Foreign contractor tax for contracts involving the import of software copyrights with equipment

JPA Vietnam introduces to readers Official Letter No. 25581/CTBDU-TTHT dated September 18, 2024 regarding Foreign contractor tax for contracts involving the import of software copyrights with equipment.

In case the Company enters into a contract with a foreign company (foreign contractor) to acquire software copyrights along with software-containing equipment according to the legal provisions enforced in Vietnam, the income derived from copyrights and transfer of the above-mentioned software-containing equipment by the foreign contractor is subject to contractor tax in Vietnam. In case the foreign contractor does not meet one of the conditions for directly preparing tax declaration in Vietnam as prescribed in Article 8, Section 2, Chapter II of Circular No. 103/2014/TT-BTC, the Company is obligated to withhold, declare and pay tax on behalf of the foreign contractor before making any payments to them. Specifically:

• Value added tax (“VAT”): Software copyrights according to the legal provisions are not subject to VAT. The VAT on the transfer of equipment containing software is subject to a 2% tax rate as prescribed.

• Corporate income tax (“CIT”): In case the contract separates the value of software copyright and the value of the software-containing equipment, the CIT rate (%) applicable to taxable revenue for the supply of goods (the software-containing equipment) is 1%, while the rate for the value of the software copyright is 10%.