Vietnam Briefing discusses how businesses and individuals can reduce their tax exposure by taking advantage of double tax avoidance agreements (DTAAs). Nevertheless, businesses should be aware of tax regulations when using this method or face significant tax fines and penalties.

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 double tax avoidance agreements (DTAAs) that Vietnam has, businesses and individuals can reduce their tax exposure by taking advantage of the tax reductions and exemptions they may be subject to.

However, businesses should be aware of the tax regulations in place on DTAAs as these can be complex.

DTAAs treaties effectively eliminate double taxation through identifying exemptions or reducing the amount of taxes payable in Vietnam. Double taxation is when two or more countries levy tax on the same income such as income taxes, assets, or financial transactions. DTAAs apply to both individuals and corporations who are residents of Vietnam, citizens of the country that Vietnam had signed a DTAA with, or both.

Tax exemptions or reductions 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 notify their eligibility for tax exemptions/reductions.

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.

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.

Deemed tax is the amount of tax that 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.

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 third method listed above is only applicable to the joint-stock company if the Vietnamese resident holds at least 10 percent of such company’s voting rights. It should be noted that the deductible tax amount may not exceed the total taxes payable in Vietnam.

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This article was first published by VietnamBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected].

About the author

ASEAN Briefing features business news, regulatory updates and extensive data on ASEAN free trade, double tax agreements and foreign direct investment laws in the region. Covering all ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam)

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