Distinction Between VAT Percentage Rate on Revenue and VAT Tax Rate for Foreign Contractors Under Circular 103/2014/TT-BTC
RegHub explainer by New MarketerLast updated:
Based on:Thông tư 103/2014/TT-BTC; Thông tư 40/2021/TT-BTC - Ministry of Finance
This explanation was generated by AI and checked by an automated AI review, not by a human expert. It is not legal, tax or accounting advice and may contain errors. Check the official document before you rely on it.
The Da Nang Tax Authority (Sub-department 3) clarified the distinction between the "percentage rate to calculate VAT on revenue" and the standard VAT tax rate applicable to foreign contractors. Under Circular 103/2014/TT-BTC, the percentage rate is a deemed rate used to calculate VAT payable under the direct method (taxable revenue multiplied by the percentage), which differs from standard VAT rates (0%, 5%, 8%, 10%). Circular 103/2014/TT-BTC remains in force and specifies percentage rates by industry: 5% for services, equipment leasing, and insurance; 3% for construction and installation; 2% for transport, manufacturing, and other activities; 1% for distribution and supply of goods. The authority also referenced Circular 40/2021/TT-BTC for related individual business provisions. The foreign contractor tax calculation method using deemed rates on revenue is separate from the standard VAT rate framework under the VAT Law applicable to Vietnamese parties.
VAT for Foreign Contractors - Distinguishing Percentage Rate from Tax Rate
Legal Basis
Circular 103/2014/TT-BTC dated August 6, 2014 of the Ministry of Finance guides tax obligations for foreign organizations and individuals conducting business in Vietnam or earning income in Vietnam (foreign contractors and foreign sub-contractors).
VAT Calculation Using Percentage Rate on Revenue (Direct Method)
Under the direct (deemed) method, where a foreign contractor does not register for tax declaration in Vietnam, the Vietnamese party withholds and remits tax on their behalf using the formula:
- VAT payable = VAT taxable revenue × Percentage rate
This percentage rate is NOT the standard VAT rate. It is a deemed rate used to determine the tax amount, substituting for the normal input/output tax credit mechanism.
Percentage Rates by Industry (Circular 103/2014/TT-BTC)
| Sector | VAT Rate (%) |
|---|---|
| Services, equipment leasing, insurance, drilling rigs | 5% |
| Construction, installation including materials | 3% |
| Transport, manufacturing, other business | 2% |
| Distribution, supply of goods, securities transfer | 1% |
| Financial derivatives | 2% |
Standard VAT Rates
Standard VAT rates under the VAT Law (applicable to Vietnamese enterprises using the credit method) are: 0%, 5%, 8% (temporary), 10%. These are separate from the deemed percentage rates used in the foreign contractor tax framework.
Status of Circular 103/2014/TT-BTC
Circular 103/2014/TT-BTC remains in full force. Circular 40/2021/TT-BTC governs household businesses and individual traders and does not replace Circular 103.