Title: Circular 205/2013/TT-BTC guiding the implementation of the Agreement on double taxation avoidance and prevention of tax evasion to taxes and assets between Vietnam and other countries and territories taking effective in Vietnam

Type: Circular

Issuing Agency: Ministry of Finance

Responsible Agency: Ministry of Finance

Issuing Date: 24-12-2013

 

Chapter I

GENERAL PROVISIONS

Section 1. SUBJECTS AND SCOPE OF APPLICATION

Article 1. Subjects of application

This Circular regulates the subjects that are residents of Vietnam or of the Contracting State to an Agreement concluded with Vietnam or of both.

1. Under the Agreements, the term “a resident of the Contracting State” means any person who, under the laws of that state, is liable to tax therein by reason of:

That person has an home, a period of residence in that State or any other criterion of similar nature, in the case of an individual; or

1.2. That person has a place of management, a registered office, or is established in that State or has any other criterion of similar nature, in the case of an organization; or

1.3. This term also includes the Government or local authorities of that State, in case where an Agreement provides.

2. According to the current laws on tax in Vietnam, the following persons are regarded as residents of Vietnam:

2.1. Individuals who satisfy one of the following conditions:

a) They are present in Vietnam for 183 or more days computed over one calendar year or 12 consecutive months as from the first day those persons arrive in Vietnam;

Individuals present in Vietnam as prescribed at this point means those who appear in the Vietnamese territory;

b) They have regular residences in Vietnam under one of two cases:

- Residences registered for permanent residence as prescribed by law on residence;

- Houses rented for residence in Vietnam as prescribed by law on dwelling house, with duration of rent contract is 183 days or more in taxable year.

If an individual has regular residence in Vietnam as prescribed at this point but practically he resides in Vietnam less than 183 days in taxable year and he fails to prove that he is resident of other State, he is resident in Vietnam.

Example 1: In 2010, one Japanese expert arrived Vietnam for work within 10 months.  Two months in 2010 (June and December), this expert on leave to visit his family.  In 2009, the expert lived and worked in Japan. Taxable year of Japan is from 01/4 to 31/3 of next year. So that, in 2010, Japanese expert has worked principally in Vietnam and regularly lived in Vietnam, and although he still has house and family in Japan and hold Japanese nationality, he is still considered as a resident of Vietnam for tax purpose. (Stated in Article 4, Clause 1, Agreement between Vietnam and Japan). However, in period from 01/2010 to 30/3/2010, expert is considered as resident of Japan for purpose of tax finalization in Vietnam and Japan.

2.2. Organizations established and operating under the laws of Vietnam.

3. In cases where a person is deemed to be a resident of both Vietnam and the Contracting State to an Agreement concluded with Vietnam under the provisions of Clauses 1 and 2 of this Article, the residence position of such person shall be determined as follows:

3.1. For individuals:

The criteria in the following priority order shall serve as the basis for determining whether the person is a resident of Vietnam:

a) If that individual has a permanent home in Vietnam (either under his/her ownership or, for rented houses, his/her use right);

b) If that individual has permanent homes in both countries, but he/she has a closer economic relation in Vietnam such as: He has an employment, a business location, a place for personal property management or closer personal relations in Vietnam such as familial relation (relatives as father, mother, spouses, children, etc.), social relation (i.e. member of a social organization or professional association, etc.);

c) If it is impossible to determine in which State that individual has closer economic or personal relations or if he/she has no permanent home in either of the States but has a longer time of presence in Vietnam in the taxable year;

d) If that individual is regularly present in both Vietnam and the Contracting State to an Agreement concluded with Vietnam or in neither of the States but he/she holds the Vietnamese nationality, or is determined as Vietnamese citizen under nationality principle in force in of Vietnam;

dd) If that individual holds the nationalities of both Vietnam and the Contracting State to an Agreement concluded with Vietnam or of neither of the States, the Vietnamese competent authorities shall settle this question through mutual agreement procedure with the competent authorities of the other Contracting State.

3.2. For a subject not being individual:

Depending on specific provisions in each Agreement to determine a subject not being individual as resident of Vietnam. In the Agreements usually prescribe the following criteria:

a) If such subject is established or registered for operation in Vietnam, it shall be deemed to be resident of Vietnam; or

b) If such subject has main office in Vietnam, it shall be deemed to be resident of Vietnam; or

c) If such subject has place of effective management in Vietnam, it shall be deemed to be residents of Vietnam (place of effective management is normally the place where high-ranking officials or the leadership of enterprise meet to consider, discuss and make managerial decisions or where the most important accounting books are recorded and archived; or

d) If a subject is established or registered in both of States or has main offices or places of effective management in both of States, the Vietnamese competent authorities and competent authorities of the Contracting State to an Agreement concluded with Vietnam will determine such subject to be resident of one of two States  through mutual agreement procedure. If two States fail to reach a mutual Agreement, that subject shall not be deemed as resident for tax of any State due to purpose of applying Agreement.

Provisions on residents above are stated at provision of resident (Usually Article 4) of the Agreements.

Article 2. The applied taxes

The applied taxes in Agreements are taxes on incomes and assets specified in each Agreement.

1. In the case of Vietnam, taxes in application scope of Agreement are:

a) Enterprise income tax; and

b) Personal income tax.

2. In the case of the Contracting States to an Agreement concluded with Vietnam, taxes in application of Agreements shall be specified at Article 2 of Agreements (Usually Clause 3 of Article 2).

Example 2: At Article 2, Clause 3, point b) of Agreement between Vietnam and State N prescribes as follows:

“3. The existing taxes to which this Agreement shall apply are:

...

b) In State N:

i) Income tax;

ii) Corporation tax; and

iii) The local inhabitant taxes on income.”

According to provision above, if a local of State N has a local inhabitant tax on income of residents and non-residents  of State N, that local inhabitant tax on income will be in application scope of Agreement between Vietnam and State N.

Article 3. Immunities for members of diplomatic and consular missions

Under the Agreements, the provisions of the Agreements shall not affect the immunities of members of a diplomatic or consular mission prescribed in the international treaties which the Socialist Republic of Vietnam has signed or acceded to.

The above-said provisions on immunities of diplomatic agents and consular officers are included in the Article Members of Diplomatic Missions and Consular Posts (usually Article 27) of the Agreements.

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