Double taxation avoidance agreements (DTAAs) help businesses from being double-taxed on their income. This also applies to businesses, legal entities, and individuals. Vietnam currently has approximately 80 DTAAs signed.

Vietnam Briefing looks into the benefits of DTAAs and the types of taxable income.

With regard to international trade, the various countries’ tax systems often times put global investors in the unfavorable position of having to face redundant taxes on their income —i.e., double taxes. For example, a company may be subject to taxes in its country of residence and also in the countries where it raises income through foreign investments for the provision of goods and services.

It is therefore extremely worthwhile for foreign investors to be aware of the existing double taxation avoidance agreements (DTAAs) between Vietnam and various countries, as well as how these agreements are applied. These treaties effectively eliminate double taxation by identifying exemptions or reducing the amount of taxes payable in Vietnam.

DTAAs apply to both individuals and corporations who are residents of Vietnam or of the country that Vietnam had signed a DTAA with or both.

Residents of countries that are signatories to DTAAs with Vietnam are subject to the relevant taxes in their native countries. Someone is considered a resident if they own residential property, have resided in the country for a certain amount of time, or satisfy any other relevant criteria.

On the other hand, residents of Vietnam must satisfy at least one of the following:

Organizations are considered residents of Vietnam if they have established a business in Vietnam and operate under Vietnamese law. Examples include state companies, cooperatives, limited liability companies (LLCs), joint-stock companies, and private enterprises.

If there is a direct conflict between domestic tax laws and the tax provisions in a DTAA, those in the DTAA will prevail. However, domestic tax laws will prevail when the relevant tax obligations included in the DTAA do not exist in Vietnam or when the tax rates in the agreement are more than the domestic tax rates. For example, if a signatory country is entitled to impose a type of tax that Vietnam does not recognize, then Vietnam’s tax laws will apply.

DTAAs typically only apply to income taxes. However, in Vietnam, DTAAs impact both corporate and personal income taxes.

For foreign-invested enterprises (FIEs), corporate income is what is earned from carrying out production and business activities 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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