Vietnam Briefing discusses how companies and people can scale back their tax publicity by benefiting from double tax avoidance agreements (DTAAs). Nonetheless, companies ought to concentrate on tax laws when utilizing this technique or face important tax fines and penalties.
Each international and home residents of Vietnam are in a position to get hold of reductions and exemptions on their taxes by means of quite a lot of completely different strategies. Because of the double tax avoidance agreements (DTAAs) that Vietnam has, companies and people can scale back their tax publicity by benefiting from the tax reductions and exemptions they could be topic to.
Nevertheless, companies ought to concentrate on the tax laws in place on DTAAs as these may be complicated.
What are DTAAs?
DTAAs treaties successfully get rid of double taxation by means of figuring out exemptions or lowering the quantity of taxes payable in Vietnam. Double taxation is when two or extra nations levy tax on the identical earnings corresponding to earnings taxes, belongings, or monetary transactions. DTAAs apply to each people and companies who’re residents of Vietnam, residents of the nation that Vietnam had signed a DTAA with, or each.
Tax exemptions or reductions below the DTAAs don’t apply robotically, and international people and organizations are required to submit the related documentation to the provincial and/or municipal tax authorities in Vietnam to inform their eligibility for tax exemptions/reductions.
Tax avoidance strategies
In respect to Vietnamese taxes, residents of Vietnam (international and home) can see sure double taxation avoidance strategies utilized when their payable tax quantity is calculated. Relying on the particular settlement, Vietnam might apply one or a mixture of the three strategies beneath to calculate this.
Direct deduction technique
If the taxpayer is a resident of Vietnam and had already paid earnings taxes to a DTAA associate nation, the identical quantity will probably be deducted from the related taxes payable in Vietnam.
Deduction of deemed tax
Deemed tax is the quantity of tax that ought to have been paid by a resident of Vietnam to a signatory nation on earnings sourced from that nation, however which is decreased due to favored remedy towards the signatory nation. With this technique, the deemed tax quantity will probably be deducted from the taxes payable in Vietnam.
Deduction of oblique tax
If a Vietnamese resident receives earnings from a supply belonging to a signatory of a DTAA and company earnings taxes have already been collected by the signatory nation, the oblique tax quantity will probably be deducted from the taxes payable in Vietnam.
The third technique listed above is just relevant to the joint-stock firm if the Vietnamese resident holds not less than 10 p.c of such firm’s voting rights. It needs to be famous that the deductible tax quantity might not exceed the full taxes payable in Vietnam.
Residents of Vietnam
People and organizations that wish to affirm their residency standing for tax functions must submit software dossiers to the related state authority.
If the people or organizations don’t declare and pay taxes in Vietnam, they have to submit the next paperwork:
- Affirmation letter noting the civil standing registration (for people), or a enterprise certificates (for organizations) from the managing company or native administration of their place of residence; and
- Affirmation of earnings payers (if any).
Town/provincial tax division will contemplate and grant written certificates noting residential standing to candidates inside 15 working days of receipt of the appliance file. The 15-day timeline doesn’t embrace the time required for file supplementation and clarification.
Tax exemption and discount
To inform the tax authority for tax exemptions and reductions, people and organizations should submit the next:
- A discover on eligibility for a tax exemption or discount below the suitable settlement;
- The unique certificates of residence granted by the taxation company of the nation of residence for the yr previous to the one which exemption is being utilized for;
- A signed copy of the person’s passport (for people whose signatory nations don’t grant certificates of residence); and
- Paperwork to confirm the supply and nature of earnings (i.e., labor contracts, recruitment choices, and so forth.).
The tax authority solely acknowledges receipt of the notification submitted by the taxpayer with out confirming their eligibility for tax exemptions or reductions. The taxpayer should self-assess their eligibility and needs to be well-prepared to substantiate upon being enquired by the tax authority.
To use for a tax deduction, residents of Vietnam (each people and organizations) should submit the next paperwork:
- An software type for the exemption or discount below the suitable settlement;
- For direct deduction: a replica of the earnings tax declaration type from the international nation, a replica of the tax fee receipt from the international nation, and the unique certificates from the international tax authorities verifying that the taxes have all been paid;
- For deduction of deemed taxes: a replica of the earnings tax declaration type from the international nation, a replica of the enterprise registration certificates or authorized paperwork certifying the enterprise actions within the international nation, a letter of certification from the international tax authority relating to the exempted or decreased taxes in that international nation (this tax deduction should even be achieved in accordance with any agreements and/or legal guidelines of the international nation); and
- For oblique deductions: authorized paperwork proving the connection and capital contribution proportion of the applicant, a replica of the earnings tax declaration type from the international nation wherein the applicant contributes capital, a replica of the declaration type for taxes deducted on dividends, and a certificates from the international tax authorities certifying that the related company earnings taxes had been paid earlier than the dividends had been divided.
The tax departments will contemplate, approve and carry out the related tax deductions based on the settlement inside 30 working days of receipt of the appliance file. The 30-day time restrict doesn’t embrace time for file supplementation and clarification.
Residents of signatory nations
Tax exemption and discount
With a view to be thought-about for a tax exemption and/or discount, international residents should put together and submit a file to inform the tax authority about their eligibility. The file should embrace the next paperwork:
- A discover on the eligibility of a tax exemption or discount below the suitable settlement;
- The unique certificates of residence granted by the taxation company within the particular person’s nation of residence for the related tax yr (observe: people might submit a signed copy of their passport to interchange this certificates if they aren’t granted certificates of residence);
- Copy of the tax fee receipt (observe: if the related taxes have already been paid in Vietnam, then the resident might want to additionally present a certificates issued by the State Treasury in Vietnam noting the quantity that was already paid);
- Certificates from the Vietnamese associate (particular person or group) itemizing the time period of the contract and the precise time of operations in Vietnam;
- Copy of the enterprise registration certificates and/or the tax registration certificates from the nation of residence (for organizations) or the skilled observe license (for people); and
- A signed copy of the enterprise and labor contracts.
The tax authority solely acknowledges receipt of the notification submitted by the taxpayer with out confirming their eligibility for tax exemptions or reductions. The taxpayer should self-assess their eligibility and needs to be well-prepared to substantiate upon being enquired by the tax authority. Theoretically, if a tax exemption or discount file was submitted to the tax division in a earlier yr, then the foreigner is required to submit a brand new labor contract (if any) for all subsequent years. Nevertheless, the tax authority usually requires the notification for tax exemptions and reductions to be submitted on an annual foundation.
Overseas residents are entitled to tax refunds if the quantity of taxes paid to the State Treasury is increased than the full taxes payable. To acquire a tax refund, the resident should submit a refund request to the Common Division of Taxation (GDT), the paperwork for that are the identical as these for requesting a tax exemption or discount.
The tax division will assessment and provides out the tax refunds based on the suitable settlement inside 60 working days from the date of receipt of the appliance. It needs to be famous that refund requests are sometimes topic to intensive audits and inquiries by the tax authority. The 60 working day time restrict doesn’t embrace time for file supplementation and clarification.
Affirmation of taxes paid
If a international resident wants affirmation of earnings taxes paid in Vietnam to deduct from the taxes payable of their nation of residence, then the next paperwork should be compiled and submitted to the related authority:
- An software for the affirmation of taxes really paid in Vietnam;
- A duplicate of the tax fee receipt and a written certificates from the State Treasury in Vietnam noting the quantity of taxes paid; and
- The unique certificates of residence granted by the tax company of their nation of residence for the related tax yr.
The tax division will subject a written affirmation of the taxes paid by the applicant inside 15 working days from the date of receipt of the appliance. The 15 working day time restrict doesn’t embrace time for file supplementation and clarification.
Widespread DTAA practices in Vietnam
Most DTAAs are written comprehensively with complicated phrases; due to this fact, the implementation of the DTAA is topic to the interpretation of the provincial tax authority as an alternative of the GDT of Vietnam.
Thus, the procedures for DTAA implementation are often not constantly practiced and the provisions are sometimes interpreted otherwise by completely different provincial tax authorities because of an absence of official steerage from the Ministry of Finance (MoF) in addition to the GDT.
Furthermore, the taxpayers should self-assess and should be liable for their tax exemption and discount eligibility below DTAA practices with none affirmation from the tax authority when submitting the DTAA notification dossiers.
Thus, taxpayers are topic to potential tax publicity of being questioned and challenged by the tax authority in future tax audits or tax inspections, which can lead to important tax fines and penalties for an incorrect declaration if inaccurate interpretations and self-assessments are made by taxpayers.
Primarily based on our sensible expertise taxpayers, who want to apply for tax exemptions and reductions, ought to at all times search their provincial tax authority’s opinion on their eligibility standing earlier than continuing with the DTAA software course of to mitigate future tax dangers. Alternatively, they’ll additionally search recommendation from skilled tax consultants who’ve intensive information and expertise in DTAA implementation.
Vietnam Briefing is produced by Dezan Shira & Associates. The agency assists international traders all through Asia from workplaces internationally, together with in Hanoi, Ho Chi Minh Metropolis, and Da Nang. Readers might write to firstname.lastname@example.org for extra assist on doing enterprise in Vietnam.
We additionally keep workplaces or have alliance companions helping international traders in Indonesia, India, Singapore, The Philippines, Malaysia, Thailand, Italy, Germany, and the United States, along with practices in Bangladesh and Russia.
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