Vietnam Regulatory Brief: U.S.-Vietnam DTA, VAT, and Online Payment of Import-Export Tax

July 16, 2015 Posted by Vietnam Briefing Reading Time: 5 minutes

In this Vietnam Regulatory Brief, we look at some of the important regulatory changes taking place in Vietnam during the month of July, including a U.S.-Vietnam double tax agreement, a VAT update, and online payment of import-export duties.

United States-Vietnam double tax agreement

On July 7, the United States and Vietnam signed a double tax agreement (DTA). According to the new DTA, in the case of Vietnam, the agreement will apply to both personal income tax and business income tax. In the case of the U.S., the DTA will apply to the federal income taxes imposed by the Internal Revenue Code (not including Social Security and unemployment taxes) and the federal taxes imposed upon the investment income of foreign private foundations.

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Key takeaways from the agreement include:

Dividends:

If the beneficial owner of the dividends is a resident of the other county, the tax charged must not exceed:
- Five percent of the gross amount of the dividends if the beneficial owner is a company that owns:
  - Directly at least 25 percent of the voting stock of the company paying the dividends, if such company is a resident of the US
  - Directly at least 25 percent of the capital of the company paying the dividends, if that company is a resident of Vietnam
- 15 percent of the gross amount of the dividends in all other cases.

Interest:

Interest may be taxed in the country in which it arises, but if the beneficial owner of the interest is a resident of the other country, the tax charged shall not exceed 10 percent of the gross amount of the interest

Royalties:

Royalties may be taxed in the country in which they arise, but if the beneficial owner of the royalties is a resident of the other country, the tax charged shall not exceed:
- Five percent of the gross amount of the royalties described in subparagraph (a) of section 3 of the Royalties Article (Article 12)
- 10 percent of the gross amount of the royalties described in subparagraph (b) of section 3 of the Royalties Article (Article 12)

The full text of the DTA can be found here.

VAT on domestic rice to remain unchanged

The Ministry of Finance (MoF) has confirmed that the VAT rate on domestic rice will not be lowered to the previously proposed level of 0.5 percent. Rather, the tax rate will remain at its current level of five percent. The MoF has stated that it is not possible to reduce the rate due to existing taxation laws and international practices. Specifically, the proposed tax reduction was found not to be compatible with Vietnam’s 2011-2020 tax reform strategy. Additionally, a significantly reduced, or zero tax rate, is only available to exports, not domestic products

The Vietnam Food Association put forward the tax reduction as a way to develop a competitive local brand for the domestic market. According to the country’s Agriculture and Rural Development Ministry, domestic rice consumption accounts for around 15 percent of the country’s total rice output.

Import-Export duties could soon be payable online

Vietnam’s General Department of Customs is currently drafting a new circular that could soon allow businesses to pay their import and export taxes and fees online. The proposed change would mean that businesses would no longer need to go a bank in order to pay their taxes and fees, thus drastically reducing the time and paperwork involved in the current process.

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Under the regulations laid out in the new circular, businesses will be able to pay their taxes using an internet banking service and will allow customs fees to be paid through a customs payment system tool.

The new circular is set to replace Circular 126/2014/TT-BTC, which imposes a system of paying taxes, fines, and fees in cash or by transfer.

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