How specifically is foreign contractor VAT deducted? What are the conditions and documents for foreign contractor VAT deduction? Refer to this article.
I. Legal basis
– Circular 103/2014/TT-BTC
– Circular 219/2013/TT-BTC
II. Regulations on VAT deduction for foreign contractors
1. Conditions for deducting VAT from contractors
Contractor tax is a tax levied on income generated in Vietnam by foreign organizations/individuals without legal status in Vietnam (collectively referred to as foreign contractors).
Tax obligations that contractors must fulfill in Vietnam usually include: VAT and CIT (or PIT).
In fact, most Vietnamese businesses will declare and pay the above taxes on behalf of contractors. One of the frequently asked questions when declaring and paying the above taxes is:
- Is contractor VAT deductible?
- Is there a VAT refund?
According to Clause 10, Article 1 of Circular 26/2015/TT-BTC, the conditions for input VAT deduction are as follows:
“1. Having a legal value-added invoice for purchased goods and services or a document proving the payment of value-added tax at the import stage or a document proving the payment of VAT on behalf of foreign parties according to the guidance of the Ministry of Finance applicable to foreign organizations without Vietnamese legal status and foreign individuals doing business or having income arising in Vietnam.”
➤ Thus, if a unit incurs VAT payable on behalf of a foreign contractor, it is entitled to deduct input VAT if the goods and services are related to the unit’s production and business process.
2. Contractor VAT deduction file
To deduct VAT, the unit needs to prepare a complete set of documents as follows:
- Contract with foreign contractor.
- Minutes of acceptance of completed work (if any).
- Payment documents of the unit to foreign contractors.
- VAT payment voucher.
- Contract liquidation minutes.
➤ In case of VAT payable on behalf of foreign contractors when using internet services (Google, Facebook, Canva, Keap…) without a contract with a foreign contractor, the unit needs to prepare the following:
- The unit’s regulations stipulate the cost of internet services.
- Confirmation email, payment receipt, terms of service and service provider billing.
- Credit card statement used to pay for internet services.
- Regulations and decisions of the unit on the use of credit cards by the person authorized by the unit to pay for internet services. Documents of the unit paying the money transfer to the authorized person if payment is made via personal credit card.
➤ Case of deducting VAT for contractors for services from Facebook from June 1, 2022:
- From June 1, 2022, Facebook will declare and pay contractor tax directly to the Vietnamese tax authority. Businesses will have invoices provided by Facebook’s parent company and can use these invoices to deduct VAT.
- In addition, according to Official Dispatch No. 27326/CTHN-TTHT on contractor tax declaration of Hanoi Tax Department guiding the case of Facebook, Hanoi Tax Department guides: For contractors who meet the conditions for direct declaration with tax authorities according to Circular 103/2014/TT-BTC, the unit “does not have to deduct and pay on behalf of foreign contractors.”
➥ Accordingly, after June 1, 2022, the company will use Meta’s invoices issued directly to the company and payment documents as the basis for deducting VAT and recording expenses.
For example:
On June 13, 2022, Meta provided a tax invoice to company X as shown below:
Based on the above tax invoice and payment documents, the company deducts tax corresponding to the amount: 501,386
>> See more: Input VAT deduction.
III. Frequently asked questions about VAT deduction for foreign contractors
1. If a business incurs Google advertising costs paid by employee visa cards in the company, can the VAT paid on behalf of Google be deducted?
In case Google advertising costs are paid via company employees’ visa cards, the company can still deduct VAT paid on behalf of Google if it prepares the following complete set of documents:
- The unit’s regulations stipulate the cost of Google advertising services.
- Payment receipt.
- Company rules and regulations on authorizing employees to pay for advertising services to Google.
- Bank transfer document of the amount the company paid for Google advertising services to employees.
2. My company signed a contract to purchase software services from a foreign company that does not have a presence in Vietnam. So can we deduct VAT when paying contractor tax?
No. Pursuant to Clause 21, Article 4 of Circular 219/2013/TT-BTC, computer software services and software products are not subject to VAT. Therefore, the company does not have to pay VAT on behalf of foreign suppliers, which means it does not deduct VAT.