Vietnam: Taxation of e-commerce, withholding rules effective in 2021

Vietnam: Taxation of e-commerce, withholding rules

New withholding tax rules applicable to non-resident enterprises selling goods and services into Vietnam via digital and e-commerce supply chains are effective in Vietnam beginning 1 January 2021.


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Recognizing that the sale or supply of goods and services to individuals via an e-commerce business model may have historically fallen outside the scope of the Vietnamese income tax system, the new withholding tax rules are intended to address this gap.  Specifically, payments made to “non-resident e-commerce businesses” (a term not yet defined) will be subject to a new withholding tax, to be collected by financial intermediaries such as banks.  This withholding tax will apply to all designated business-to-consumer (B2C) and business-to-business (B2B) transactions. 

Originally, implementation of the new e-commerce withholding tax regime in Vietnam was to be effective 1 July 2020. This effective date has been postponed for six months, and will be effective 1 January 2021 (even though the mandated effective date in the law is 1 July 2020).

  • Financial institutions will remain responsible for collecting the withholding tax on the subject transactions (how they are to do this remains unclear).
  • The withholding tax rates to be applied to the subject transactions are not statutorily prescribed and need to be determined on a case-by-case basis by reference to the foreign contractor tax (FCT) rates by treating at each transaction separately. In other words, the withholding taxes to be collected are variable and consist of a value added tax (VAT) component, at rates of 2% - 5% and corporate income tax component, at rates of 1% - 10% (tax professionals believe that this approach would likely result excessive withholding tax). 
  • Financial institutions will need to update their customer terms and conditions to accommodate this new law (and specifically regarding the obligation to withhold amounts from payment under instructions received from account holders).
  • The Vietnamese government is currently developing a new centralized IT platform to specifically deal with this withholding tax collection matter.  

KPMG observation

It is understood that these new withholding tax rules will become an extension of Vietnam’s existing foreign contactor tax (FCT) rules and that a new circular is currently being drafted to provide administrative guidance. Given the involvement of financial intermediaries in the tax collection and reporting process, the existing FCT rules will require significant modification.

The new rules also call for tax registrations to be undertaken by non-resident e-commerce businesses (or they must appoint someone to act on their behalf).  The form and content of this tax registration process is unknown as at the end of April 2020. It is understood that the General Department of Taxation is currently working on the development of a new circular to be released in June 2020. 

While the tax collection burden has been imposed on financial intermediaries (that will be required to report and collect taxes from nominated transactions), it is not known what rates of withholding tax will be applied, or how these taxes will be determined at this time. Furthermore, e-commerce businesses will need to understand how to claim tax refunds when no underling primary tax liability arises or when there is an over collection of taxes through the withholding process. Details on how financial intermediaries will identify transactions subject to these new rules are pending.

The application of tax treaties to the withholding process also remains unclear.

It is not yet known whether these new rules will have much broader application than originally intended. For example, while these changes appear targeted at the digital economy, there is a risk that they could also apply to digital transactions undertaken by anyone including related-party transactions.  The development of various definitions will be key to the effective operation of these new withholding tax rules.


For more information, contact a KPMG tax professional in Vietnam:

Dean Rolfe |

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