Vietnam’s National Assembly approved, in June 2019, a new Law on tax administration for digital, e-commerce transactions which became effective on 1 July 2020. Under the Law, non-resident enterprises who supply goods and services and who do not have a permanent establishment (PE) in Vietnam, are obliged to register, declare and pay tax in Vietnam or authorize other parties to do so on their behalf.
B2B service providers can choose to declare and pay the tax directly; however, they can still use the current withholding tax mechanism. Regarding B2C service providers, there will be a significant change as they will be required to register and declare directly or authorize a party in Vietnam to do so on their behalf. Third-party market providers will not be required to declare on behalf of individual suppliers doing business on their platforms.
Although taxes (VAT & CIT) will be imposed on the basis of deemed tax rates multiplied by revenue sourced from Vietnam, the tax rate is yet to be announced. How to determine revenue sourced in Vietnam is also an open issue. Moreover, the implementation of digital tax collection may be delayed as the online system is not yet ready.
How this is to be achieved in practice is not specified but these new rules are only intended to operate where no “permanent establishment” exists in Vietnam. Remarkably this registration requirement seems to overlook the potential application of double tax treaties. At a minimum, this registration requirement may remain applicable to VAT.
These new rules will apply within 12 months and taxpayers or non-resident enterprises (with Vietnamese B2C transactions) are advised to review current commercial arrangements and anticipate likely changes. If a foreign supplier fails to self-declare and pays taxes on their income earned from Vietnam, the tax authority will have the right to enforce tax collection via commercial banks.
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Founded in 2009, Viettonkin is a multi-disciplinary group of consulting firms and specialized in accounting, legal and a one-stop solution to FDI enterprises worldwide. The FDI consulting company aims to facilitate and connect investors in Southeast Asia with the rest of the world.
David Lang is the Founder and CEO of Viettonkin. He has over 11 years of experience, focused on FDI investment and supporting worldwide enterprises.
Thanh Nguyen is an Accounting & Tax Consultant at Viettonkin with considerable expertise in accounting and tax.