Value Added Tax (“VAT”) exposure of non-resident companies in Vietnam is regulated by the law on VAT and implemented by the Circular 103/2014/TT-BTC (“Circular 103”) on Foreign Contractor Withholding Tax (“FCWT”). This is not new. What is new is the regime realising the increased efforts to enforce tax payment. It included, in the past, what now is discussed as Digital Service Tax (“DST”).
The enforcement of the DST is regulated in the Law on Tax Administration (“LTA”), effective as of 01 July 2020 and the Decree 126/2020/ND-CP (“Decree 126”), effective as of 05 December 2020.
The new regulations strengthen the effectiveness of the tax collection towards digital service activities of e-commerce traders and other digital service businesses without a permanent establishment (“PE”) in Vietnam (“Taxpayer”). Said taxpayer is required to conduct registering, declaring and paying tax in Vietnam or to authorise another entity to do so on behalf of the taxpayer.
The taxed subject is the income of the taxpayer from Vietnam. The imposed taxes are the
VAT, the Corporate Income Tax (“CIT”) and for business individuals the Personal Income Tax (“PIT”). The applicable tax rates are as defined in Circular 103 unless they will be defined differently in more detailed regulations in the near future.
Enforcement of tax collection through intermediate parties
The crucial and new point is the enforcement of the tax payment through intermediate parties. This is introduced because, despite the adoption of the tax self-declaration by the taxpayer, some taxpayers ignored the tax exposure in the past. To fill the gap, in the event that the taxpayer fails to comply with the obligation to declare and pay tax, the tax authorities have the right to issue an enforcement decision and impose tax collection, including the enforcement through commercial banks and/or Intermediary Payment Service Providers (“IPSP”). According to Article 27.3 LTA, commercial banks have the right and obligation to “deduct and pay tax of overseas organisations and individuals engaging in e-commerce activities generating income in Vietnam”, which is elaborated in Article 30, Decree 126. If goods and services of the overseas suppliers are paid for by credit card or other methods causing the commercial bank or IPSP to be unable to deduct tax, the commercial bank or IPSP is required to provide monthly reports on the amounts transferred to overseas suppliers to the General Department of Taxation.
The tax authority can request the commercial banks and IPSP, other private organisations and other authorities to provide the information needed for enforcement. This refers especially to the details of the bank accounts and payment transactions.
In the event of tax compliance failure or likewise, the tax authority can publish the taxpayer information on its website.
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