Official Letter No. 296/CT-CS: Clarification of Foreign Contractor Tax Obligations for Data Center and Cloud Computing Services

On 19 January 2026, the Tax Department issued Official Letter No. 296/CT-CS, providing guidance and addressing practical issues arising from the implementation of tax regulations applicable to foreign contractors. This official letter clarifies the interaction between tax legislation and relevant sector-specific laws (such as the Telecommunications Law and the Intellectual Property Law), thereby fundamentally changing the approach to determining tax obligations for several commonly used digital services.  

Below is Baker Tilly A&C’s analysis of the key points set out in Official Letter No. 296/CT-CS:

1. Value Added Tax (VAT): Classification of Cloud & Data Center Services as Telecommunications Services

Official Letter No. 296/CT-CS classifies Data Center services, Cloud Computing services, and Over-the-Top (OTT) services provided via the Internet as Telecommunications Services in accordance with the Telecommunications Law.

Implications for Foreign Contractor (VAT) Obligations: This classification resolves the long-standing inconsistency in practice, where such services were previously treated as software services or other types of services, and establishes a clear basis for VAT application:

• Under the current Law on Value Added Tax, telecommunications services provided via digital platforms by foreign contractors are subject to VAT at a rate of 10% from 1 July 2025.
  Accordingly, enterprises are required to update the applicable VAT rate in their foreign contractor tax filings
• For periods prior to 1 July 2025, although Official Letter No. 296/CT-CS does not provide specific retrospective guidance, enterprises should reassess potential risks arising from the classification of these services as “software services” (non-VATable) and consider appropriate adjustments where necessary

2. Corporate Income Tax (CIT): Royalty Income or Service Income?

Official Letter No. 296/CT-CS requires the application of the Intellectual Property Law (as amended in 2022) to determine whether payments made to foreign contractors constitute royalty income or service income, which serves as the basis for determining the applicable foreign contractor CIT obligations.  

Implications for Foreign Contractor (CIT) Obligations:  Enterprises should clearly distinguish the nature of payments under their contracts in order to apply the correct tax rates and avoid potential tax reassessments.

Note: Royalty payments are subject to foreign contractor CIT at a rate of 10%, compared to the 5% rate applicable to ordinary services. Consequently, there is a significant tax risk if payments are declared at the 5% service rate while the underlying services contain royalty elements under intellectual property regulations. 

3. Baker Tilly A&C’s Recommendations

To ensure compliance with the guidance provided in Official Letter No. 296/CT-CS, Baker Tilly A&C recommends that enterprises

1. Review foreign contractors’ service portfolios: Reassess contracts and the nature of services provided by digital service providers (e.g., Google, AWS, Microsoft). 

In cases where inappropriate application of tax rates or taxable items is detected, businesses should proactively file supplementary adjustments in accordance with the provisions of the Tax Administration Law.

2. Record keeping: Prepare and keep documents and contracts proving the nature of the services to facilitate explanations when requested.
3. Update industry-specific law guidelines: Continuously update industry-specific law guidelines, decrees, and circulars for the services provided by contractors to determine the appropriate contractor tax obligations

Please contact Baker Tilly A&C if your business requires in-depth consulting support on contractor tax matters

Contact for Advisory Services

Mr. Nguyen Bao Anh
Deputy General Director – Head of Tax, Transfer Pricing & Outsourcing Services
Email: anh.nb@a-c.com.vn

Ms. Nguyen Thi Thu Thao
Senior Manager – Tax and Accounting Services
Email: thao.ntt@a-c.com.vn