DOUBLE TAXATION AVOIDANCE AGREEMENTS

As the world is becoming increasingly integrated with capital, goods and services moving across borders, multinational companies often face the challenge in dealing with double taxation. Double taxation is a detrimental circumstance involving double tax payment for the same taxable subject as income or assets. For example, the company is taxed on its earnings (profits), and the shareholders are taxed again on the dividends they receive from those earnings. As this is an obstacle to international trade, countries in the world usually engaged in Double Taxation Avoidance Agreements aimed at attenuation of double taxation to ensure the rights of their citizens and investors.

Foreign investors in Vietnam need to understand the situation of the double taxation avoidance agreement between Vietnam and foreign countries, as well as conditions and provisions which foreigners have to obey to optimize their profits.

As of 2020, Vietnam has signed Double Taxation Avoidance Agreements (DTAAs) with 80 countries and territories. These treaties breed significant contributions to double taxation avoidance and prevention of tax evasion and contraband on income and property taxes. These Agreements affect subjects who are resident of the signatories of the agreement.

Subjects of DTAAs

 DTAAs are applied to individuals or enterprises who are residents of Vietnam, DTAAs countries or both. Residents of the Contracting State have to satisfy criteria that are regulated in the law of signatory countries. In Vietnam law, individuals have to satisfy one of following criterions:

-      Present in Vietnam for 183 days or more; or 12 consecutive months from the first day they arrive in Vietnam.

-     Have a regular residence in Vietnam under one of two cases: Residences registered for permanent residence or houses rented for residence in Vietnam according to the law on dwelling house, with the duration of rent contract is 183 days or more in a taxable year.

Organizations will be deemed to be resident of Vietnam if they meet one of following criterions:

-     The subject is established or registered for operation in Vietnam; or

-     The subject has the main office in Vietnam; or

-     The subject has place of effective management in Vietnam; or

-     The subject is established or registered in both States or has main offices or places of effective management in both States.

Principle of application

Settling tax for each case must bases on the provisions of each Agreement. If it has clear distinctions between provisions of Agreements and those of domestic tax laws, the provisions of the Agreements will be applied.

The Agreements will not create new tax obligations or those that are different from or heavier than those prescribed by domestic tax law. Where a DTAA contain provisions according to which Vietnam is entitled to tax a certain type of income or certain tax rate but Vietnam’s tax law has not yet regulated the taxation of such income or regulated a lower tax rate, Vietnam’s tax law will be applied.

Source of income

The taxed income and assets according to tax treaties are prescribed by each Agreement. In the case of Vietnam, these are corporate income tax and personal income tax.

Corporate Income

Business income means the income of enterprises of the Contracting States (hereinafter called foreign enterprises) carrying out production and business activities in Vietnam.

-     Non-legal entities

Tax obligation: Business income of the foreign enterprises will be taxed in Vietnam if such enterprise has a permanent establishment in Vietnam and such income is directly or indirectly related to that permanent establishment.

A fixed permanent establishment means a fixed place of business of an enterprise, through which the business of the enterprise is wholly or partly carried on. A foreign enterprise will be regarded to have a permanent establishment it fully satisfy the following three criterions:

• Maintaining in Vietnam an “establishment”, for example a building, an office or part thereof, a means or equipment, etc; and

• This establishment must be fixed, i.e. it must be established at a specified place and/or maintained on a permanent basis. The fixedness of a business establishment must not necessarily mean that such establishment must be attached to a specific geographical point for a certain length of time; and

• The enterprise carries on wholly or partly business activities through this establishment.

-     Legal entities

Legal entities are obliged to pay tax on income from their production and business activities. Particularly, incomes that are earned by foreign enterprises in the form of profit dividends to investors or income from the transfer of contributes capital amounts will comply with the provisions of the relevant articles of the Agreements.

Dividends, interest, royalty and incomes from technical services provision

In most of DTAAs, Vietnam is entitled to tax dividends, interest, royalties, incomes from technical services charges arising in Vietnam and paid to a resident of the Contracting State to an Agreement concluded with Vietnam at a limit rate (usually not exceeding 10% for incomes from technical services and not exceeding 15% for dividends), depending on each Agreement, provided that the recipient is the beneficial owner.

Personal income

In DTAAs, personal income tax includes tax obligations for dependent professional services and independent professional services. Those who are residents of signatory countries have to pay income tax following Vietnam’s prevailing Personal Income Tax Law.

In terms of tax obligation for independent professional services, residents are exempted if they satisfy all of the following conditions:

• That individual does practice independently through a fixed place of business.

• That individual is present in Vietnam for 183 days or more in a taxable year or within 12 months from the day of arriving in Vietnam, depending on each Agreement.

• That individual earns a total fixed income, depending on each Agreement, from independent practice implementation in Vietnam in a defined duration (usually a financial year).

Regarding tax obligation for dependent professional services, residents are exempted if they satisfy all of the following conditions:

• That individual is present in Vietnam for less than 183 days in a period of 12 months starting or ending within the taxable year concerned; and

• The employer is not a resident of Vietnam, regardless of whether that remuneration is directly paid by the employer or through the employer’s representative; and

• This remuneration is not borne and paid by the Vietnam-based permanent establishment set up by the employer.

Methods for elimination of double taxation in Vietnam

Vietnam still taxes the income of taxpayers who are residents in Vietnam and derives an income from the Contracting State to an Agreement concluded with Vietnam and has paid tax in that State.

Depending on each concluded Agreement, Vietnam will apply one or a combination of the three following methods for elimination of double taxation:

(i) Tax deduction method

A resident of Vietnam derives income from and has paid tax in the Contracting State to an Agreement concluded with Vietnam. In that Agreement, Vietnam commits to apply tax deduction method, when this resident makes income tax declaration in Vietnam, such income will be calculated in taxable income in accordance with Vietnam’s current tax law. Tax amount already paid in the Contracting State will be deducted in the tax amount payable in Vietnam.

(ii) Method of deduction of deemed tax

A resident of Vietnam derives income from and must pay tax in the Contracting State to an Agreement concluded with Vietnam. In this Agreement, Vietnam commits to apply Method of deduction of deemed tax, when this resident makes income tax declaration in Vietnam, such income will be calculated in taxable income in accordance with Vietnam’s current tax law and deemed tax amount will be deducted from the tax amount payable in Vietnam. The taxable income is exempted or reduced at the Contracting State as a special preference.

(iii) Method of deduction of indirect tax

A resident of Vietnam derives income from the source of belonging to a signatory of a DTAAs and corporate income has been paid before it is divided to that resident. Such income will be calculated in taxable income in Vietnam and the indirect tax amount already paid in Contracting State will be deducted in the tax amount payable in Vietnam. However, in all cases, the tax amount deducted will not exceed the tax amount payable in Vietnam.

A resident which is a subject of the application in such Agreement and this method has to held directly controls a minimum percentage (usually 10%) of the voting right in the joint-stock company.

If Vietnam does not commit a method of deduction of indirect tax in Agreement but in Vietnam’s law, incomes derive from aboard of Vietnam’s resident is deducted of indirect tax, this provision is still implemented.

Application procedure

For residents of the Signatories of Agreements

Tax refund

To be applied for tax refunds according to double taxation agreements, the individual and organization must submit to the Department of Taxation of the province where the headquarter of the organization or permanent residence of the individual is situated or in the Department of Taxation where tax was overpaid. The resident in Vietnam will submit to tax authority in one of the following ways: directly send to the Tax Department, or indirectly send by post.

An application for tax refund consists of:

-      A written request for tax refund according to Double taxation Avoidance Agreement.

-      The original copy (or certified true copy) of the consular legalized Certificate of residence issued by a tax authority of the home country, specifying the tax year.

-    Photocopies of business contracts, service contract, agent contract, entrustment contract, technology transfer contract, labor contract with the Vietnamese entity, certificate of deposit in Vietnam, certificate of capital contribution to a company in Vietnam (depending on the income earned) that are certified by the taxpayer.

-      Certification of the operation period and performance according to the contract by the Vietnamese party (except for tax refund for foreign carriers).

-      A letter of attorney if the taxpayer authorizes a legal representative to follow the procedure. If the taxpayer authorizes a legal representative to claim tax refund that is transferred to the account of another entity, consular legalization (if the authorization is made overseas) or notarization (if the authorization is made in Vietnam) is required.

If the taxpayer fails to provide sufficient information or documents according to requirements of the application for the tax refund, they must specifically explain in the written request for the tax refund to taxation authority to consider and make the decision.

Processing application of for tax refund

Submitting applications for tax refund:

-      Within 03 working days from the receipt of the application dossier, the tax authority will request the taxpayer to complete the application if it is not satisfactory.

-       Taxation refund according to international agreements which Vietnam signed with foreign countries has to inspect before tax refund.

-       Responsibility to process application for tax refund:

It shall be 40 days at the latest, counting from the receipt of the sufficient application for the tax refund, the head of the tax authority must send a decision to refund tax or a decision to refund and offset tax and/or a notice of ineligibility for tax refund to the taxpayer.

If the inspection is delayed on account of the taxpayer, the delay is not included in the time limit for processing the application.

If the application for a tax refund is processed behind schedule on account of the tax authority, the taxpayer shall also receive interest on the refundable amount on top of the refundable amount.

If the tax authority finds that the refundable tax is different from the claimed refund:

• If the claimed refund is greater than the refundable tax, the taxpayer shall receive an amount equal to the refundable tax.

• If the claimed refund is smaller than the refundable tax, the taxpayer shall receive an amount equal to the claimed refund.

While the application for tax refund is being processed, the taxpayer shall receive the refundable amount before the tax authority finishes processing the application.

-      Time for inspection after-tax refund

In cases where foreign shipping companies request tax refunds according to the Double Taxation Avoidance Agreements, the inspection after-tax refund must be conducted within one year. In other cases, the inspection after-tax refund will be conducted following the risk management principle within 10 years, starting the day when the authority enacts the tax refund decision.

Vietnam’s Double Tax Avoidance Treaty Agreements 

(As of 2020) 

No	Country	Date of signing	Place of signing	Effective Date
1	Australia	October 13, 1992	Hanoi	December 30, 1992
2	Thailand	December 23, 1992	Hanoi	December 29, 1992
3	France	February 10, 1993	Hanoi	July 1, 1994
4	Russia	May 27, 1993	Hanoi	March 21, 1996
5	Sweden	March 24, 1994	Stockholm	August 8, 1994
6	South Korea	May 20, 1994	Hanoi	September 11, 1994
7	U.K	April 9,1994	Hanoi	December 15, 1994
8	Singapore	March 2, 1994 Amendment protocol: September 12, 2012	Hanoi   Singapore	September 9 , 1994   January 11, 2013
9	India	September 7, 1994	Hanoi	February 2, 1995
10	Hungary	August 26, 1994	Budapest	June 30, 1995
11	Poland	August 31, 1994	Warsaw	January 28, 1995
12	The Netherlands	January 24, 1995	Hague	October 25, 1995
13	China	May 17, 1995	Beijing	October 18, 1996
14	Denmark	May 31, 1995	Copenhagen	April 24, 1996
15	Norway	June 1, 1995	Oslo	April 14, 1996
16	Japan	October 24, 1995	Hanoi	December 31, 1995
17	Germany	November 16, 1995	Hanoi	December 27, 1996
18	Romania	July 8, 1995	Hanoi	April 24, 1996
19	Malaysia	September 7, 1995	Kuala Lumpur	August 13, 1996
20	Laos	January 14, 1996	Vientiane	September 30, 1996
21	Belgium	February 28, 1996	Hanoi	June 25, 1999
22	Luxembourg	March 4, 1996	Hanoi	May 19, 1998
23	Uzbekistan	March 28, 1996	Hanoi	August 16, 1996
24	Ukraine	April 8, 1996	Hanoi	November 22, 1996
25	Switzerland	May 6, 1996	Hanoi	October 12, 1997
26	Mongolia	May 9, 1996	Ulan Bator	October 11, 1996
27	Bulgaria	May 24, 1996	Hanoi	October 14, 1996
28	Italy	November 26, 1996	Hanoi	February 20, 1999
29	Belarus	April 24, 1997	Hanoi	December 26, 1997
30	Czech Republic	May 23, 1997	Hanoi	February 3, 1998
31	Canada	November 14, 1997	Hanoi	December 16, 1998
32	Indonesia	December 22, 1997	Hanoi	February 10, 1999
33	Taiwan (Taipei)	April 6, 1998	Hanoi	May 6, 1998
34	Algeria	December 6, 1999	Alger	September 30, 2011
35	Myanmar	May 12, 2000	Yangon	August 12, 2003
36	Finland	November 21, 2001	Helsinki	December 26, 2002
37	The Philippines	November 14, 2001	Manila	September 29, 2003
38	Iceland	April 3, 2002	Iceland	December 27, 2002
39	Republic of Korea	May 3, 2002	Pyongyang	August 12, 2007
40	Cuba	October 26, 2002	Havana	June 26, 2003
41	Pakistan	March 25, 2004	Islamabad	February 4, 2005
42	Bangladesh	March 22, 2004	Dhaka	August 19, 2005
43	Spain	March 7, 2005	Hanoi	December 22, 2005
44	Republic of Seychelles	October 4, 2005	Hanoi	July 7, 2006
45	Sri Lanka	October 26, 2005	Hanoi	September 28, 2006
46	Egypt	March 6, 2006	Cairo	Not yet effective
47	Bru-nei	August 16, 2007	Bandar Seri Begawan	January 1, 2009
48	Ireland	March 10, 2008	Dublin	January 1, 2009
49	Oman	April 18, 2008	Hanoi	January 1, 2009
50	Austria	June 2, 2008	Vienna	January 1, 2010
51	Slovakia	October 27, 2008	Hanoi	July 29, 2009
52	Venezuela	November 20, 2008	Caracas	May 26, 2010
53	Morocco	November 24, 2008	Hanoi	September 12, 2012
54	Hongkong	December 16, 2008	Hanoi	August 12, 2009
55	United Arab Emirates	February 16, 2009	Dubai	April 12, 2010
56	Qatar	March 8, 2009	Doha	March 16, 2011
57	Kuwait	March 10, 2009	Kuwait	February 11, 2011
58	Israel	August 4, 2009	Hanoi	December 24, 2009
59	Saudi Arabia	April 10, 2010	Riyadh	February 1, 2011
60	Tunisia	April 13, 2010	Tunis	March 6, 2013
61	Mozambique	September 3, 2010	Hanoi	March 7, 2011
62	Kazakhstan	October 31, 2011	Hanoi	June 18, 2015
63	San Marino	February 14, 2013	Roma	January 13, 2016
64	Serbia	March 1, 2013	Hanoi	October 18, 2013
65	New Zealand	August 5, 2013	Hanoi	May 5, 2014
66	Uruguay	December 9, 2013	Uruguay	July 26, 2016
67	Palestine	November 6, 2013	Hanoi	April 2, 2014
68	Azerbaijan	May 19, 2014	Hanoi	November 11, 2014
69	Turkey	July 8, 2014	Ankara	June 09, 2017
70	Iran	October 14, 2014	Tehra	June 26, 2016
71	Macedonia	October 15, 2014	Skopje	Not yet effective
72	Portugal	June 3, 2015	Lisbon	November 09, 2016
73	United state	July 7, 2015	Washington	Not yet effective
74	Estonia	September 26, 2015	New york	November 14, 2016
75	Manta	July 15, 2016	Ulan bato	November 15, 2016
76	Panama	August 30, 2016	Ulan bato	February 14, 2017
77	Latvia	October 19, 2017	Riga	August 6, 2018
79	Macau	April 16, 2018	Macau	October 03, 2018
80	Croatia	July 27, 2018	Zagreb	May 23, 2019
78	Cambodia	July 31, 2018	Ha Noi	February 20, 2019