With the advent of information and communication technology, businesses have witnessed changes in the way they do business. For direct taxes, three key issues arise from the characteristics of the digital economy—(1) digital presence vs. traditional tax presence; (2) data/value creation; and (3) characterization of income derived from the digital economy.
While Vietnam has not had a separate regime on taxation of the digital economy, the government has indicated a top agenda item is to study the Organisation for Economic Cooperation and Development (OECD) base erosion and profit shifting (BEPS) actions on the digital economy and develop a set of rules that would address the treatment of income derived from Vietnam by the digital companies.
While Vietnam may have brought some expanded permanent establishment (PE) concepts into effect under current interpretive guidance on Vietnam’s tax treaties, an official letter from the tax authorities provides that the involvement in the negotiation or performance of contracts by staff of a foreign company’s representative office in Vietnam would constitute a PE in Vietnam.
The tax authorities have confirmed that all kinds of e-commerce (including business-to-consumer and customer-to-customer transactions) will be required to declare and pay tax on their income arising from Vietnam. The government has also indicated an intention to require foreign digital companies to register, declare, and pay tax in Vietnam.
In the meantime, Vietnam is seeking to reinforce its current “foreign contractor tax” regime to protect its taxing right on Vietnam-sourced income derived from certain e-commerce businesses. For instance, an official letter clarified that the foreign contractor tax applied with respect to commission income of foreign digital companies conducting business in online room-booking services in Vietnam.
Read a June 2017 report [PDF 2 MB] prepared by the KPMG member firm in Vietnam
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