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Double Tax Avoidance Agreements in Vietnam
In international trade, to alleviate the problem that one income gets taxed by both Vietnam and the home country of individuals/companies, Vietnam has established a network of double taxation avoidance agreements (DTAAs) with over 80 countries. These DTAAs offer tax relief and clarity for those navigating cross-border income, promoting a more streamlined and business-friendly environment. See more specific information about DTAA with Apluslaw immediately below.
What are Double Tax Avoidance Agreements?
In international trade, the simultaneous existence of many different tax systems between countries often leads to a situation where a taxpayer’s income may be taxed in two different countries. To prevent the negative effects of double taxation, countries will seek to eliminate or reduce this phenomenon through various measures, of which the most common is that countries will jointly sign bilateral or multilateral agreements on avoiding double taxation. So, Double Tax Avoidance Agreements (DTAAs) are essentially contracts between countries to avoid taxing the same income twice.
According to the Model Tax Convention on Income and on Capital 2017, international juridical double taxation can be generally defined as the imposition of comparable taxes in two (or more) States on the same taxpayer in respect of the same subject matter and for identical periods.
Overall, DTAAs are important for international business and investment. They help to create a more stable and predictable tax environment, which can encourage economic growth.
Who do Double Tax Avoidance Agreements apply to?
Generally, Double Tax Avoidance Agreements (DTAAs) shall apply to persons who are residents of one or both of the Contracting States. In the agreements that have been signed by Vietnam, the term “resident of a Contracting State” means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. However, this term does not include the residents who are liable to tax in that State only in respect of income from sources in that State or properties situated in that State.
According to Circular No. 205/2013/TT-BTC dated December 24, 2013 of the Ministry of Finance guiding the implementation of the Agreement on double taxation avoidance and prevention of tax evasion to taxes and assets between Vietnam and other countries and territories taking effective in Vietnam, the term “a resident of the Contracting Country” can be determined through factors such as home, period of residence, place of management, registered office, presence in Vietnam for 183 days or more, regular residences in Vietnam,…
Vietnam’s Double Taxation Avoidance Agreements
Currently, Vietnam has also signed more than 80 double taxation avoidance agreements with countries and territories (read more at: https://wtocenter.vn/hiep-dinh-khac)
How do Double Taxation Avoidance Agreements apply?
General principles for applying Double Taxation Avoidance Agreements (DTAAs):
- Preventing Double Taxation:
The core principle is to eliminate situations where income or capital is taxed twice by different countries for the same taxpayer.
- Residence-Based Taxation:
DTAAs typically determine which country has the primary right to tax a resident based on residency definitions within the agreement. This resolves conflicts and avoids both countries taxing the same income.
- Tax Treaty Benefits:
DTAAs provide benefits like tax exemptions, reduced withholding tax rates, or methods for claiming tax credits in the resident’s home country to offset foreign taxes paid.
- Treaty Override over Domestic Law:
In case of discrepancies between domestic tax law and a DTAA provision, the DTAA usually prevails for residents covered by the agreement.
- Mutual Agreement Procedure (MAP):
DTAAs include a process for resolving disagreements between countries regarding the interpretation or application of the agreement. This allows competent authorities from both countries to find a solution.
- Non-Discrimination:
DTAAs generally require each country to treat residents of the other country no less favorably than their own residents for tax purposes.
- Limited Scope:
DTAAs typically apply only to specific taxes like income tax or capital gains tax. They may not cover all types of taxes or situations.
- Importance of Specific Agreement:
The specific provisions of each DTAA can vary. It’s crucial to consult the relevant agreement for a particular tax situation.
Types of taxable income covered by Double Taxation Avoidance Agreements
The types of taxable income covered by Double Taxation Avoidance Agreements (DTAAs) in Vietnam:
Following the Article 2 of Circular No. 205/2013/TT-BTC dated December 24, 2013 of the Ministry of Finance guiding the implementation of the Agreement on double taxation avoidance and prevention of tax evasion to taxes and assets between Vietnam and other countries and territories taking effective in Vietnam, the applicable taxes in Agreements are taxes on incomes and assets specified in each Agreement, in the case of Vietnam, taxes in application scope of Agreement are:
- Enterprise income tax; and
- Personal income tax.
In the case of the Contracting Countries to an Agreement concluded with Vietnam, taxes in application of Agreements shall be specified at Article 2 of Agreements (Usually Clause 3 of Article 2), for example:
AGREEMENT BETWEEN THE GOVERNMENT OF THE SOCIALIST REPUBLIC OF VIETNAM AND THE GOVERNMENT OF THE FRENCH REPUBLIC FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF TAX EVASION AND TAX FRAUD WITH RESPECT TO TAXES ON PROPERTIES AND INCOME
“Article 2. Taxes covered in the Agreement
3. The existing taxes to which the Agreement shall apply are in particular:
a) In Vietnam:
(i) the personal income tax;
(ii) the profit tax;
(iii) the profit remittance tax;
(iv) the foreign contractor tax (tax imposed on profits);
(v) the foreign petroleum sub-contractor tax;
(vi) the charges with tax character imposed on property.
b) In France:
(i) the income tax;
(ii) the corporate tax;
(iii) the tax imposed on property.”
Double Taxation Avoidance Agreements consulting service for foreigners
In the case of individuals or businesses covered by the Double Taxation Agreement signed by Vietnam, the request to apply the measures in the Agreement is made as follows:
- Application: DTAA benefits are not automatic. You typically need to submit a formal application to the Vietnamese tax authorities. The deadline for this application can vary depending on each situation (e.g., before starting work, before tax return due date).
- Documentation: You’ll need to provide supporting documents with your application, such as a tax residency certificate from your home country and any other documents specified in the DTAA.
Lawyers provide tax legal advice
With a team of experienced, talented, enthusiastic and dedicated lawyers, A+ Law is proud to be the leading unit in consulting and resolving tax issues for foreign investors including the following services:
- Consulting on determining tax obligations: tax amount payable, tax exemption, tax reduction, tax deduction, tax calculation price, tax rate.
- Consulting on procedures: registration, declaration, tax payment, tax settlement, inspection and handling of violations, tax complaints.
- Consulting on accounting regimes: accounting standards, invoices, documents.
- Consulting on cooperation and business plans: forecasting arising tax obligations
- Authorized representative to carry out tax procedures.
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This legal article examines the main framework of DTAAs in Vietnam, exploring their key provisions and providing general information of their application. We hope you have gained some necessary information about preventing double taxation when choosing to invest in Vietnam. If you still have any questions related to this issue, please contact lawyer A+ via email: contact@apluslaw.vn or via phone number: 0899511010 for support and advice.