Principles of applying Double Taxation Agreements in Vietnam

Double tax avoidance is a significant matter in cross-border transactions. Therefore, to ensure the interests of the relevant parties, Vietnam has participated in several Double Taxation Agreements (“DTAs”). So what are the main contents of principles of applying these agreements?

Through this article, BLawyers Vietnam would like to provide information on this issue.

DTAs

I. What is double taxation?

Double taxation is an event that a taxpayer must pay tax twice for the same subject of tax, such as income or property, which are occurred in two different countries. Therefore, countries around the world often participate in signing DTAs to ensure the rights of taxpayers who are those countries’ citizens.

II. Principles when applying DTAs

Up to now, Vietnam has signed DTAs with nearly 100 countries and territories. Therefore, when applying and handling tax matters for each case, it must be based on the provisions of each DTA that Vietnam signed with each country/territory. Accordingly:

(i) If having a difference between the tax laws in Vietnam and the DTAs, the provisions of the DTAs shall be applied.

(ii) The tax rate will be applied according to the provisions of current tax laws in Vietnam if:

    • DTAs contains provisions under which Vietnam is entitled to tax a certain type of income or a certain tax rate; and
    • The current tax laws in Vietnam have not yet provided for the taxation of such income or provided for a lower rate.

Thus, in this case, the business will not have to pay tax or be taxed at a lower tax rate.

(iii) Where Vietnam implements the provisions of the DTAs, at a certain time the terms which are not yet defined in the agreements shall have the meanings provided for in Vietnam’s laws for the taxation purpose at such time.

(iv) Competent authorities of Vietnam and of the DTAs-signing country shall resolve problems through mutual agreement procedures if:

    • There is a term that has not been defined in both the DTAs and the laws of Vietnam; or
    • There is a term that is simultaneously defined in the laws of both countries.

(v) For a term that is simultaneously defined in tax law and other laws, the definition in tax laws will be applied for the implementation of the DTAs.

III. Some cases of refusal to apply DTAs based on the principle of DTAs beneficial right

Unless otherwise specified in the DTAs on the limitation of the DTAs beneficial right, competent authorities in Vietnam shall refuse the request for application of these agreements in the following cases:

(i) The proposing person wishes to apply the DTAs for a tax which has arisen than three years before the time of request for application of these agreements;

(ii) When principal purposes of contracts or agreements are subjects entitled to tax exemption or the reduction under DTAs; and

(iii) The proposing person for application of the DTAs is not beneficial owner incomes involving the tax amounts which are requested exemption, the reduction under these agreements.

In short, DTAs have made important contributions in avoiding double taxation. It also prevents tax evasion, smuggling on income, and property taxes. Understanding the principles of applying these agreements will have a significant impact on your business.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Date: 09 March 2022

Writer: Tuyen Pham

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