Official Dispatch 6722/CTBRV-TTHT Ba Ria - Vung Tau 2023 foreign contractor tax policies

To: Thuan Hue Production Service and Trading Corporation.

Address: No. 168/3 Bach Dang, Ward 5, Vung Tau City, Ba Ria -

 Vung Tau Province, Tax identification number: 3500802078.

In response to Document No. 05/CV.TH dated September 27, 2023 of Thuan Hue Production Service and Trading Corporation (hereinafter referred to as Company) on foreign contractor policies, Tax Department of Ba Ria - Vung Tau province gives the following opinions:

Pursuant to the Agreement between the Government of the Republic of Singapore and the Government of the Socialist Republic of Vietnam for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income;

- Article 7 - Business profit, prescribes that:

“1/ The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

…”;

Pursuant to Article 11 of Circular No. 205/2013/TT-BTC dated December 24, 2013, of the Ministry of Finance, guiding the implementation of the Agreements on avoidance of double taxation avoidance and prevention of fiscal evasion with respect to taxes on income and property between Vietnam and other countries (hereinafter referred to as the contracting State or depending on the context) currently in force in Vietnam (hereinafter referred to as the Agreement):

“1. In case foreign enterprises carry out production and business activities in Vietnam without forming legal persons in Vietnam.

1.1. Tax obligation

Under the Agreements, business income of a foreign enterprise will be taxed in Vietnam only if such enterprise has a permanent establishment in Vietnam and such income is directly or indirectly attributed to that permanent establishment. In this case, the foreign enterprise shall be taxed in Vietnam only on the part of income apportioned to such permanent establishment.

…

1.2.2. An enterprise of a Contracting State shall be regarded as carrying out business activities through a permanent establishment in Vietnam in the following major cases: 

c) That enterprise provides services including also consulting services in Vietnam through its employees or another person, provided that these services in a related project or projects last in Vietnam in a period or periods exceeding 183 days in each 12-month period.

…”;

Pursuant to the Minister of Finance’s Circular No. 103/2014/TT-BTC dated August 06, 2014, guiding the performance of tax obligations of foreign organizations and individuals doing business in Vietnam or earning income in Vietnam;

- Article 1 - Subjects of application, prescribes that: 

“The guidance in this Circular is applicable to the following subjects (except the cases specified in Article 2, Chapter I): 

1. Foreign business organizations with or without permanent establishments in Vietnam; foreign businesspeople who are residents or non-residents in Vietnam (below referred to as foreign contractors and foreign subcontractors) that do business in Vietnam or earn income in Vietnam under contracts, agreements or commitments between foreign contractors and Vietnamese organizations or individuals or between foreign contractors and foreign subcontractors to perform part of the contracts. 

...”; 

- Article 11 provides regulations on subjects of and conditions for application as follows: 

If the foreign contractors and subcontractors fail to meet any of the conditions mentioned in Article 8, Section 2, Chapter II, the Vietnamese party shall pay tax on their behalf under the guidance in Articles 12 and 13, Section 3 of Chapter II..”; 

- Article 6 provides regulations on objects subject to value-added tax; 

- Article 7 provides regulations on incomes subject to enterprise income tax; 

- Article 12 provides regulations on value-added tax; 

- Article 13 provides regulations on enterprise income tax; 

Pursuant to the Minister of Finance's Circular No. 96/2015/TT-BTC providing guidance on enterprise income tax; 

- Article 4 amends and supplements Article 6 of Circular No. 78/2014/TT-BTC (amended and supplemented in Clause 2, Article 6 of Circular No. 119/2014/TT-BTC, and Article 1 of Circular No. 151/2014/TT-BTC) as follows: 

“Article 6. Deductible and non-deductible expenses when determining taxable income 

1. Except for the non-deductible expenses prescribed in Clause 2 of this Article, enterprises may deduct any expense that fully satisfies the following conditions: 

a) Actual expenses related to their production and business activities; 

b) Expenses with adequate lawful invoices and documents; 

c) Expenses for purchase of goods or services valued at VND 20 million or more (VAT-inclusive prices) per invoice with non-cash payment documents. 

Non-cash payment documents must comply with legal documents on value-added tax. 

…

2. Non-deductible expenses for determining taxable income include: 

2.1. Expenses failing to fully meet the conditions specified in Clause 1 of this Article. 

…

2.37. Input value-added tax which has been credited or refunded; input value-added tax on fixed assets which are cars with 9 seats or under in excess of the credit level specified in legal documents on value-added tax; enterprise income tax, except the case in which enterprises pay enterprise income tax for foreign contractors as agreed in the contracts with foreign contractors or foreign subcontractors that incomes received by foreign contractors or foreign subcontractors are exclusive of enterprise income tax; and personal income tax, except the case in which labor contracts signed by enterprises state that salaries or wages payable to workers are exclusive of personal income tax.”;

On January 18, 2017, the Ministry of Finance sent Official Dispatch No. 848/2017/BTC-TCT to Tax Departments of provinces and centrally-run cities, providing guidance on tax policies and tax administration related to business activities of online booking services, which contains the following: 

“1. Regarding tax obligation 

Foreign-based companies conducting online room booking business in Vietnam (foreign contractors) such as Agoda.com; Booking.com; Expedia.com; etc. that fail to meet the conditions for paying VAT by the deduction method, paying enterprise income tax on the basis of declaring revenue and expenses to determine taxable income when signing contracts with accommodation establishments in Vietnam (such as hotels, motels), shall pay VAT, enterprise income tax at the rate of % on the commission revenue received according to regulations, etc., specifically: 

- The % rate for calculating VAT on the enjoyed revenue is 5%.

- The % rate for calculating enterprise income tax on the enjoyed revenue is 5%. 

…”.

Based on the above regulations, tax obligations for foreign contractors operating in the field of e-commerce and room booking in Vietnam shall be determined as follows: 

- In case the customer rents a room and pays directly to the accommodation establishment in Vietnam, and the latter pays the booking brokerage commission to the foreign contractor, the accommodation establishment shall be responsible for declaring and paying taxes on behalf of the foreign contractor. 

- In case the customer rents a room and pays directly to the foreign contractor, and the latter transfers the room fee to the accommodation establishment and retains the commission received: 

+ In case the accommodation establishment and the foreign contractor have signed a contract, the accommodation establishment shall be responsible for notifying the foreign contractor of the tax obligations and declaring and paying foreign contractor tax on behalf of the foreign contractor; 

+ In case the accommodation establishment and the foreign contractor have not yet signed a contract, the accommodation establishment must clearly identify the tax obligations of the foreign contractor when signing the contract and the accommodation establishment shall be responsible for declaring and paying taxes on behalf of the foreign contractor. 

- The determination of deductible and non-deductible expenses when determining income subject to enterprise income tax shall comply with Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015.  

Ba Ria-Vung Tau Tax Department hereby informs Thuan Hue Production Service and Trading Corporation for implementation and compliance with the law./.