Tax treaty claims in Vietnam
Overview
Vietnam has effective tax treaties with most 80 countries. Copies of these tax treaties can be found on the General Department of Taxation (GDT)’s website.
Most of Vietnam’s tax treaties follow the OECD Model Tax Convention. The implementation and interpretation of tax treaties must follow the OECD Commentary, but Vietnam has its own guidance (“Circular 205”). Tax treaties override the domestic tax laws and therefore the OECD Commentary should override Circular 205 (but not always so in current practice).
Tax treaties apply to, and provide tax relief only in respect of direct taxes including Corporate Income Tax (“CIT”) or Personal Income Tax (“PIT”), not indirect taxes (i.e. VAT).
Who may claim tax treaty relief in Vietnam?
A non-resident individual/company carrying on employment/business in Vietnam may claim tax treaty relief in Vietnam. Tax treaty relief is not automatic and must be claimed through a formal application. The applicant is responsible for its self-assessment of its eligibility to tax treaty relief, and incorrect self-assessment could result in penalties.
What documents are required for a tax treaty claim?
A tax treaty claim must include the following documents[1]:
- The completed Form 01/HTQT – Notice of eligibility to tax relief under a tax treaty;
- The original or certified copy of the Certificate of Residence (“CoR”) issued by the tax authority of the taxpayer’s country of residence, which must be authenticated and legalised by the relevant overseas Vietnamese consular office;
- A photocopy of the contract with the Vietnamese contract (or the employment contract and a photocopy of passport, for individuals);
- The letter authorising the company/person handling the tax treaty claim.
Where the CoR is not available at the time of lodgement of the claim, it may be submitted latter but not later than the end of the 1st quarter of the following year of tax assessment.
Where a tax treaty claim has been lodged in the prior year, the taxpayer may submit only a certified photocopy of the new contract (if any) in the subsequent years[2].
When is a tax treaty claim due?
Generally, advance claims are required. A tax treaty claim must be lodged at least:
- 15 days prior to the due date of the relevant tax return (for companies);
- 15 days prior to commencement of work in Vietnam (for independent contractors);
- The due date of the first tax return (for individuals);
However, in practice the tax authorities accept claims lodged after these deadlines (even if the taxpayer has not registered for taxation) and retrospective claims are allowable up to three years, but no foreign tax credit (if any) is allowable to claims lodged after these deadlines.
It is necessary to obtain an advance ruling?
Normally, tax treaty claims are not approved or rejected promptly by tax offices until a tax audit – Hence, there is risk being rejected and penalised for unsuccessful claims.
Under the current tax treaty claim procedures, tax offices are not required to issue any written approval or rejection of a tax treaty claim. Taxpayers are required to self-assess their eligibility to tax treaty relief and “notify” the tax office accordingly. It means that the taxpayer’s eligibility is not confirmed until the tax office conducts an audit or inspection of the taxpayer’s tax compliance affairs, which could take years of waiting before it is finalised.
Therefore, although an advance ruling is not required by the standard tax treaty claim procedures, it is so recommended for certainty, and for avoidance of the risk of a claim being challenged by tax auditors in a future tax audit, and potential disputes which can be time-consuming and costly. A favourable advance ruling will help strengthen the tax treaty claim.
How we can assist?
We can assist in the following areas:
- Advising on your eligibility to tax treaty relief in Vietnam;
- Preparation and lodgement of a request for advance ruling by the tax authority to confirm your eligibility to tax treaty relief;
- Preparation and lodgement of formal claims of tax treaty relief;
- Advising on tax treaty claim disputes with the tax authorities through the tax administrative appeal system and the Mutual Agreement Procedures.
[1] Arts 20.2(d), 20.4(c2) & 20.3, Cir 156;
[2] Arts 20.2(d) & 20.3(b2) & 20.4(c2), Cir 156.
