Changes to the CIT Tax Base for Foreign Contractor Tax (from 2026)
2026/09/11
- I-GLOCAL.CO.,LTD. Ho Chi Minh Office
- Luong Ngoc Linh
Executive Summary
① Overview of the amendment — Circular No. 69/2025/TT-BTC (effective July 1, 2025) and Circular No. 20/2026/TT-BTC (effective March 12, 2026) amend Circular No. 103/2014/TT-BTC on foreign contractor tax, revising the CIT taxable base for foreign contractors.
② Key change — When calculating the CIT taxable revenue, the previously required deduction of value-added tax (VAT) has been abolished; as a result, the VAT taxable revenue and the CIT taxable revenue are now always equal.
③ Practical impact — For net contracts, the gross-up conversion, previously required twice, now needs to be done only once, allowing the VAT and CIT taxable revenue to be calculated simultaneously (formula: taxable revenue = payment amount ÷ (1 − CIT rate − VAT rate)).
④ Increase in tax payable — For the same net contract (USD 1,000,000, VAT 5%, CIT 5%), the total tax payable under the new rules is USD 111,111.12, an increase of USD 3,077.88 (+2.85%) over the former rules (USD 108,033.24).
⑤ Action for companies — Existing foreign-contractor contracts should be reviewed; since some operational points remain unclear, confirming with the competent tax authorities is advisable where the treatment is uncertain.
Introduction
In connection with the entry into force of the Law on Value-Added Tax and the Law on Corporate Income Tax, the Ministry of Finance issued Circular No. 69/2025/TT-BTC (effective July 1, 2025) and Circular No. 20/2026/TT-BTC (effective March 12, 2026), amending important matters of Circular No. 103/2014/TT-BTC on foreign contractor tax.
Among the several changes, this article explains the change to the corporate income tax (CIT) taxable base for foreign contractors, as a matter that may have a direct impact on the determination of tax obligations in practice.
1. Changes to the CIT tax base
First, the approach to the provisions on the CIT taxable revenue has been changed as follows.
■ Former provision: Circular No. 103/2014/TT-BTC
“The CIT taxable revenue means the total revenue, not including value-added tax, that the foreign contractor and the foreign sub-contractor receive, before deduction of the taxes payable. The CIT taxable revenue also includes the expenses paid by the Vietnamese party on behalf of the foreign contractor and the foreign sub-contractor (if any).”
■ After amendment: Circular No. 20/2026/TT-BTC
“The CIT taxable revenue means the total revenue that the foreign contractor and the foreign sub-contractor receive, before deduction of the taxes payable. The CIT taxable revenue also includes the expenses paid by the Vietnamese party on behalf of the foreign contractor and the foreign sub-contractor (if any).”
２.Practical issues and interpretation
As a result of this amendment, the rule of deducting value-added tax when calculating the CIT taxable revenue has been abolished. This change directly affects the calculation of the tax payable in practice. Previously, under the provisions of Circular No. 103/2014/TT-BTC, calculating the tax payable always required following a certain sequence of steps.
Where a contract was concluded for an amount including the taxes payable in Vietnam (hereinafter a “gross contract”), it was necessary first to calculate the VAT taxable revenue and then to deduct that VAT amount in order to calculate the CIT taxable revenue.
On the other hand, where the foreign contractor’s remuneration did not include the taxes payable in Vietnam (hereinafter a “net contract”), it was necessary first to gross up the contract amount (convert it into a tax-inclusive amount) to determine the CIT taxable revenue, and then to perform a gross-up conversion once more in order to calculate the VAT taxable revenue.
At present, under the provisions of Circular No. 69/2025/TT-BTC and Circular No. 20/2026/TT-BTC, the treatment is organized as follows.
- The VAT taxable revenue and the CIT taxable revenue are always equal, and the step of deducting VAT in advance when determining CIT is no longer necessary.
- In the case of a net contract, the gross-up conversion needs to be performed only once, which makes it possible to calculate the VAT taxable revenue and the CIT taxable revenue simultaneously.
2-1 Overview comparison
2-2 Calculation formulas for foreign contractors under the new rules
2-3 Specific example
Suppose that Company XYZ (Japan) provides management consulting services to Company ABC (Vietnam). The contract is concluded on a net-price basis, and the Vietnamese party bears all of the taxes. The amount received by the foreign contractor (net) is USD 1,000,000; the VAT rate is 5% and the CIT rate is 5%.
[Calculation under the former rules]
[Calculation under the new rules]
As the calculation results show, for the same net contract (contract amount USD 1,000,000, VAT 5%, CIT 5%), the total tax payable under the new rules increases by USD 3,077.88 (+2.85%) compared with the former rules.
Conclusion
In light of this amendment, enterprises need to review the terms of their existing contracts with foreign contractors. This review not only serves to accurately determine the tax obligations under the current rules, but also contributes to assessing the impact of future tax changes, and provides a basis for appropriately revising the contract clauses.
Note that some points still remain unclear in terms of practical operation at present, so for any uncertainties it is advisable to confirm with the competent tax authorities before acting.
References
・Circular No. 20/2026/TT-BTC dated March 12, 2026
・Circular No. 69/2025/TT-BTC dated July 1, 2025
・Circular No. 103/2014/TT-BTC dated August 6, 2014
