Determination Of Foreign Contractor Tax Obligations For Cloud Computing Services In 2026

Recently, on 19 January 2026, the Tax Department issued Official Letter No. 296/CT-CS to provide guidance and address issues arising in the implementation of tax policies applicable to foreign contractors providing data center and cloud computing services.
This Official Letter clarifies the relationship between tax regulations and relevant specialized laws (such as the Law on Telecommunications and the Law on Intellectual Property), thereby fundamentally changing the approach to determining tax obligations for certain commonly used services.

1. Value Added Tax (VAT)

Pursuant to Clauses 10, 11 and 33 of Article 3, Article 29, and Clause 3 of Article 72 of the Law on Telecommunications No. 24/2023/QH15 dated 24 November 2023, Data Center services, Cloud Computing services, and Over-the-Top (OTT) services provided via the Internet are classified as Telecommunication Services under the Law on Telecommunications.

With this clear legal framework, the previous inconsistent treatment—where such services were classified either as software services or other types of services—has been eliminated, and a uniform VAT compliance requirement has been established, specifically:

• Under the current Law on VAT, services classified as telecommunication services provided via digital platforms by foreign contractors are subject to a VAT rate of 10% effective from 1 July 2025. Accordingly, enterprises are required to update and apply this VAT rate in their foreign contractor tax declarations for relevant transactions.
• For the period prior to 1 July 2025, although Official Letter No. 296 does not provide specific guidance, enterprises should still review and reassess potential tax risks associated with treating these services as “software services” (not subject to VAT), and consider appropriate adjustment options where necessary.

2. Corporate Income Tax (CIT)

Pursuant to:

• Article 1 of Law No. 07/2022/QH15 dated 16 June 2022 amending and supplementing certain articles of the Law on Intellectual Property;
• Clauses 1 and 10 of Article 3, and Clauses 2 and 3 of Article 9 of Decree No. 71/2007/NĐ-CP dated 3 May 2007 detailing and guiding the implementation of certain articles of the Law on Information Technology regarding the IT industry;
• Point d, Clause 2, Article 2 of the Corporate Income Tax Law No. 67/2025/QH15 dated 14 June 2025; and
• Article 13, Section 3 of Circular No. 103/2014/TT-BTC dated 6 August 2014 of the Ministry of Finance on CIT,

Based on the above legal grounds and the guidance provided in Official Letter No. 296, the taxable revenue for CIT purposes is determined as royalty income, which also serves as the basis for determining the applicable CIT rate for foreign contractors.

• Accordingly, royalty income is subject to foreign contractor CIT at a rate of 10%, instead of the 5% rate applicable to ordinary services.
  As a result, enterprises may face significant tax risks if they apply the 5% CIT rate while the services provided contain elements of royalty or intellectual property rights

3. TPM’s Recommendations

To ensure compliance with applicable legal regulations, TPM Tax Agent provides the following recommendations to enterprises:

• Review the scope and nature of services provided by foreign contractors

Enterprises should re-examine contracts, service terms, and the actual substance of services provided by foreign contractors, particularly in relation to cross-border digital service providers such as Google, AWS, Microsoft, etc.
Where any misclassification of taxable objects or incorrect tax rates is identified, enterprises are advised to proactively carry out supplementary and amended tax filings in accordance with the Law on Tax Administration.

• Documentation and record retention

Enterprises should prepare and retain adequate documentation, including contracts, service descriptions, invoices, payment records, and other relevant supporting documents, to substantiate the nature of transactions and facilitate explanations to tax authorities when required.

Should you require in-depth tax advisory services or assistance in reviewing foreign contractor tax obligations, please feel free to contact TPM Tax Agent for timely support.

☎️ Contact:

Van Le – Head of Tax Advisory

T: +84 916 777 662

E: van.le@tpm.com.vn

Or TPM Hotline: +84 28 3505 1800