Foreign Contractors: Applying CIT Rates on Revenue for Construction and Installation Projects

Vietnamese companies entering contracts with foreign contractors or subcontractors often ask: “What is the CIT rate applied on taxable revenue, and how should it be determined when a contract includes multiple items or business activities?”

According to Circular No. 103/2014/TT-BTC dated August 6, 2014, guiding the tax obligations for foreign organizations and individuals doing business or earning income in Vietnam, the calculation of CIT as a percentage of revenue depends on the type of contract, the separation of work values, and the business sectors of each item.

1. Applying CIT Rates by Item
   For contracts with multiple business activities:

• If the contract separates the value of each activity:
  CIT is calculated on each part according to the applicable rate for that business sector. Example: services, transportation, construction, machinery supply… each part applies its own rate.
• If the contract does not separate values:
  The entire contract value applies the highest CIT rate among the sectors included in the contract.

Special case – construction and installation with materials or machinery included:

• Contract separates items: each part applies its corresponding rate.
• Contract does not separate items: apply 2% on the entire contract value.
• If the foreign contractor signs a contract with subcontractors, transferring parts with materials/machinery included, the remaining service performed by the foreign contractor (e.g., supervision, installation guidance) applies 5% on that service value.

2. Example
   A contract to build a power plant valued at 75 million USD:

• Case 1 – Separate items:
  • Machinery & equipment: 45 million USD → 1% CIT
  • Machinery warranty services: 5 million USD → 5%
  • Production line design services: 5 million USD → 5%
  • Construction & auxiliary system installation: 15 million USD → 2%
  • Supervision & installation guidance: 3 million USD → 5%
  • Technical training & trial operation: 2 million USD → 5%
• Case 2 – Not separating items:
  Entire contract 75 million USD → 2% CIT
• Case 3 – Transferred to subcontractor:
  Foreign contractor performs only supervision & installation guidance → 5% CIT on this service value

Conclusion:
Since foreign contractor contracts may include multiple items with different CIT and VAT rates, correctly identifying service types and values is crucial to apply the correct tax rate and avoid overpayment or underpayment. Applying Circular 103/2014/TT-BTC and fulfilling tax declaration, withholding, or payment obligations ensures compliance and optimizes tax obligations.

Further Support:
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