According to the contract, some construction equipment (later forming a fixed asset for the investor) will be imported from abroad to Vietnam to be installed for the project according to the design. This construction equipment will be exempt from import tax.

During the performance of the contract, the unit signs subcontracts with (domestic) subcontractors for a number of tasks corresponding to the scope of work under the main contract.

Accordingly, the subcontractor will import some materials and equipment from abroad for construction and installation for this project.

Mr. Hong Anh asked, in case the main contractor imports materials and equipment for the works of export processing enterprises, to enjoy the investor's import tax exemption policy, what procedures must the contractor do? Also, are there other taxes that apply in this case?

According to the contract signed between the main contractor and the sub-contractor for this project, if the sub-contractor imports materials and equipment from abroad into Vietnam for the construction and installation of the work, the main contractor and the sub-contractor will need to do to enjoy the import tax exemption policy (because these construction equipment will be installed in the works of the investor as an export processing enterprise and form the fixed assets of the private investor). Are there any other taxes that would apply in this case?

If in the case 2 above, the subcontractor has to pay import tax for the imported equipment, will the investor be refunded the import tax later?

The Ministry of Finance responded to this issue as follows:

Pursuant to Circular No. 103/2014/TT-BTC dated August 6, 2014 of the Ministry of Finance guiding the implementation of tax obligations applicable to foreign organizations and individuals doing business in Vietnam or earning income in Vietnam:

In Article 1, the subject of application:

"The guidance in this Circular applies to the following subjects (except for the case specified in Article 2, Chapter I):

1. Foreign business organizations that have a permanent establishment in Vietnam or do not have a permanent establishment in Vietnam; foreign business individuals who are residents in Vietnam or are not residents in Vietnam (hereinafter collectively referred to as foreign contractors and foreign sub-contractors) doing business in Vietnam or earning income arising in Vietnam on the basis of a contract, agreement, or commitment between a foreign contractor and a Vietnamese organization or individual or between a foreign contractor and a foreign sub-contractor to perform a part of the work of a foreign contractor...”.

In Article 2, the provisions on subjects do not apply:

"The guidance in this Circular does not apply to:

1. Foreign organizations and individuals doing business in Vietnam in accordance with the Law on Investment, the Law on Petroleum and the Law on Credit Institutions.

2. Foreign organizations and individuals provide goods to Vietnamese organizations and individuals without accompanying services provided in Vietnam in the following forms:

Delivery at foreign border gates: The seller bears all responsibility, costs and risks related to the export of goods and delivery at the foreign border gate; The buyer bears all responsibilities, costs and risks related to the receipt and transportation of goods from a foreign border gate to Vietnam (including the case of delivery at a foreign border gate with a warranty term of: responsibilities and obligations of the seller).

- Delivery at the Vietnamese border gate: The seller bears all responsibility, costs and risks related to the goods until the point of delivery at the Vietnamese border gate; The buyer bears all responsibilities, costs and risks related to the receipt and transportation of goods from the Vietnamese border gate (including the case of delivery at the Vietnamese border gate with the warranty term as the responsibility and liability). seller's service)...".

In Clause 2, Article 4, taxpayers:

"2. Organizations established and operating under Vietnamese law, organizations registered to operate under Vietnamese law, other organizations and individuals engaged in production and business: Purchase of services and services associated with goods or pay income arising in Vietnam on the basis of a contractor contract or a sub-contractor contract; purchase goods in the form of on-spot import and export or under international trade terms (Incoterms); distribution of goods and provision of services on behalf of foreign organizations and individuals in Vietnam (hereinafter referred to as Vietnamese parties) include:

- Business organizations established under the Law on Enterprises, the Law on Investment and the Law on Cooperatives;

- Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, armed units, non-business organizations and other organizations;

- Petroleum contractors operating under the Petroleum Law;

- Branches of foreign companies permitted to operate in Vietnam;

- Foreign organizations or representatives of foreign organizations permitted to operate in Vietnam;

- Other organizations in Vietnam;

- Individuals doing business in Vietnam.

Taxpayers as guided in Clause 2, Article 4, Chapter I are responsible for withholding value-added tax (VAT) and corporate income tax (CIT) guided in Section 3, Chapter II before paying for foreign contractors and foreign sub-contractors".

Article 5 provides for applicable taxes:

Article 5. Applicable taxes

1. Foreign contractors and foreign sub-contractors being business organizations shall fulfill VAT and CIT obligations under the guidance in this Circular.

2. Foreign contractors and foreign sub-contractors being foreign individuals doing business shall fulfill their VAT obligations under the guidance in this Circular and personal income tax (PIT) in accordance with the law on PIT.

3. With regard to other taxes, fees and charges, foreign contractors and foreign sub-contractors shall comply with current legal documents on taxes, fees and other fees.

Article 11 stipulates on subjects and conditions for applying VAT payment, paying CIT according to the ratio method on revenue (direct method).

Clause 3, Article 17 stipulates: "3. In case an international treaty to which the Socialist Republic of Vietnam has signed or acceded contains provisions on tax payment of foreign contractors, sub-contractors. If a foreign country is different from the contents guided in this Circular, the provisions of that international treaty shall apply.

Tax declaration for overseas suppliers

Pursuant to Circular No. 80/2021/TT-BTC dated September 29, 2021 of the Ministry of Finance guiding the implementation of a number of articles of the Law on Tax Administration and Decree No. 126/2020/ND-CP dated October 19/ 2020 of the Government detailing a number of articles of the Law on Tax Administration:

Article 73 stipulates whether organizations and individuals are involved in tax administration for e-commerce business, digital-based business and other services of overseas suppliers have a permanent establishment in Vietnam.

Article 76 provides for direct tax registration of overseas suppliers.

Article 77 provides guidance on tax declaration and direct tax calculation of overseas suppliers.

Article 78 provides for direct tax payment of overseas suppliers.

Article 79 provides for authorization to perform tax registration, tax declaration and tax payment in Vietnam by overseas suppliers.

Clause 1, Article 81 stipulates the responsibilities of organizations and individuals in Vietnam involved in the case of purchasing goods and services from overseas suppliers: "1. The organization is established and operating under Vietnamese law, organizations registered to operate under Vietnamese law purchase goods and services from overseas suppliers or distribute goods or provide services on behalf of suppliers in foreign countries. If the overseas supplier fails to conduct tax registration, tax declaration and tax payment in Vietnam as prescribed in Articles 76, Article 77, Article 78, Article 79 of this Circular, the organization that purchases goods or provides services or distribution of goods and services on behalf of overseas suppliers are obliged to declare, withhold and pay tax on behalf of overseas suppliers according to the provisions of Circular No. 103/2014 /TT-BTC dated August 6, 2014 of the Ministry of Finance...".

Pursuant to the above provisions, in case the main contractor or sub-contractor in Vietnam buys supplies and equipment from foreign suppliers, then:

- In case a foreign contractor earns income in Vietnam on the basis of a contract, agreement, or commitment between the foreign contractor and a Vietnamese organization or individual and does not fall into the cases specified in Article 2 Circular No. 103/2014/TT-BTC is subject to tax liability as prescribed in Circular No. 103/2014/TT-BTC. Taxes applicable to foreign contractors are specified in Article 5 of Circular No. 103/2014/TT-BTC of the Ministry of Finance.

- In case the overseas supplier fails to register, declare and pay tax in Vietnam according to the provisions of Articles 76, Article 77, Article 78, Article 79 of Circular No. 80/2021/TT-BTC, Organizations purchasing goods or distributing goods on behalf of overseas suppliers are obliged to declare, withhold and pay tax on behalf of overseas suppliers the payable tax amount as prescribed in Circular No. 103/ 2014/TT-BTC dated August 6, 2014 of the Ministry of Finance.

In case the international treaty to which the Socialist Republic of Vietnam has signed or acceded contains provisions on tax payment of foreign contractors different from those guided in Circular No. 103/2014/TT - BTC shall comply with the provisions of that international treaty.

- Regarding the policy of import tax exemption and import tax refund that are not within the answering authority of the tax office, please contact the customs office for specific instructions.

If you still have problems, please provide specific documents to the tax office directly managing your company for answers.