By recognizing exemptions or lowering the amount of taxes due, Double Tax Avoidance Agreements (DTA) treaties in Vietnam successfully remove double taxation in particular circumstances.
Therefore, it is crucial for foreign investors or expatriates working in Vietnam to be aware of any DTAs that might be in place between Vietnam and the native countries that apply to them and to comprehend how these agreements are actually put into practice between their home or host countries and Vietnam.
Vietnam will have DTAs in place with more than 80 nations and territories by the year 2022. These agreements reduce or eliminate taxes that citizens of the signatories of the agreements must pay in Vietnam, eliminating double taxation.
The governing authority for Vietnam’s double tax agreements (DTAs) is the Ministry of Finance (Home) of Vietnam. The MOF is responsible for negotiating, signing, and implementing DTAs with other countries on behalf of the Vietnamese government. The MOF also provides guidance and interpretation of the provisions of DTAs, issues regulations, and circulars, and administers the application of DTAs.
WHO DOES VIETNAM DTAAS APPLY TO?
Native citizens of countries who have DTAAs with Vietnam are liable to the applicable taxes in those nations. A person or group is often regarded as a resident if they possess residential property, have lived in the nation for a predetermined period of time, or meet any other pertinent requirements as outlined by their home country.
A DTAA is applicable to any person or organization that is a resident of Vietnam, a resident of their home country with which Vietnam has a DTAA, or a resident of both countries in accordance with the residency requirements of each of the two parties.
A person or corporate organization needs to meet any one or more of the following requirements in order to be considered a resident of Vietnam:
- Obtaining and registering for permanent residency;
- Staying in Vietnam for 183 days or more within a calendar year or a string of 12 months following the date of arrival;
- Leasing a home in Vietnam for at least 90 days during the tax assessment year. Hotels, boarding houses, rest homes, accommodations, and business offices are examples of applicable residences.
Limited Liability Companies (LLCs), joint-stock companies, private firms, state corporations, and cooperatives are examples of organisations that are regarded as residents of Vietnam if they have a business presence there and operate in accordance with Vietnamese law.
If you are interested in knowing more about establishing a new company here, refer to our page company registration Vietnam.
List of Double Tax Avoidance Agreements
|Vietnam's Double Taxation Avoidance Agreements (as of 2022)|
|Algeria (Not yet in effect)||Ireland||Portugal|
|Belarus||North Korea||Saudi Arabia|
|Brunei Darussalam||Kuwait (Not yet in effect)||Seychelles|
|China||Macedonia (Not yet in effect)||Spain|
|Egypt (Not yet in effect)||Mozambique||Thailand|
|Germany||Norway||United Arab Emirates|
|Hong Kong||Oman||United Kingdom|
|Hungary||Pakistan||United States (Not yet in effect)|
An individual is deemed to be a resident if at least one of the following conditions is met:
- The individual has been present in Vietnam for 183 days or more, or for 12 continuous months starting on the day of arrival; or
- The individual has a place of permanent residence in Vietnam in one of the following two situations: having a registered place of permanent residence or renting a home in Vietnam in accordance with housing law, with a lease term of 183 days.
An organization is deemed to be a Vietnamese resident if it meets one of the following criteria:
- it is established or registered to operate in Vietnam;
- it has its head office there;
- it has its actual operating headquarters there;
- it is established or registered in both countries; it has its head office there; or it meets all three criteria.
HOW DOES VIETNAM DTAAS APPLY?
DTAAs have an effect on both corporate and individual income taxes in Vietnam.
DTAAs are applicable in the following situations:
- When domestic tax laws and a DTAA’s tax provisions directly contradict, the DTAA’s tax provisions will take priority;
- Domestic tax laws will take precedence when the appropriate tax obligations specified in the DTAA do not exist in Vietnam or when the tax rates specified in the agreement are higher than domestic tax rates. For instance, Vietnam’s tax rules will be in effect if a signatory nation has the right to impose a tax that Vietnam does not recognize.
The terms of a DTA will not alter the privileges or immunities enjoyed by personnel serving in diplomatic and consular missions under international agreements Vietnam has ratified or to which it has made acquiescence.
TYPES OF TAXABLE INCOME COVERED BY DTAA IN VIETNAM
In accordance with Vietnam’s personal income tax rules, nationals of nations with which Vietnam has a DTAA are obligated to pay income taxes on income earned in Vietnam. These residents of Vietnam may be excluded from taxation in their home countries under the conditions of the DTAA, which has been signed.
If they meet all of the following criteria, they may be free from taxation in Vietnam:
- 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.
- The wages are not paid by the PE of the employer in Vietnam.
- The individual is resident in Vietnam for less than 183 days over a 12-month period of any tax year.
Income from Independent services
Foreign individuals who provide independent services for a living must pay the applicable income taxes.
- Income taxes are due on any personal income made from offering independent services under the authority of a business licence.
- Personal income taxes must also be paid by people or businesses who offer independent services without a company licence.
Investors who have a permanent establishment in Vietnam, such as a foreign-invested firm (FIE) with a business licence, are subject to the country’s current corporate income tax rules.
A fixed location where operations are conducted entirely or in part is known as a permanent establishment. In Vietnam, if a FIE maintains a structure, office, or piece of equipment that must be permanently installed and/or maintained, it is referred to as a PE.
For foreign invested enterprises, corporate income is the income earned through manufacturing and commercial operations in Vietnam.
The following criteria are used to determine FIEs’ tax obligations:
- Legal entities (such as joint ventures or firms with 100% foreign ownership) – Taxed on income from business activities in accordance with the corporate income tax law and its generally applicable rates.
- Non-legal entities (those that carry on business without establishing legal entities, for example) may be subject to withholding tax or partial taxation if they have a permanent establishment (PE) in Vietnam to which income may be directly or indirectly attributable.
Foreign Contractors Withholding Tax
According to foreign contractor withholding tax legislation, parties who carry out business under a contract with a Vietnamese organisation or person are required to pay withholding taxes.
OTHER INCOME SOURCES SUBJECT TO TAXATION
Since there is no withholding tax on dividends in Vietnam, no treaty benefit applies to dividends under DTAAs. Before sending profits to their parent company abroad, businesses must complete their financial and tax requirements in Vietnam.
As a result, the remitted dividends are after-tax profits that may be subject to additional taxation in the other signatory nations. Most tax and revenue jurisdictions permit tax offset for tax on received dividends paid in other countries.
Interest & royalties
Royalties and interest are taxed at 5% and 10%, respectively. Under most DTAA, tax on interest is typically excluded, and tax on royalty income is frequently lowered and varies from 5 to 15 percent.
MEASURES TO AVOID DOUBLE TAXATION IN VIETNAM
Tax exemption policy
Several forms of foreign-sourced income may be unilaterally exempted by the investor’s home nation (complete tax exemption). However, if the nation of residency has a progressive income tax rate, it may treat this income from overseas sources as part of its total taxable income in order to calculate the tax rate (progressive exemption).
The tax paid or due overseas will be treated as having been paid or payable in the investor’s home country.
When claiming a tax deduction, the country may: (I) Allow the deduction of all foreign taxes paid on income that is taxable in the country of residence; or (ii) Limit the amount of tax withheld in the country of residence for foreign taxes paid to the maximum amount of tax that the country of residence may levy on all foreign income under its domestic law.
Few countries count the taxes their citizens pay while living abroad as allowable deductions from gross income when calculating taxable income.
Flat rate measure
A flat tax is the amount of tax that would otherwise be due from citizens of a country on income made there, but which is instead exempted or subject to a special preference under the source country’s legal system. The amount of the flat tax will be subtracted from the amount of tax due in the country of residence.
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What is the purpose of Vietnam’s double tax agreement?
The purpose of Vietnam’s double tax agreement is to provide a clear and predictable tax system for taxpayers doing business between Vietnam and other countries, to encourage foreign investment and trade, and to reduce the likelihood of tax disputes.
How many countries has Vietnam signed a double tax agreement with?
Vietnam has signed double tax agreements with more than 80 countries as of 2023, including major economies such as China, Japan, South Korea, the United States, and many European countries.
How does the double tax agreement work?
The double tax agreement specifies the rules for determining which country has the right to tax specific types of income or assets. It also provides relief for taxpayers to avoid paying taxes twice on the same income or asset. For example, if a Vietnamese company operates in Japan and earns income, the DTA will determine which country has the right to tax that income and provide relief to avoid double taxation.
How can a taxpayer benefit from the double tax agreement?
The double tax agreement can benefit taxpayers by providing relief from paying taxes twice on the same income or asset. It can also provide reduced tax rates, exemption of certain types of income, and other benefits depending on the specific provisions of the DTA.
What should taxpayers do to take advantage of the double tax agreement?
Taxpayers should consult with tax professionals to understand the specific provisions of the DTA and ensure compliance with the requirements for claiming benefits under the agreement. They should also maintain proper documentation and provide information to tax authorities as required by the DTA.