Question: We are IT company in USA and provide software in Vietnam.
Could you please define for us the VAT prices which we need to calculate for a customers tender response.
As this tender is related to IT services for a Card Management System to a Vietnam bank and will consist of the following items:
- Consulting Services – On-site for implementation however it would be carried out by a foreigner
- Licensing Costs
- On-going licensing renewal
- Server licensing for operating system and database
- Managed Support Service
Appreciate if you can provide this information.
Answer: Since your company is incorporated and operating under the law of USA. Then, when you supplies services to Vietnamese partners, your company shall be subject to withholding tax.
Withholding tax shall include VAT and CIT. Your partner in Vietnam shall be responsible to withhold such VAT and CIT from payment made to your firm.
The VAT component is determined as follows: VAT payable = VAT taxable turnover x VAT rate
The VAT rate depends on the services provided by the foreign contractor, or the goods related to services. VAT on the added value of services, services related to VAT-liable goods is calculated by the turnover for VAT calculation multiplies by the rate (%) of the added value to the turnover.
The turnover subjected to VAT is the total turnover from the provision of services, services related to VAT-liable goods which the company receives including the taxes payable, the cost that the customer paid on behalf of the company (if any). According to the nature of business, each VAT rate shall be applied as below:
Business lines VAT rate (%)
- Services, rental of machinery and equipment, insurance; construction, installation exclusive of raw materials, machinery and equipment 5
- Production, transportation, services related to goods; construction, installation inclusive of raw materials, machinery and equipment 3
- Other activities 2
The CIT liability is determined as follows: CIT payable = CIT taxable x CIT rate
The turnover for CIT calculation is the total turnover excluding VAT earned by foreign contractors without deduction of any taxes payable. The turnover for CIT calculation includes the costs paid by the Vietnamese party on behalf of foreign contractors.
CIT rates are summarized as follows:
Business lines CIT rate (%)
- Trading: supply of goods on delivery term (DAP, DDU, etc.) in Vietnam without other services or in the form of on-the-spot export 1
- Services, lease of machinery and equipment, insurance, lease of drilling platforms 5
- Except for:
+ Services together with supply of machinery and equipment 2
+ Services of managing restaurants, hotels and casinos 10
+ Derivative financial services 2
- Lease of aircraft, aircraft engines, aircraft spare parts and sea going vessels 2
- Construction and installation with or without supply of materials, machinery or equipment 2
- Other production or business activities and transportation (including sea and air transportation) 2
- Transfer of securities, certificates of deposit, offshore reinsurance and commission for ceding reinsurance 0,1
- Loan interests 5
- Royalties 10
In line the above explanation, withholding tax applicable to your services shall be as follows:
- Consulting Services – On-site for implementation however it would be carried out by a foreigner: VAT: 5%; CIT: 5%
- Licensing Costs: VAT: 0; CIT: 10%
- On-going licensing renewal: VAT: 0; CIT: 10%
- Server licensing for operating system and database: VAT: 0; CIT: 10%
- Managed Support Service: VAT: 5%; CIT: 5%
