Oliver Massmann
A foreign organization or individual conducting profit-generating business in Vietnam is subject to Vietnamese tax. However, whether the sale of goods in Vietnam through local agents or distributors by foreign organizations and individuals is subject to Vietnamese tax is still questionable. The tax implications for foreign organizations and individuals selling goods in Vietnam through local agents or distributors are gradually becoming clearer, enabling foreign exporters to plan their sales to Vietnam in a more predictable and tax efficient manner.
I. Background
The tax exposure of foreign exporters to Vietnam has changed significantly as a result of the following legal developments:
• Law on Enterprise Income Tax No. 14/2008/QH12 (issued by the National Assembly on 03 June 2008, amended by Law No. 71/2014/QH13 dated 26 November 2014);
• Law on Value- added Tax No. 13/2008/QH12 (issued by the National Assembly on 03 June 2008, amended by Law No. 71/2014/QH13 dated 26 November 2014);
• Law No. 71/2014/QH13 Amending and Supplementing Certain Provisions of Tax Laws (“Law No. 71”) (issued by the National Assembly on 26 November 2014); and
• Circular No. 60/2012/TT-BTC Providing Guidelines for the Tax Regime Applicable to Foreign Organizations and Individuals Operating Businesses in Vietnam or Generating Income in Vietnam (“Circular No. 60”) (issued by the Ministry of Finance on April 12, 2012).
II. Definitions
1. Contractor tax
Vietnam tax advisors often refer to the term “Contractor tax” when assessing the tax liabilities of foreign exporters. Circular No. 60 does not actually use the term “contractor tax.” The scope of application of Circular No. 60 includes other entities besides contractors, which are foreign organizations and individuals providing goods in Vietnam by means of on spot import and having income derived in Vietnam according to the contract signed between them and the Vietnamese entities. However, it has become a matter of practice to use the term “contractor tax” to refer to taxes imposed on foreign individuals and organizations conducting business in Vietnam under forms not provided for in the Law on Investment, Law on Petroleum and Law on credit Institutions.
Generally, “contractor tax” refers to value added tax (“VAT”) and enterprise income tax (“CIT”).
2. Agents
A sales agent is defined in the Commercial Law as a merchant who purchases and sells goods in its own name for a principal in order to enjoy remuneration. The Commercial Law stipulates a number of types of agents such as a “commission agent,” “underwriting agent,” “sole agent,” and “general agent.” However, these classifications are not relevant for tax purposes. Instead, the commission is the basis for any tax determination for a sales agent.
3. Distributors
The term “distributor” is not defined in the Law on Value Added Tax, the Law on Enterprise Income Tax, the Civil Code, or the Commercial Law.
Practically speaking, a distribution arrangement may be defined so that a Vietnamese distributor may act as an agent or it may purchase goods from foreign merchants.
III. Sale of goods in Vietnam through agents or distributors – TAXABLE OR NOT TAXABLE
In accordance with Circular No. 60, “foreign organizations with or without a permanent establishment in Vietnam, and foreign individuals whether or not residing in Vietnam (“Foreign Contractors”) doing business in Vietnam or deriving income in Vietnam according to a contract, an agreement or commitment between Foreign Contractors with foreign organizations or individuals, or between Foreign Contractors and Foreign Sub-contractors” will be subject to contractor tax. An agent is defined as a permanent establishment of foreign entity. Continue reading “LAWYER IN VIETNAM OLIVER MASSMANN VIETNAMESE TAXATION OF FOREIGN AGENTS AND DISTRIBUTORS”