the market the brokerage activity is aimed at.
Cases where contractor tax is not required
According to Clause 4, Article 2, Circular 103/2014/TT-BTC, Brokerage services for selling goods and providing services abroad is defined as not subject to contractor tax.
Specifically:
“Services performed and consumed outside the territory of Vietnam, including: vehicle repair services abroad, advertising, marketing, investment, goods sales brokerage, providing services abroad…”
Conditions for contractor tax exemption:
- Brokerage activities serving export activities go abroad
- All services are made and consumed abroad.
- The brokerage contract and related documents clearly show the place of performance.
Real life example:
Company A in Vietnam signed a contract with Ms. B (Korean nationality) to introduce customers in Europe to buy A's products. Ms. B works abroad, does not come to Vietnam and only connects online.
In this case, Mrs. B not subject to contractor tax, for brokerage services serving export and implementation outside Vietnam.
Legal basis:
- Clause 4, Article 2, Circular 103/2014/TT-BTC
- Official dispatch 275/CCTKV17-QLDN1 of Tax Department of Region XVII
Cases where contractor tax must be paid
If brokerage services are provided for the purpose of Sales activities in Vietnam market, then Brokerage fees paid to foreigners will be subject to contractor tax..
Pursuant to Clause 1, Article 1, Circular 103/2014/TT-BTC, foreign organizations and individuals with income arising in Vietnam (whether or not having a permanent establishment) are subject to paying contractor tax.
Taxes payable include:
- Value Added Tax (VAT) by direct method on revenue.
- Corporate income tax (CIT) if the contractor is an organization.
- Personal income tax (PIT) if the contractor is an individual.
Real life example:
Company C in Ho Chi Minh City signed a contract with Mr. D (Singaporean nationality) to find domestic customers. Mr. D performs work in Vietnam, contacting domestic customers.
In this case, Mr. D must pay contractor tax and Company C must deduct, declare and pay on behalf of according to regulations
Who is responsible for paying contractor tax?
According to Article 4 and Article 5 of Circular 103/2014/TT-BTC, if a foreign contractor not self-declaring and paying taxes in Vietnam, then Vietnamese enterprises are responsible for deducting and paying taxes on behalf of.
Business obligations:
- Deduct VAT and CIT/PIT before paying brokerage fees.
Declare and pay taxes on time to Vietnamese tax authorities. - Fully archive contracts, payment documents, and minutes confirming services performed.
Some important notes for businesses
To avoid disputes or errors in contractor tax declaration, businesses need to note:
- Clearly define the scope of brokerage services: services for export or domestic consumption?
- Clearly distinguish the location of service performance: within or outside Vietnam.
- Make detailed contract: clearly shows the content, place of implementation, rights and tax obligations of the parties.
- Require foreign contractors to provide tax codes (if any) and related legal documents.
- Consult local tax authorities when encountering special situations.
Conclude
The determination Are brokerage fees paid to foreigners subject to contractor tax? depends mainly on Purpose of brokerage activity (export or domestic) and place of serviceEnterprises need to understand the provisions of Circular 103/2014/TT-BTC and apply them accurately in each case to comply with the law and avoid tax risks.
In addition, readers can contact MAN – Master Accountant Network to receive professional consultation and advice to help solve problems quickly and accurately through:
- Mobile / Zalo: 0903 963 163 – 0903 428 622
- E-mail: man@man.net.vn
