Regulations on avoidance of double taxation between Vietnam and ASEAN

Double taxation is a term referred to levying of taxes on the same income of a taxpayer in two different countries or above.

This is a common issue many individuals and companies earning money in many countries are dealing with, especially in the trend of trade liberalization.

If an income is taxed twice, in the country it was earrned and in the courntry of origin, the total amount of tax they have to pay shall be really high and bring troubles to investment activities, trade liberalization.

In order to avoid double taxation as well as its negative effects, governments of many countries have signed Double Taxation Treaties paving a fair way for individuals and companies of each country.

Besides that, taxation is also the tax revenue of governments. Hence, those Double Taxation Treaties shall help separate taxation power of each Party and avoid conflict of interest.

Among South-East Asia, Vietnam has signed 8 agreements on avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income with the following countries: Thailand (1992), Singapore (1994), Laos (1996), Indonesia (1997), Myanmar (2000), Philippines (2001), Brunei (2007).

On December 24^th, 2013, the Ministry of Finance issued the Circular No.205/2013/TT-BTC, guiding the implementation of the agreement on double taxation avoidance and prevention of fiscal evasion with respect to tax on income and property between Vietnam and other states or territories and in force in Vietnam.

Generally, in accordance with these agreement and Circular 205/2013/TT-BTC, those taxes covered are income taxes such as: personal income tax, corporate income tax, profit tax, profit remittance tax…

Some agreements regulate on specific type of taxes such as petroleum income tax. The subjects of application of these agreements are individuals and organizations who are residences of one or both of the signing Parties.

In accordance with Article 1 Circular 205/2013/TT-BTC, an individual is regarded as a resident of Vietnam in the following cases:

• That person is presents in Vietnam from 183 days and above in a calendar year or 12 consecutive months as from the first day that person arrived in Vietnam;
• That person has regular residence(s) in Vietnam: Permanent registered residence as stipulated in the laws on residence or rented house in Vietnam with duration of house renting contract is from 183 days or more in the taxable year;
• If that person has regular residence(s) in Vietnam but practically he/she resides in Vietnam less than 183 days in the taxable year and fails to prove that he/she is resident of other state, that person shall be regarded as a resident of Vietnam.

Regarding organizations, those are established and operated under the laws of Vietnam are regarded as residents of Vietnam.

In case an individual or an organization is deemed as resident of two countries, their residence position shall be determine following the priority order to avoid tax liability in both countries.

In accordance with Circular No.205/2013/TT-BTC, when an individual or an organization is deemed as a resident of Vietnam and other countries, they shall be the resident of Vietnam in the following cases:

Regarding individuals:

• Accommodation: If that person has a permanent home in Vietnam (his/her ownership, rented house or under his/her use right);
• Tightness of economic relations: If that person has a permanent home in both countries but he/she has a closer economic relation in Vietnam (employment, business location, a place for personal property management…);
• Tightness of personal relations: If that person has closer personal relations such as family, relatives or social relations…;
• Duration of presence: If it is impossible to determine in which country that person has a closer relations, he/she shall be deemed as a resident of Vietnam when his/her duration of presence in Vietnam in the taxable year is longer;
• Nationality: If that person regularly present in both Vietnam and other country or does not regularly present in both countries, he/she shall be deemed as a resident of Vietnam if his/her nationality is Vietnamese;
• In case that person holds the nationalities of both Vietnam and other country or neither of the states, both signing Parties shall settle this issue through mutual agreement procedures.

Regarding organizations:

• Place of establishment and operation: That organization is established and operated in Vietnam;
• Head-office: That organization has its head-office in Vietnam;
• Executive office: That organization has its executive office in Vietnam;
• In case that organization is established, operated and has its head-office and executive office in both countries, the signing Parties shall settle the issue through mutual agreement to determine that organization shall be deemed as resident of which country. If both Parties fail to reach a mutual agreement, that organization shall not be deemed as an applicable entity of the Agreement.

When an individual or an organization determine in which country they are deemed as resident, their tax liabilities shall follow the laws of that country.

In order to do this, the taxpayer shall base on the agreement on double tax avoidance between Vietnam and that country along with Circular No.205/2013/TT-BTC.

Legal consulting services in Viet An Law Firm:

• Consult about regulations and procedures related to foreign investment, enterprises in Vietnam;
• Consult about taxation: corporate income tax, personal income tax for foreign-owned companies in Vietnam;
• Draft, submit the application for taxation, investment, enterprises and work with state-authorized agencies during the process when Clients grant authorization;
• Consult about legal issues such as contracts, intellectual property, labor, social insurance…

If you are looking for advice on legal issues and procedures related to enterprises and foreign investment in Vietnam, please do not hesitate to contact Viet An Law Firm for further information!