Taxes for Foreign E-commerce Firms Earning an Income in Vietnam
The definition of an e-commerce business is quite broad, but for the purposes of this article, it is the sale of commercial goods and/or the provision of services via a digital platform without the need for a physical presence in the jurisdiction where it makes a sale.
Traditionally, in Vietnam, if a foreign vendor earns an income, tax is withheld, declared, and remitted by the Vietnamese company they are doing business with. This tax is known as a foreign contractor tax (“FCT” or “withholding tax”).
This tax has significantly contributed to the state budget over the last two decades. With the rapid development of technology over the last 10 years, however, the Vietnamese government has realized that there is a need for reform.
Taxation of e-commerce businesses in Vietnam
Prior to January 1, 2022, FCT only applied to business-to-business (B2B) transactions. The withholding tax rules did not apply to the income of foreign vendors earned from Vietnamese individuals and the Vietnamese tax authority lacked an effective mechanism for taxing such income. Consequently, online vendors and service providers were able to evade paying taxes on income earned from individuals in Vietnam.
Realizing the government was missing out on millions of dollars in revenue, the Vietnamese Ministry of Finance issued Circular 08/2021/TT-BTC on September 29, 2021. The regulations in this Circular then took effect from January 1, 2022.
The whole of Chapter IX of this Circular was dedicated to the tax administration of e-commerce, digital platform-based businesses, and other services provided by overseas suppliers without permanent establishments in Vietnam. In summary, it basically covers the following key points:
- Foreign vendors and service providers who earn income in Vietnam (either from B2B or B2C transactions) are required to register, declare, and pay taxes on their income via the General Department of Taxation (GDT) of Vietnam’s online tax portal.
- The GDT will forward income and business details of unregistered vendors and service providers to the headquarters of commercial banks as well as the financial intermediaries for reconciliation and tax withholding purposes.
- Commercial banks and financial intermediaries are required to withhold appropriate taxes and declare what they withhold using form 03/NCCNN, by the 20th of each month at the latest. Tax reporting and withholding obligations of banks and financial services entities commence upon receiving an official announcement from the GDT.
- If local individuals purchase goods and services using credit cards or payment methods that prevent commercial banks and financial intermediaries from withholding tax, these financial entities need to report these payments, using form 04/NCCNN, to the GDT by the 10th of each month at the latest.
As of May 8, 2023, a total of 53 foreign vendors had registered and paid taxes in Vietnam via the GDT’s online tax portal. The list of such vendors was publicized by the GDT via official letter no. 996/TB-DNL that can be found on the online tax portal. The list included many household names, such as Netflix, Zoom, and Facebook.
FAQs: Taxability and compliance considerations for e-commerce in Vietnam
So how can a foreign vendor who earns income in Vietnam without a physical presence in the country, register and pay taxes in Vietnam? What are the applicable tax rates and how do Double Taxation Avoidance Agreements (DTAA) between Vietnam and other countries for these online transactions apply? Below we answer these questions so readers can gain a comprehensive understanding of the tax obligations and liabilities incurred by e-commerce entities in Vietnam.
Question 1: How can foreign vendors register and pay taxes in Vietnam?
Answer: First, you will need to register to conduct online tax transactions using a dedicated email address and via the GDT’s online tax portal. Note that the portal is also available in English.
Then, click ‘Tax registration’ and fill in the required information. The information will be collated and form 01/NCCNN will be filled in automatically for submission to the GDT. The GDT will issue you with an authentication code for your tax declaration and remittance. Any subsequent changes in information can be amended using form 01-1/NCCNN.
Once the registration process is completed, you can start using that tax account to declare tax on your Vietnam-sourced income by clicking the ‘Tax declaration’ button. The declared information will be collated and will need to be lodged with the GDT on a quarterly basis.
After the tax declaration is completed, a tax remittance identifier will be provided by the GDT.
You can make tax remittances in a convertible foreign currency to the GDT’s tax collection account per the online tax portal. To do so you must correctly quote the tax payment identifier provided earlier to complete the payment.
It should be noted that tax shortfalls may result in a late interest penalty of 0.03 percent per day. The actual tax remittance should be slightly higher than the estimate provided to cover any bank charges or foreign exchange rate fluctuations. Any overpayments can be carried forward to offset the tax payable in the following reporting period.
Question 2: What are the applicable tax rates?
Answer: The applicable taxes comprise the Value-Added Tax (VAT) and Corporate Income Tax (CIT), similar to foreign contractor withholding taxes made by local entities. The applicable tax rates can be found here: Foreign Contractor Withholding Tax Rates.
Question 3: Does this rule apply to me as a sole trader who sells stuff to Vietnamese customers via eBay and Amazon?
Answer: Theoretically speaking, it does. However, the Ministry of Finance has noticed certain obstacles in the pursuit of tax collections from foreign sole traders. It is currently in the process of liaising with online e-commerce platforms, such as Shopee, eBay, and TaoBao, to come up with an efficient approach to collecting taxes from online vendors with minimal disruptions to online marketplace operations. In reality, local sole traders and business households are subject to local taxes, and these are easy to administer. On the other hand, no foreign sole traders are willing to register and pay taxes on a voluntary basis.
Question 4: If we register and pay taxes on our Vietnam-sourced income, do our corporate customers in Vietnam still have to report and make withholding taxes on their payments to us?
Answer: No, they don’t. If you register and pay taxes as foreign vendors, you will be publicized by the GDT via their online tax portal and your local customers in Vietnam will not have to withhold taxes. This was confirmed by Official Letter no. 17832/ /CTHN-TTHT issued April 4, 2023, by the Provincial Tax Department of Ha Noi.
Question 5: Our company is situated and operates in a country that has a DTAA with Vietnam. Should we be paying taxes to our federal government only? Should the income earned from our Vietnamese customers be tax-free according to the DTAA?
Answer: It should be noted that the tax relief granted by DTAAs is not automatically applied. You need to determine the types of your Vietnam-sourced income and assess whether they are subject to tax relief. If the conditions for tax relief eligibility are met, you can go ahead and apply for tax exemptions or reductions with the Vietnamese tax authority.
Officially, a DTAA is ‘An agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.’ This means that only income tax is subject to tax exemptions or reductions by virtue of DTAAs between Vietnam and other tax jurisdictions. As of 2023, Vietnam has negotiated and signed DTAAs with more than 80 countries and territories.
Once the tax authority is satisfied you have met the conditions for tax relief and it confirms your eligibility, you will only have to pay VAT going forward.
The assessment of, and application for, tax relief under DTAAs are complicated and lengthy processes. You are strongly encouraged to consult a tax advisor who can practically assist you with the technical analysis and application procedures.
Although there are guidance and regulations, the tax registration and reporting procedures for foreign e-commerce vendors are still viewed as ‘voluntary’. This is because the Vietnamese tax authority has not officially announced any statutory measures or legal recourse against non-compliant vendors. Furthermore, withholding measures can impose significant compliance burdens on commercial banks as well as create significant risks of duplicate tax collection.
Moreover, it is still unclear how banks and financial intermediaries can meet the administrative requirements outlined to force foreign vendors to meet their tax liabilities on their Vietnam-sourced income. Consequently, this matter will be subject to further official debates and governance in the next few years.
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