How to Avoid Double Taxation in Vietnam
By Dezan Shira & Associates
Posted: 3rd June 2013 08:36
Both foreign and domestic residents of Vietnam are able to obtain reductions and exemptions on their taxes through a variety of different methods. Thanks to the DTAAs that Vietnam has, the tax reductions and exemptions you may be subject to are easy to understand and to take advantage of – all you need to do is follow the simple steps listed below to apply.
Exemptions under the DTAAs do not apply automatically, and foreign individuals and organizations are required to submit the relevant documentation to the provincial and/or municipal tax authorities in Vietnam to obtain them.
In respect to Vietnamese taxes, residents of Vietnam (foreign and domestic) can see certain double taxation avoidance methods applied when their payable tax amount is calculated. Depending on the specific agreement, Vietnam may apply one or a combination of the three methods below to calculate this.
Direct deduction method
If the taxpayer is a resident of Vietnam and had already paid income taxes to a DTAA partner country, the same amount will be deducted from the relevant taxes payable in Vietnam.
Deduction of deemed tax
Deemed tax is the amount of tax which should have been paid by a resident of Vietnam to a signatory country on income sourced from that country but which is reduced because of favored treatment toward the signatory country. With this method, the deemed tax amount will be deducted from the taxes payable in Vietnam.
Deduction of indirect tax
If a Vietnamese resident receives income from a source belonging to a signatory of a DTAA and corporate income taxes have already been collected by the signatory country, the indirect tax amount will be deducted from the taxes payable in Vietnam.
The methods listed above are only applicable to joint stock companies if the Vietnamese resident controls at least 10 percent of the company’s voting rights. The deducted tax amount may not exceed the total taxes payable in Vietnam.
Residents of Vietnam
Individuals and organizations that want to confirm their residency status for tax purposes need to submit application dossiers to the relevant state authority.
If the individuals or organizations do not declare and pay taxes in Vietnam, they must submit the following documents:
- Confirmation letter noting the civil status registration (for individuals), or a business certificate (for organizations) from the managing agency or local administration in their place of residence; and
- Confirmation of income payers (if any).
The city/provincial tax department will consider and grant written certificates noting residential status to applicants within 15 working days of receipt of the application dossier. The 15 day timeline does not include time required for dossier supplementation and explanation.
Tax exemption and reduction
To apply for tax exemptions and reductions, individuals and organizations must submit the following:
- A notice on eligibility for a tax exemption or reduction under the appropriate agreement;
- The original certificate of residence granted by the taxation agency of the country of residence for the year prior to the one that exemption is being applied for;
- A signed copy of the individual’s passport (for individuals whose signatory countries do not grant certificates of residence); and
- Documents to verify the source and nature of income (i.e., labor contracts, recruitment decisions, etc.).
The relevant authority will consider and approve of the application documents within 30 working days of receipt of the application dossier. The 30 day timeline does not include time required for dossier supplementation and explanation.
To apply for a tax deduction, residents of Vietnam (both individuals and organizations) must submit the following documents:
- An application form for the exemption or reduction under the appropriate agreement;
- For direct deduction: a copy of the income tax declaration form from the foreign country, a copy of the tax payment receipt from the foreign country and the original certificate from the foreign tax authorities verifying that the taxes have all been paid;
- For deduction of deemed taxes: a copy of the income tax declaration form from the foreign country, a copy of the business registration certificate or legal documents certifying the business activities in the foreign country, a letter of certification from the foreign tax authority regarding the exempted or reduced taxes in that foreign country (this tax deduction must also be done in accordance with any agreements and/or laws of the foreign country); and
- For indirect deductions: legal documents proving the relationship and capital contribution percentage of the applicant, a copy of the income tax declaration form from the foreign country in which the applicant contributes capital, a copy of the declaration form for taxes deducted on dividends and a certificate from the foreign tax authorities certifying that the relevant corporate income taxes were paid before the dividends were divided.
The tax departments will consider, approve and perform the relevant tax deductions according to the agreement within 30 working days of receipt of the application dossier. The 30 day time limit does not include time for dossier supplementation and explanation.
Residents of Signatory Countries
Tax exemption and reduction
In order to be considered for a tax exemption and/or reduction, foreign residents must prepare and submit an application dossier to be submitted to the relevant competent body. The dossier must include the following documents:
- A notice on the eligibility of a tax exemption or reduction under the appropriate agreement;
- The original certificate of residence granted by the taxation agency in the individual’s country of residence for the relevant tax year (note: individuals may submit a signed copy of their passport to replace this certificate if they are not granted certificates of residence);
- Copy of the tax payment receipt (note: if the relevant taxes have already been paid in Vietnam, then the resident will need to also provide a certificate issued by the State Treasury in Vietnam noting the amount that was already paid);
- Certificate from the Vietnamese partner (individual or organization) listing the term of the contract and actual time of operations in Vietnam;
- Copy of the business registration certificate and/or the tax registration certificate from the country of residence (for organizations) or the professional practice license (for individuals); and
- A signed copy of the business and labor contracts.
Within 30 working days from the date of receipt of the application, the relevant authorities will consider, approve and carry out the relevant tax deductions according to the appropriate agreement. The 30 working day time limit does not include time for dossier supplementation and explanation.
If a tax exemption or reduction dossier was submitted to the tax department in a previous year, then the foreigner is required to submit a new labor contract (if any) for all subsequent years.
Foreign residents are entitled to tax refunds if the amount of taxes paid to the State Treasury is higher than the total taxes payable. To obtain a tax refund, the resident must submit a dossier of documents to the General Department of Taxation, the documents for which are the same as those for requesting a tax exemption or reduction.
The tax department will consider, approve and give out the tax refunds according to the appropriate agreement within 60 working days from the date of receipt of the application. The 60 working day time limit does not include time for dossier supplementation and explanation.
Confirmation of taxes paid
If a foreign resident needs confirmation of income taxes paid in Vietnam to deduct from the taxes payable in their country of residence, then the following documents need to be compiled and submitted to the relevant authority:
- An application for the confirmation of taxes actually paid in Vietnam;
- A copy of the tax payment receipt and a written certificate from the State Treasury in Vietnam noting the amount of taxes paid; and
- The original certificate of residence granted by the tax agency of their country of residence for the relevant tax year.
The tax department will issue a written confirmation of the taxes paid by the applicant within 15 working days from the date of receipt of the application. The 15 working day time limit does not include time for dossier supplementation and explanation.
Additional procedure requirements
In general, there are some standard rules when submitting documents to the Vietnamese government. The following are compulsory requirements for all documents:
- The documents must be written in Vietnamese. Foreign documents must be translated into Vietnamese and also notarized by the appropriate authorities. Signatures and stamps on foreign documents must also be legalized by the Vietnamese Embassies or Consulates in the foreign country; and
- Copies of all documents must be notarized or authenticated by the appropriate authorities.
This article was first published on Vietnam Briefing.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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