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Every time an FDI company remits management fees, software fees or interest to its parent, the accountant must answer the question of foreign contractor tax (FCT – thuế nhà thầu nước ngoài) on payments to the parent company: must tax be withheld, and how? This article provides a reference table for each type of payment to the parent, explains how to check the tax treaty and lists the records to keep. It is the first area ACCA Consulting Vietnam usually reviews when taking on accounting for an FDI company.
1. Foreign contractor tax on payments to the parent: getting it right
When a foreign organization earns income arising in Vietnam under a contract with a Vietnamese company, the Vietnamese party is usually responsible for withholding and paying the tax on behalf of the foreign party. A parent company abroad is also a "contractor" in this sense. FCT generally has two components: a value-added tax (VAT/GTGT) component and a corporate income tax (CIT/TNDN) component, depending on the nature of each payment.
FCT is a separate obligation and does not replace the deductibility conditions for management fees and royalties. A payment on which FCT has been paid in full can still be disallowed as a deductible expense if the actual benefit cannot be proven.
2. Quick reference by type of payment to the group
| Payment | Typical nature | Approach to the obligation | Points to check |
|---|---|---|---|
| Management and support service fees | Group accounting, HR and legal services | Usually a VAT component and a CIT component by service category | Where the service is performed; whether the treaty exempts the CIT component |
| Shared IT and software fees | Subscriptions for ERP, email and security systems | Distinguish between a service, a software licence and goods | Does the contract describe a right of use or an operating service? |
| Royalties and trademark fees | Payment for the right to use a brand or technology | Usually treated as royalties | Is there a technology transfer requiring registration; the treaty's royalty article |
| Interest on parent company loans | Medium/short-term foreign loan | Usually subject to the CIT component on the interest | Has the loan been properly registered; does the treaty set its own rate limit? |
| Training fees | Courses taught by group experts | Depends on where it is delivered and the nature of the service | Training in Vietnam or online from abroad? |
| Expatriate salary recharges | The group pays salaries and then recharges them | Consider whether it is a staffing service or merely a reimbursement | Assignment agreement; has the expatriate's personal income tax (PIT/TNCN) been declared? |
The table above does not give specific rates because the rates depend on the business category and may change with amending regulations. Accountants should look up the rate table directly in the current circular guiding FCT, and keep a copy of the lookup with the payment documents.
- Management fees40%
- Shared IT fees25%
- Royalties20%
- Interest15%
Illustrative example. Each category may have a different FCT treatment, so the books should be split by category.
View as table
| Management fees | 40% |
| Shared IT fees | 25% |
| Royalties | 20% |
| Interest | 15% |
3. How to check the tax treaty with the parent company's country
Vietnam has signed double tax agreements with many countries. A treaty may exempt or cap the CIT on certain payments, such as business profits from services not provided through a permanent establishment, interest and royalties. Treaties generally do not apply to the VAT component.
- 1Establish the country of residence
Obtain a certificate of residence issued by the tax authority of the parent's country for the relevant year.
- 2Find the treaty text
Look up the treaty between Vietnam and that country on the tax authority's portal.
- 3Identify the relevant article
Determine whether the payment is business profits, dividends, interest or royalties.
- 4Check for a permanent establishment
Have group experts worked in Vietnam long enough to create a permanent establishment?
- 5Prepare the notification file
Submit the treaty exemption/reduction notification using the form and within the timing required by current regulations.
4. FCT records to keep for each payment
- A contract or service agreement signed before the charges arise, clearly describing the services.
- The parent company's invoice or debit note, showing the fee basis.
- The FCT return and the corresponding tax payment receipt for each payment.
- The rate lookup applied, stating clearly which regulation was consulted.
- Certificate of residence and treaty exemption/reduction notification file (if applicable).
- Evidence that the service was performed: reports, emails, meeting minutes.
- Reconciliation of the year's payments with the related party transaction appendix at CIT finalization.
5. Filing timing and gross vs. net contracts
FCT is usually declared each time a payment is made. FDI companies should keep a payment schedule for the group, linked to the tax filing calendar, so nothing is missed.
Read the contract carefully: if the price paid to the parent excludes FCT (the Vietnamese party bears the tax on its behalf), the amount must be grossed up to determine taxable revenue. Whether the tax paid on the parent's behalf is a deductible expense must then also be considered under current regulations.
FAQ
The parent company has already paid tax in its own country. Does Vietnam still collect FCT?
There may still be an obligation in Vietnam because the income arises in Vietnam. Tax treaties help avoid double taxation; the parent can usually credit the tax paid in Vietnam under its own country's law.
Management fees are charged in USD. Which exchange rate applies?
Convert at the exchange rate prescribed for tax filing at the time the payment arises. Agree on one principle and apply it consistently to every filing.
What if we forgot to declare FCT in previous years?
Review all past payments, file supplementary returns and pay late-payment interest before the tax authority finds the issue. Correcting voluntarily and early usually reduces the risk of penalties significantly.
Review FCT on your payments to the group
Send your annual payment list to ACCA Consulting VN for a free preliminary review. Accounting services based in Ho Chi Minh City, supporting FDI companies nationwide.
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