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Vietnam Double Tax Avoidance Agreements

Introduction

Global investors often find themselves in an unfavorable position of having to face being double taxed – taxed by two different countries on the same income – unless there is a Double Tax Avoidance Agreement in place. For example, a company might be subject to taxes in its native or resident country, and also in another foreign country where it has raised income by providing labor, or via a foreign invested company that provides goods or services.

Double Tax Avoidance Agreements (DTA) treaties effectively eliminate double taxation in specific cases by identifying exemptions or reducing the amount of taxes payable. It is therefore important for foreign investors, or expatriates working in Vietnam, to be aware of any DTAs that may exist between Vietnam and the native countries that apply to them, and to understand how these agreements are applied in practice between their native or resident countries and Vietnam.

As of 2022, Vietnam has signed DTAs with more than 80 countries and territories. These treaties eliminate double taxation through identifying exemptions or reducing tax payable in Vietnam for residents of the signatories of the agreements. 

Who do DTAAs apply to?

Native residents of countries that are signatories to DTAAs with Vietnam are subject to the relevant taxes in their native countries. A person or organization is typically considered a resident if they own residential property, have resided in the country for a certain amount of time, or satisfy any other relevant criteria as set out by their native country.

A DTAA applies to an individual or corporation who is native to another country, and is a resident of Vietnam, or a resident of their native country which Vietnam had signed a DTAA with, or is a resident of both countries according to each of the two respective country’s criteria.

In order to be determined a resident of Vietnam, a person or corporate entity must satisfy any one or more of the following:

  • Having stayed in Vietnam for 183 days or more within one calendar year or a consecutive 12-month period from the first date of arrival;
  • Obtained and registered for permanent residence status; or
  • Leased a residence in Vietnam for at least 90 days within the tax assessment year. Applicable residences include hotels, boarding houses, rest houses, lodgings, and working offices.

Organizations are considered residents of Vietnam if they have established a business in Vietnam and operate under Vietnamese law; This includes Limited Liability Companies (LLCs), joint-stock companies, private enterprises, state companies, and cooperatives.

List of Double Tax Avoidance Agreements

Vietnam's Double Taxation Avoidance Agreements (as of 2020)

Algeria (Not yet in effect)

Ireland

Portugal

Australia

Israel

Qatar

Austria

Italy

Romania

Azerbaijan

Japan

Russia

Bangladesh

Kazakhstan

San Marino

Belarus

North Korea

Saudi Arabia

Belgium

South Korea

Serbia

Brunei Darussalam

Kuwait (Not yet in effect)

Seychelles

Bulgaria

Laos

Singapore

Canada

Luxembourg

Slovakia

China

Macedonia (Not yet in effect)

Spain

Cuba

Malaysia

Sri Lanka

Czech Republic

Malta

Sweden

Denmark

Mongolia

Switzerland

Eastern Uruguay

Morocco

Taiwan

Egypt (Not yet in effect)

Mozambique

Thailand

Estonia

Myanmar

Tunisia

Finland

Netherlands

Turkey

France

New Zealand

Ukraine

Germany

Norway

United Arab Emirates

Hong Kong

Oman

United Kingdom

Hungary

Pakistan

United States (Not yet in effect)

Iceland

Palestine

Uzbekistan

India

Panama

Venezuela

Indonesia

Philippines

 

Iran

Poland

 

How do DTAAs apply?

Principles of application

In Vietnam, DTAAs impact both corporate income tax and personal income tax.

DTAA’s apply in the following circumstances:

  • When there is a direct conflict between domestic tax laws and the tax provisions in a DTAA, those in the DTAA will prevail;
  • When the relevant tax obligations included in the DTAA do not exist in Vietnam or when the tax rates in the agreement are more than the domestic tax rates, domestic tax laws will prevail. For example, if a signatory country is entitled to impose a type of tax that Vietnam does not recognize, then Vietnam’s tax laws will apply.

Exceptions for diplomats

The provisions of a DTA will not affect the rights or immunities of members of diplomatic and consular missions, as per international treaties, which Vietnam has signed or to which it has acceded. 

Types of taxable income covered by DTAA’s

Personal income

Nationals of countries that have a DTAA with Vietnam, that earn income in Vietnam, and who are deemed to be a resident of Vietnam, are required to pay income taxes subject to Vietnam’s personal income tax laws; These residents of Vietnam may be exempted from taxation in their native country under the terms of the DTAA which has been signed.

These individuals may be exempted from taxation in Vietnam if they satisfy all of the following conditions:

  • The individual is resident in Vietnam for fewer than 183 days over a 12-month period of any taxable year;
  • The resident’s employer is not a resident of Vietnam, regardless of whether the wages are paid directly by the employer or through the employer’s representative; and
  • The wages are not paid by the PE of the employer in Vietnam.

Income from Independent services

Foreign individuals that earn income by provisioning independent services must pay the relevant income taxes.

  • Personal income that is raised by provisioning independent services with a business license is subject to corporate income taxes.
  • If individuals or companies provide independent services without a business license, they are also required to pay personal income taxes.

Corporate income

Investors with a permanent establishment, such as a foreign-invested enterprise (FIE) that is licensed to conduct business in Vietnam, is subject to the laws of the prevailing corporate income taxes in Vietnam.

A permanent establishment is defined as a fixed place of business where operations are wholly or partially carried out. An FIE is said to be a PE in Vietnam if it maintains a building, office or equipment (either wholly or in part) that must be set up at a specified place and/or maintained permanently.

For foreign-invested enterprises (FIEs), corporate income is what is earned from carrying out production and business activities in Vietnam.

The tax obligations of FIEs are determined as follows:

  • Legal entities (e.g.wholly foreign-owned enterprises or joint ventures) – Taxed on incomes arising from business activities according to the corporate income tax law and its standard applicable rates.
  • Non-legal entities – (e.g.: those who operate without forming legal entities) - Subject to withholding tax or partially taxed if they own a permanent establishment (PE) in Vietnam to which income can be directly or indirectly attributed.

Foreign Contractors Withholding Tax

Parties that conduct business under a contract with a Vietnamese organization or individual will be subject to paying withholding taxes according to foreign contractor withholding tax regulations.

Other income sources subject to taxation

Dividends

No treaty benefit applies to dividends under DTAAs as there is no withholding tax on dividends in Vietnam. Companies are required to fulfill their financial and tax obligations in Vietnam before remitting dividends to their overseas parent companies. This means that the remitted dividends are after-tax profit which can be taxed again in the other signatory countries. Most tax and revenue jurisdictions allow tax offset for tax paid in other countries on dividends received.

Interest & royalties

Interest & royalties are taxed at 5 percent and 10 percent respectively. Tax on the interest is usually exempt under most DTAA while tax in royalty income is often reduced and ranges from 5 percent to 15 percent.

Technical, management, and consulting services

Tax on service fees is often withheld at 10 percent, in which 5 percent is of value-added tax (VAT) and the other 5 percent portion is CIT. Under DTAAs, only the CIT portion is subject to an exemption.

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