Foreign Contractor Tax (FCT) : Section A - Multiple Choice Questions

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FOREIGN CONTRACTOR TAX (FCT)

Section A – Multiple choice questions
1. Zenita Co, a Brazilian company, signed a contract with a Vietnamese company, Company X,
for the construction of a factory in Vietnam. The contract value is USD19 million. Zenita Co
subcontracted part of the construction works with a value of USD3 million to Company A, a
Vietnamese company, and works with a value of USD2.5 million to Company B, a Taiwanese
company, adopting the deemed method for foreign contractor tax (FCT). Zenita Co also
purchased goods for the works with a value of USD2 million from Vietnamese suppliers.
What is the amount of the foreign contractors’ taxable revenue from the contract for the
purposes of FCT?
A. USD19 million
B. USD13.5 million
C. USD16 million
D. USD11.5 million
2. Which of the following transactions would be subject to foreign contractor tax (FCT) in
Vietnam?
(i) Repair of a Vietnamese internet cable offshore
(ii) Online training for the employees of a Vietnamese company where the server is hosted
overseas
(iii) An intermediary arrangement for a Vietnamese company to provide services in Singapore
(iv) Granting of rights to a Vietnamese company to use the international brand name of a
world famous product in Vietnam
A. i and ii
B. ii and iv
C. i and iii
D. iii and iv
3. VERYDEU Co, a Chinese company, signed a contract with a Vietnamese project owner for
the supply and installation of some equipment. VERYDEU Co subcontracted all the equipment
supply value to a Vietnamese subcontractor and only performed the installation activities
itself.
What would be the foreign contractor tax (FCT) rates applicable to VERYDEU Co under the
deemed method?
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Corporate income tax (CIT) Value added tax (VAT)
A. 2% 3%
B. 5% 5%
C. 1% Exempt
D. 10% Exempt
4. Lameda Co, a foreign company based in Singapore, hired space in a bonded warehouse in
Vietnam. The storage space was used for:
- the temporary storage of materials for Lamevie Co, a Vietnamese company, prior to
their further processing by Lamevie Co; and
- the storage of finished goods for other companies in Vietnam prior to their
distribution in Vietnam.
In the case of the finished goods, the costs of transportation from the bonded warehouse to
the distributors’ warehouse in Vietnam was paid for by the distributors but reimbursed by
Lameda Co.
What are the Vietnamese foreign contractor tax (FCT) implications for Lameda Co from the
above transactions?
With Lamevie Co With other distributors
A. Subject to FCT Subject to FCT
B. Subject to FCT Not subject to FCT
C. Not subject to FCT Subject to FCT
D. Not subject to FCT Not subject to FCT
5. In July 2021, MGT Co borrowed USD10 million from a foreign bank at an interest rate of 5%
per annum for four years (MGT will bear any FCT on the interest). It is specified in the loan
agreement that where MGT cannot repay the loan on the specified date, MGT would be
subject to late payment interest. In October 2021, MGT paid back the loan plus USD250,000
interest and USD40,000 for late payment interest.
What is the amount of the CIT portion of FCT (rounded to 0 decimal) to be declared and
paid by MGT Co for the above transaction?
A. USD13,300
B. USD14,500
C. USD13,974
D. USD15,263
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6. RED Co, a Vietnamese real estate developer, signed a contract in May 2021 with TLA Co, a
Hong Kong company. The contract was for TLA Co to provide advertising and intermediary
services to Hong Kong investors to purchase apartments developed by RED Co in Vietnam.
TLA Co’s services are carried out partly in Vietnam and partly in Hong Kong. According to the
contract, RED Co is required to pay a fixed fee of USD200,000 (net of any tax in Vietnam) to
TLA Co for 12 months of services, payable in two equal instalments in March and September.
What is the amount (in USD) of the corporate income tax (CIT) portion of foreign contractor
tax (FCT) RED Co would be liable to pay in Vietnam in 2021 based on the above contract
with TLA Co?
A. USD10,526
B. USD5,540
C. USD0
D. USD5,263
7. TCD Co, an Australian company, signed a contract with HMC Co, a Vietnamese company,
for TCD Co to provide consultancy skills training for HMC Co’s staff in 2021. The value of the
training agreement was USD100,000, gross of corporate income tax (CIT) and net of the value
added tax (VAT) portion of foreign contractor tax (FCT). The contract value was made up of
online courses (20%), whilst the remaining 80% was attributable to training courses which
took place in Vietnam. HMC Co settled the contract value in full in 2021.
What is the amount (in USD), net of foreign contractor tax (FCT), TCD Co can receive from
HMC Co in respect of the above training agreement during the year 2021?
A. USD95,000
B. USD94,737
C. USD98,947
D. USD96,000
8. XAL Co is a foreign airline which has an office in Vietnam to sell airfares. In the fourth
quarter of 2021, XAL Co earned gross revenue, i.e. before the deduction of any charges or
refunds, of USD250,000, based on receipts and records. Of this amount, USD200,000 was for
passenger transportation, and the remaining amount related to cargo transportation. Airport
charges of USD5,000 were collected from these fares on behalf of the domestic airports. XAL
Co also paid refunds of USD7,000 to passengers who returned their fares during the quarter.
What is the total amount of taxable income (in USD) which XAL Co should declare for the
corporate income tax (CIT) portion of the foreign contractor tax (FCT) in the fourth quarter
of 2021?
A. USD188,000
B. USD238,000
C. USD245,000
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D. USD193,000
9. In 2021, MHT Co, a Japanese company, signed a contract to supply and install equipment
for PCR Co, a Vietnamese company. The contract price was USD2 million gross of value added
tax (VAT) and corporate income tax (CIT). MHT Co purchased goods relating to this contract,
valued at USD0.50 million, from Vietnamese suppliers.
What is the amount (in USD) of the corporate income tax (CIT) portion of foreign contractor
tax (FCT) which PCR Co would be required to withhold on the above contract with MHT Co,
assuming MHT Co applied the deemed method for FCT declaration?
A. USD29,100
B. USD40,816
C. USD30,612
D. USD38,800
10. PNLT Co, a foreign contractor from Denmark, entered into a contract for construction of
a factory in Vietnam and applied the deemed method for declaring foreign contractor tax
(FCT). The works were completed in 2020, however, there were some disputes between PNLT
Co, its suppliers and the project owner. When the disputes were settled in 2021, PNLT Co
received contractual compensation of USD500,000 from its suppliers, but had to pay
contractual compensation of USD320,000 to the project owner. Compensation is treated as
‘other business activities’ for corporate income tax (CIT) purposes.
What is the amount of corporate income tax (CIT) as a portion of the foreign contractor tax
(FCT) liability incurred by PNLT Co in Vietnam in 2021, if the company’s policy is to minimise
tax under current regulations?
A. USD0
B. USD10,000
C. USD36,000
D. USD3,600
11. In 2021 DL Co, a Vietnamese company, contracted with DL Group, its multinational parent
company, to supply DL Co with international express delivery services. DL Co remitted an
amount of USD800,000 (net of all foreign contractor tax (FCT)) to DL Group; 55% of this
payment related to deliveries from overseas to Vietnam, and the remainder related to
deliveries from Vietnam to overseas. In a prior tax audit, the Vietnamese tax authorities
confirmed that the activities of DL Group should be treated as 'services' rather than
'transportation'.
What is the amount of the corporate income tax (CIT) portion of FCT that DL Co must pay in
relation to the fees paid to DL Group, assuming DL Group applies the deemed method for
FCT declaration?
A. USD23,158
B. USD18,947
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C. USD42,105
D. USD0
12. HCO Co is a company headquartered in Hong Kong which provides logistic services. In
2021, HCO Co provided cargo handling services at Hong Kong ports for the international
transportation activities of ATC Co, a Vietnamese company. In 2021, HCO Co charged ATC Co
a fee of USD100,000 for these handling services. It was agreed by both companies that this
fee was net of any withholding tax in Vietnam.
What is the amount of foreign contractor tax (FCT) that ATC Co should declare and pay to
the Vietnamese tax authorities on behalf of HCO Co?
A. USD10,803
B. USD5,263
C. USD0
D. USD10,250
13. In which of the following scenarios is the foreign company subject to foreign contractor
tax (FCT) in Vietnam?
A company, established in Malaysia, which transferred the right to develop a project in
(1)
Vietnam to a Vietnamese company
A company in Hong Kong which sold equipment to a company in Vietnam with a one-year
(2) warranty clause in the contract stating that the risks to the equipment are transferred at
the Hong Kong port
A company in Thailand which received compensation from a Vietnamese company for
(3)
late delivery of goods
A company in Singapore which signed a contract to buy garment products from TXT Co, a
(4) Vietnamese company, and instructed TXT Co to deliver the garments to PCS Co, another
Vietnamese company, under the on-the-spot-import-export mechanism
A. 1, 2, 3 and 4
B. 2 and 4 only
C. 2 and 3 only
D. 1, 3 and 4 only
14. In 2021, NWC Co, a company incorporated in Vietnam entered into a contract with OSL
Co, a foreign company incorporated outside Vietnam, to purchase a specialised robot for
USD1 million. The price is net of all withholding tax in Vietnam. The terms of delivery for the
robot were cost insurance freight (CIF) to Ha Phong Port while title and risk to the goods
would be transferred at the uploading port in Singapore. According to the contract, OSL Co
would not provide any services except for the guarantee and replacement of the robot within
two years in case of defects (the robot will be shipped back to Singapore for fixing or
replacement). NWC Co settled the full contract amount in 2021.
What is the amount of the foreign contractor tax (FCT), under the deemed method for the
fiscal year 2021, which NWC Co is required to pay in relation to the contract amount paid
to OSL Co?
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A. USD10,101
B. USD10,000
C. USD51,967
D. USD0
15. In 2021 STP Co, a company incorporated in France, won a bid from PSL Co, a company
incorporated in Vietnam to supervise the construction of PSL Co's factory in Vietnam. The
supervision fee under the contract was USD 650,000, inclusive of corporate income tax (CIT)
and exclusive of value added tax (VAT) To implement the contract STP Co purchased goods
and services equivalent to USD 50,000 from local suppliers.
What is the amount of foreign contractor tax (FCT) corporate income tax (CIT) and value
added tax (VAT) in USD, which STP Co would be subject to in respect of the project in
Vietnam in the fiscal year 2021?
CIT VAT
A. USD32,211 USD36,011
B. USD30,000 USD31,579
C. USD31,579 USD33,241
D. USD32,500 USD34,211
16. APL Co is a company incorporated in Singapore to distribute branded mobile phones. In
2021, APL Co sold 5,000 phones to VTD Co a retail company incorporated in Vietnam, at a unit
price of USD 600 (terms of delivery free on board (FOB) Singapore port, net of any tax in
Vietnam). The contract specifies that the selling price of the phones in Vietnam shall be
determined by APL Co and that APL Co will not carry out any services in relation to the phones
in Vietnam. VTD Co is authorised to conduct advertising activities for the phones in Vietnam
at the expense of APL Co In 2021 VTD Co incurred advertising costs of VND 1,175 million which
were offset against the amount payable to APL Co. All payments were settled in full in the
year ended 31 December 2021.
What is the amount of corporate income tax (CIT) as a portion of the foreign contractor tax
(FCT) liability which VTD Co should declare on behalf of APL Co from the trading transactions
in the fiscal year 2021?
A. USD29,798
B. USD30,000
C. USD0
D. USD30,303
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Section B – Response case questions

Question 1:
MCSP Co (MCSP) is an international supplier of foodstuff processing equipment incorporated
in Singapore. MCSP intends to enter into a contract with KCD, a Vietnamese corporation, for
the supply of a large foodstuff production line in Vietnam.
The expected contract value of the production line will consist of the following (after
withholding tax in Vietnam):
- Machinery and equipment: USD25 million
- Design of the production line: USD2 million
- Supervision, installation and training: USD3 million
MCSP is considering whether to make the contract a lump sum contract for USD30 million, or
a contract with the value of each activity shown separately (as above).
MCSP also wants to subcontract a part of the equipment supply amounting to USD5 million
to Vietnamese subcontractors.
The whole of the above supplies are in a list of objects subject to value added tax (VAT) at
10% under the Vietnamese VAT regulations.
According to the draft contract, KCD will bear all the withholding tax in Vietnam in respect of
the activities of MCSP.
Required:
(a) Calculate the foreign contractor tax (FCT) applicable to MCSP Co if the contract value is
stated as a lump sum of USD30 million.
(b) Calculate the FCT applicable to MCSP Co if the contract value is shown separately for
each activity.
Note: You should make all calculations to the nearest USD thousands.
Question 2: You should assume that today’s date is 1 November 2021.
TPF Co is a distributor of electronic products in Vietnam. TPF Co is also an importer of
components for assembling into specialised computers and is a solution provider for cloud
services.
TPF Co is considering entering into a number of agreements with foreign companies before
the end of 2021. TPF Co is aware of changes in the foreign contractor tax (FCT) treatment
under the Circular 103/2014/TT-BTC and has obtained the following summary of the key
issues relating to three of these contracts and one of its ongoing contracts:
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Contract 1 with ELPPA Co

TPF Co is about to renew an existing agreement with ELPPA Co for the long-term distribution
of e-Nophi, a global mobile phone brand, in Vietnam. The draft revised agreement provides
that:
- TPF Co will be authorised to be the non-exclusive distributor of e-Nophi in Vietnam.
- The price of e-Nophi will be fixed and determined by ELPPA Co for each period. TPF
Co will not be allowed to change the quoted price without the prior written consent
from ELPPA.
Contract 2 with BookMac Co
TPF Co is negotiating an import contract for laptops for re-sale in Vietnam with BookMac Co.
According to the draft agreement:
- The terms of delivery will be DDP (delivery duty paid) to Ho Chi Minh City.
- The advertising costs for the products in Vietnam will be advanced by TPF Co, but
BookMac Co will reimburse these costs to TPF Co upon submission of sufficient
supporting documents.
- BookMac Co will replace any defective laptop one-for-one within one year from the
supply date.
Contract 3 with PH Co
TPF is negotiating an import contract for specialised computer components with PH Co.
According to the draft agreement:
- The terms of delivery will be CIF (costs, insurance, freight) to Ho Chi Minh City port.
- PH Co will be responsible for the insurance and freight costs up to delivery at Ho Chi
Minh City port, but the risk will be transferred from the uploading port in Malaysia.
- PH Co will not provide any services in Vietnam, but will be responsible for the warranty
of the components in case of defects. The defective components will be shipped to
the subsidiary of PH Co in Malaysia to be fixed or replaced if needed.
Contract 4 with MBI Co
TPF Co has an existing licence agreement, which was originally concluded in 2013, with MBI
Co, a leading provider of cloud services solutions. Under the terms of the agreement:
- MBI Co transfers technology to TPF Co which enables users of a new cloud service to
stream any kind of file from the cloud to their mobile device using an application.
- TPF Co localises and distributes the services in Vietnam, and pays a licence fee to MBI
Co at 3% of the net service revenue.
- In addition, TPF Co pays MBI Co a fixed fee for training TPF Co’s technical staff to fully
deploy the service. The training is conducted online with MBI Co’s trainers providing
lectures to TPF Co’s staff via the internet.
- TPF Co is responsible for any foreign contractor tax (FCT) payable in Vietnam.
In 2021, TPF Co recorded net service revenue of VND17.2 billion from the licensed services
and paid MBI Co a training fee of USD30,000.
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Required:
(a) In respect of Contracts 1 and 2, state whether ELPPA Co and Bookmac Co will be subject
to foreign contractor tax (FCT) in Vietnam and if so, at what rates.
(b) In respect of Contract 3, state, giving reasons, whether PH Co will be subject to FCT in
Vietnam.
(c) In respect of Contract 4, calculate the FCT liability (in VND millions) to be incurred by TPF
Co in 2021.
Question 3:
CC-SS is a foreign invested company located in Thai Nguyen Province. It has recently
approached foreign contractors for quotations regarding a turn-key contract for the
construction of a wheat mill in Vietnam.
CC-SS received the following itemised quotation from a German contractor, BH Co, for the
estimated value of the works (net of Vietnamese withholding tax) as follows:
- Supply of machinery and equipment (fully imported): USD6,000,000
- Design services: USD1,000,000
- Construction and installation works: USD1,500,000
- Supervision services: USD800,000
- Testing services: USD300,000
- Training (all to be conducted overseas): USD600,000
BH Co also advised that they will not have any permanent establishment in Vietnam and they
would not apply Vietnamese Accounting Standards for this contract.
BH Co is prepared to consider the following alternatives for delivery of the contract:
(1) To sub-contract all of the supplies (machinery, equipment, constructions and installation)
to Vietnamese sub-contractors and only carry out the services themselves.
(2) To carry out all of the works (supplies and services) themselves.
If alternative (2) is adopted, CC-SS would consider entering into a lump sum price contract,
instead of an itemised contract (with full break-down as above) if this resulted in a lower
foreign contractor tax liability.
Required:
(a) Calculate the foreign contractor tax (FCT) payable by CC-SS if BH Co sub-contracts all of
the supplies under the contract (alternative (1)).
(b) Calculate the FCT payable by CC-SS if BH Co carries out all of the work under the contract
(alternative (2)) if:
(i) the contract value is quoted as a lump sum price; and
(ii) the contract value is itemised as per the original quotation.
Note: All calculations should be made in USD millions rounded to two decimals.
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Question 4:
On 1 January 2021, Vietnamese treasury bills with a face value of VND100,000 and a term of
six months were issued for VND89,000 per bill. After being issued, Vietnamese treasury bills
are posted on the Ho Chi Minh City Stock Exchange (HNX).
TBC Co, a professional investment institution based in Singapore, effected the following
transactions in the treasury bills issued on 1 January, between 2 January and 1 July 2021 (i.e.
the maturity date of the bills):
Transaction date Buy/Sell Number of bills Price - VND
2 January 2021 Buy 240,000 90,000
1 February 2021 Buy 200,000 91,000
15 March 2021 Sell 130,000 92,500
15 April 2021 Buy 160,000 93,000
15 May 2021 Sell 70,000 94,500
Required:
(a) Calculate the volume of treasury bills held by TBC Co on the maturity date.
(b) Calculate the weighted average buying price (in VND millions) of the treasury bills held
by TBC Co on the maturity date, using the first-in-first-out (FIFO) method.
(c) Calculate (in VND millions) the taxable revenue and corporate income tax (CIT) portion
of the foreign contractors tax (FCT) payable by TBC Co in 2021 from:
(1) the sales of listed treasury bills; and
(2) the redemption of the treasury bills at their maturity date.
Note: Income from treasury bills listed in the Stock Exchange held by an investor for
redemption at the maturity date would be treated as income from interest for FCT
purposes.
Question 5:
Mark Anderson is the chief financial officer (CFO) of EZ-Trading Co, which is established in
Vietnam as a distributor of various products in Vietnam for foreign suppliers. At the end of
2021, after attending a tax update by a tax consulting firm, Mark became concerned about
the foreign contractor tax (FCT) risks from some contracts with foreign suppliers which EZ-
Trading Co renewed in 2021. When the contracts were originally signed (all before 2020), FCT
had never been an issue, as the foreign contractors were viewed as having no business
activities in Vietnam.
On reviewing the contracts, Mark identified the following clauses as potentially exposing EZ-
Trading Co to having to bear FCT for the foreign suppliers.
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Foreign supplier Product Concerning provisions

OCL Co (a US Virtual reality OCL Co bears the risks of the goods until the time the
company) devices devices arrive at the Vietnam border gate. EZ-Trading
Co is responsible for customs clearance and
transportation from the Vietnam border gate to its own
warehouse.
OCL Co has the right to determine the selling price of
the products each time in Vietnam.
OCL Co gives a guarantee period of one year for faulty
products. EZ-Trading Co is to ship back the faulty goods
to OCL Co overseas for replacement.
MBN Co (a Swiss Luxury MBN Co bears the risks of the goods until the time the
company) watches watches arrive at EZ-Trading Co’s bonded warehouse in
the port, at the border gate. EZ-Trading Co is
responsible for customs clearance.
MBN Co retains ownership of the luxury watches until
they are sold to a third-party buyer.
MBN Co bears the costs of advertising the watches
incurred in Vietnam. Subject to the instructions of MBN
Co, EZ-Trading Co signs contracts with the advertising
firms and makes advance payments and then invoices
these back to MBN Co.
In addition to the above, EZ-Trading Co also has the following arrangements with its parent
company (EZ-International Co) which is headquartered in Singapore:
Foreign supplier Services Description

ADT Co (located in Advertising As a group policy, EZ-Trading Co is required to
Singapore) share advertising costs with various other
subsidiaries of EZ-International Co in the region.
The parent company enters into a contract with
ADT Co (which indicates EZ-Trading Co and other
subsidiaries as the participants to the contract)
and pays advertising expenses centrally to ADT
Co, then invoices EZ-Trading Co and the other
subsidiaries their allocated fee. The advertising
is conducted via the internet and the allocation
to EZ-Trading Co is mainly for the display in the
Vietnamese language.
TNL Co (located in the Training EZ-International Co has signed a master
UK, with branches in agreement with TNL Co for various training
Vietnam) courses (which identifies EZ-Trading Co and
certain other subsidiaries as the participants to
the master agreement). TNL Co organises the
courses for EZ-Trading Co and the other
subsidiaries of EZ-International Co in Asia. Some
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courses are organised in Vietnam specifically for

EZ-Trading Co, other courses are organised in
other countries for both EZ-Trading Co and other
subsidiaries.
Required:
(a) Analyse the concerning provisions in the agreements with foreign suppliers, and advise
Mark whether EZ-Trading Co will be required to withhold and pay foreign contractor tax
(FCT) on behalf of the foreign supplier from the activities in the agreements with OCL Co
and MBN Co respectively. If withholding of tax is required, advise Mark of the LIKELY
APPLICABLE FCT rate(s).
(b) State, giving reasons, whether ADT Co and TNL Co would be subject to FCT in Vietnam
in respect of the advertising and training services provided in relation to EZ-Trading Co
under the agreements signed with EZ-International Co in Singapore.
Note: You are not required to specify the rates of withholding in part (b).
Question 6:
MCNR Co is a European company specialising in machinery for the pulp and paper industry.
In 2021, MCNR Co received a request for proposal (RFP) from SGPP JSC, a company in
Vietnam, for the construction of a paper factory in Dong Nai, Vietnam.
The RFP requires that bidders quote a price which is gross of the corporate income tax (CIT)
portion and net of the value added tax (VAT) portion of the foreign contractor tax (FCT)
payable in Vietnam.
Based on its experiences from prior projects in Vietnam, MCNR Co estimated that the value
net of all withholding taxes which it would expect to receive from the project would be as
follows:
Required:
(a) State whether the cost of the spare parts to be purchased from MCEQVN and the value
of the services to be subcontracted to MCSIVN will be deductible from taxable revenue
when determining the foreign contractor tax (FCT) liability of MCNR Co.
(b) Calculate (in USD millions, rounded to two decimals) the contract price to be quoted by
MCNR Co as required in the request for proposal (RFP) and the potential FCT which will be
withheld from the payments made to MCNR Co if the parties agree to break down the value
of each item in the contract.
(c) Calculate (in USD millions, rounded to two decimals) the contract price to be quoted by
MCNR Co as required in the RFP and the potential FCT which will be withheld from the
payments made to MCNR Co if the parties agree to state a lump sum price in the contract.
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Question 7:
INTSP Co, a Vietnamese company, entered into the following transactions with foreign
partners in the year 2021:
Transaction 1: In March 2021, INTSP Co leased a specialised vehicle from LSPC Co, a Germany
company, for the period from 1 April to 31 December 2021 for USD900,000 net of all
withholding tax in Vietnam. The rental covered the following expenses for which LSPC Co
obtained documents and presented them to INSTP Co:
- expenses of USD20,000 for negotiating the contract with INTSP Co;
- vehicle insurance of USD24,000 per annum; and
- transportation costs to Vietnam of USD30,000.
The operation of the vehicle requires special skills and LSPC Co assigned an expert to Vietnam
to operate the vehicle from 1 April to 30 September 2021. LSPC Co has sufficient documents
to prove that it paid this expert USD10,000 per month.
Transaction 2: In November 2021, INTSP Co entered into an agreement to act as the shipping
agent in Vietnam for D-Line, a Danish maritime shipping line. According to the agency
agreement, INTSP Co is responsible for receiving goods from Vietnamese customers for
international shipping, issuing bills of lading and collecting freight on behalf of D-Line in
Vietnam.
In December 2021, D-Line accepted an order from MCT Co, a Vietnamese customer, to ship
goods from Vietnam to Brazil for a freight cost of USD120,000 plus a surcharge of USD40,000
for over-sized goods (both amounts inclusive of all taxes in Vietnam). As requested by D-Line,
INTSP Co leased a vessel from a Vietnamese company to transport the goods from Vietnam
to Singapore (a hub of D-Line in Asia) from where the goods would be shipped on to Brazil.
The shipping freight cost from Vietnam to Singapore was USD30,000.
Required:
(a) Calculate (in USD) the corporate income tax (CIT) portion of the foreign contractor tax
(FCT) which INTSP Co should declare in its FCT return for 2021 in respect of the leasing
contract with LSPC Co.
(b) (i) Briefly explain the principle to be applied when determining the taxable revenue for
a shipping line such as D-Line.
(ii) Calculate (in USD) the FCT which INTSP Co should declare in its FCT return for 2021 on
behalf of D-Line in respect of the shipping order from MCT Co.
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Question 8:
Agado is a company headquartered in Hong Kong providing an online travel booking platform.
Subscribers to the platform (i.e. clients) can book hotel rooms worldwide, at a rate which is
lower than the usual quoted price of the hotel.
In 2021, Agado entered into an agreement with TSQR Co, a luxury hotel company in Vietnam.
As part of the agreement, TSQR Co will provide a 20% discount from the quoted price to
clients who book rooms at the hotel via Agado. In addition, TSQR Co will pay Agado a referral
fee of 15% of the room charge paid by clients. The referral fees receivable by Agado will be
net of any Vietnamese withholding tax. The agreement provides two different mechanisms
for collecting money from Agado clients:
- Clients can pay rent for a booked room to Agado via credit card or other online
payment mechanism (such as PayPal). Agado then settles the residual rent after
deducting the referral fees to TSQR Co; or
- Clients can pay the rent directly to TSQR Co for each booking made with Agado, and
TSQR Co pays the referral fees due to Agado.
In 2021, TSQR Co received USD2.38 million from Agado and VND45,600 million directly from
clients for room bookings made through Agado.
TSQR Co recently obtained confirmation from the local tax authorities that the activities of
Agado would be treated as ‘services’ for foreign contractor tax (FCT) purposes in Vietnam.
Required:
(a) Calculate (in VND million) the foreign contractor tax (FCT) which TSQR Co should declare
on its FCT return for 2021 in respect of the agreement with Agado.
(b) (i) State the circumstances in which Agado may be exempt from the corporate income
tax (CIT) portion of FCT in Vietnam in accordance with the double tax agreement (DTA)
between Hong Kong and Vietnam.
Note: You should assume the DTA follows the general guidance regarding implementation
of double tax treaties in Vietnam.
(ii) Briefly explain the initial procedures to be implemented for the DTA exemption to apply.
Question 9:
ALPB Co is a company with global operations and is headquartered in Ireland. The company
provides various online services, most notably search engines and cloud services. A key source
of income for ALPB Co is the sale of online advertisement services for companies and
websites, under the service package name of G-Ads.
In 2021, ALPB Co appointed AVN Co, a Vietnamese company, to act as its distributor in
Vietnam in order to expand its G-Ads services. Under the distribution agreement, AVN Co
identifies customers in Vietnam who have the need for G-Ads, enters into contracts for
advertising with the customers and collects fees on behalf of ALPB Co. The collected fees are
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then remitted to ALPB Co by AVN Co after deducting their service fee based on 20% of the
collected amount. The remittance is also net of any withholding tax which may be applicable
to ALPB Co in Vietnam.
In 2021, AVN Co remitted a net amount of USD16 million to ALPB Co. In addition, AVN Co are
liable to pay an amount of USD450,000 to ALPB Co for using its cloud services in 2021.
However, the distribution agreement allows this amount to be offset with an amount of
USD600,000 which is due to be paid by ALPB Co to AVN Co towards their initial expenses
incurred in promoting the G-Ads service in Vietnam. Both parties would finalise any remaining
amount due in 2022.
In addition, during 2021, ALPB Co collected substantial fee income for the provision of cloud
services to various corporate subscribers in Vietnam. According to its standard contract with
users, ALPB Co requires any withholding tax in Vietnam to be borne by the user.
Note: You should assume that the tax authorities in Vietnam accept cloud services as
‘software services’.
Required:
(a) Briefly explain whether the services (G-Ads and cloud services) provided by ALPB Co to
users in Vietnam would be subject to foreign contractor tax (FCT), and the administrative
and payment requirements for this tax.
Note: No calculations are required in this part.
(b) Calculate (in VND million) the FCT which AVN Co should declare on its FCT return for
2021 in respect of its payment of the net amount of USD16 million to ALPB Co.
(c) Determine whether AVN Co should declare FCT in 2021 for the fee of USD450,000 for
cloud services provided by ALPB Co, and calculate (in VND million) the total FCT liability, if
any.
Question 10:
SGB, a foreign bank located in Singapore, entered into an interest swap contract with TCB, a
Vietnamese bank, based on a loan of USD100 million. The effective period of the contract was
two years from 1 March 2019 to 28 February 2021 and it provided that the 'losing party' (i.e.
the party which has the unfavourable interest movement) would make a settlement to the
other party at the beginning of each six-month period, starting on 1 March 2019. The
settlements made throughout the contract period are shown below:
Period Losing party Amount settled
(USD million)
1 March 2019 to 31 August 2019 TCB 2
1 September 2019 to 28 February 2020 SGB 5
1 March 2020 to 31 August 2020 SGB 1
1 September 2020 to 28 February 2021 TCB 2.5
According to the interest swap contract, any settlement will be net of foreign contractor tax
(FCT) in Vietnam.
15
Required:
(a) Explain how the FCT is determined in Vietnam with regard to the interest swap
contract, including the taxable revenue amount and tax rates:
(i) when SGB settles to TCB; and
(ii) when TCB settles to SGB.
(b) Calculate (in USD) the FCT liability which TCB is required to declare in its FCT return in
relation to the transactions for the years 2019, 2020 and 2021, providing a brief
explanation if no tax liability arises.
Question 11:
ALPB TCC Co is a company incorporated in Vietnam, operating in the high technology sector.
TCC Co declares value added tax (VAT) under the deduction method and all of its input VAT is
creditable. During 2021, TCC Co has been planning the building of a virtual reality training
system in Ho Chi Minh City, and has been negotiating with SLE Co, a German contractor, for
a turn-key contract to construct the system.
SLE Co has provided TCC Co with the following quotation:
USD million
Supply of equipment 30
Construction and installation 6
Supervision, guarantee and other services 5
Software (royalty) 10
Training for operations (overseas) 1
The above quotation figures are net of foreign contractor withholding tax (FCT). SLE Co has
indicated that it is willing to follow any contractual arrangement that can help TCC Co to
achieve an optimum withholding tax position in Vietnam.
TCC Co is considering the following options with regard to the contract price:
You should assume that the software (royalty) is not subject to VAT in Vietnam, and the lump
sum price contract is accepted by tax authorities to be categorised as "construction, assembly
and installation where the tender includes the supply of materials, machinery and equipment
in the construction work".
Note: You should assume that the tax authorities in Vietnam accept cloud services as
‘software services’.
Required:
(a) Calculate (in USD) the foreign contractor tax (FCT) liability for TCC Co if it selects option
1, the itemised contract.
(b) Calculate (in USD) the (FCT) liability for TCC Co if it selects option 2, the lump sum price
contract.
(c) Advise TCC Co which contract price option is lower from a foreign contractor tax (FCT)
perspective and explain which option TCC Co should select.
16

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SAPP Academy Tel 0466 709 888

FOREIGN CONTRACTOR TAX (FCT)

Corporate income tax (CIT) Value added tax (VAT)

With Lamevie Co With other distributors

A. Subject to FCT Subject to FCT

B. Subject to FCT Not subject to FCT

C. Not subject to FCT Subject to FCT

D. Not subject to FCT Not subject to FCT

Section B – Response case questions

Contract 1 with ELPPA Co

Foreign supplier Product Concerning provisions

Foreign supplier Services Description

courses are organised in Vietnam specifically for

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