Taxes for foreign e-commerce companies in Vietnam

The definition of an e-commerce business is very broad, but for the purposes of this article, it refers to the sale of goods and/or provision of services via a digital platform without the need for a physical presence in a jurisdiction. We will sell.

Traditionally, in Vietnam, when foreign vendors earn income, taxes are withheld, declared and remitted by the Vietnamese companies they do business with. This tax is known as the Foreign Contractor Tax (“FCT” or “Withholding Tax”).

This tax has contributed significantly to the national budget over the past 20 years. However, the rapid development of technology over the past decade has made the Vietnamese government realize the need for reform.

Taxation of e-commerce business in Vietnam

Prior to January 1, 2022, the FCT only applied to business-to-business (B2B) transactions. Withholding rules do not apply to foreign business income derived from Vietnamese individuals, and the Vietnamese tax authorities lacked an effective mechanism to tax such income. As a result, online vendors and service providers were able to avoid paying taxes on income earned from Vietnamese individuals.

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Recognizing that the government is missing out on millions of dollars in revenue, Vietnam's Ministry of Finance issued Circular 08/2021/TT-BTC on September 29, 2021. Subsequently, the regulations in this circular came into effect from January 1, 2022.

The entire Chapter IX of this circular is devoted to the tax administration of e-commerce, digital platform-based businesses, and other services provided by foreign suppliers who do not have a permanent establishment in Vietnam. To summarize, basically the following important points are covered:

• Foreign vendors and service providers earning income in Vietnam (either through B2B or B2C transactions) must register, declare, and pay taxes on their income through Vietnam's online tax portal General Department of Taxation (GDT) .
• GDT forwards the income and business details of unregistered vendors and service providers to commercial banks' headquarters and financial intermediaries for reconciliation and withholding purposes.

• Commercial banks and financial intermediaries are required to withhold the appropriate taxes and declare the amounts withheld using Form 03/NCCNN no later than the 20th of each month. Tax reporting and withholding obligations for banks and financial services entities begin upon receipt of an official announcement from the GDT.

• If a local individual purchases goods or services using a credit card or payment method that prevents withholding by commercial banks or financial intermediaries, these financial institutions may use Form 04/NCCNN to collect 10 You must report these payments to GDT by latest.

As of May 8, 2023, a total of 53 foreign vendors have registered and paid taxes in Vietnam through GDT's online tax portal. The list of such vendors has been published by GDT through Official Letter No. 10. 996/TB-DNL can be found on the online tax portal. The list included many well-known companies, including Netflix, Zoom, and Facebook.

FAQ: Taxability and compliance considerations for e-commerce in Vietnam

So how can a foreign vendor earning income in Vietnam without having a physical presence in Vietnam register and pay taxes in Vietnam? What are the applicable tax rates? ?And how does the Double Taxation Avoidance Agreement (DTAA) between Vietnam and other countries apply to these online transactions? Below, we will help readers understand the tax obligations and tax obligations of Vietnamese e-commerce entities. Answer these questions to give you a comprehensive understanding of your debt.

Question 1: How can foreign vendors register and pay taxes in Vietnam?

answer: First, you must register to conduct online tax transactions through GDT's online tax portal using a dedicated email address. Please note that the portal is also available in English.

Next, click “Tax Registration” and enter the required information. The information will be collated and automatically entered into Form 01/NCCNN and sent to GDT. GDT issues authorization codes for tax filing and remittance. Subsequent changes to your information may be amended using Form 01-1/NCCNN.

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Once the registration process is complete, you can click on the “Tax Return” button to start filing taxes on your Vietnam-sourced income using that tax account. The information declared must be verified and submitted to the GDT on a quarterly basis.

Once you complete your tax return, GDT will provide you with a tax identifier.

You can remit taxes in convertible foreign currency to your GDT tax collection account through the online tax portal. To do so, you must correctly quote the tax identifier previously provided to complete the payment.

Please note that missing taxes may result in a late interest penalty of 0.03% per day. Actual tax liability will be slightly higher than the estimate provided to cover bank charges and foreign exchange rate fluctuations. Any overpayments can be carried forward to offset the tax payable in the next reporting period.

Question 2: What is the applicable tax rate?

answer: Applicable taxes consist of value added tax (VAT) and corporate income tax (CIT), similar to foreign contractor withholding taxes levied by local entities. Applicable tax rates can be found here: Withholding tax rate for foreign contractors.

Question 3: Does this rule apply to me as a sole proprietor selling products to Vietnamese customers through eBay or Amazon?

answer: Theoretically speaking, yes. However, the Ministry of Finance has found that there are certain obstacles to collecting taxes from foreign sole proprietorships. We are currently working with online e-commerce platforms such as Shopee, eBay, and TaoBao to devise an efficient approach to collecting taxes from online vendors with minimal disruption to online marketplace operations. In fact, local self-employed people and business owners are subject to local taxes, which are easy to manage. On the other hand, foreign sole proprietorships do not intend to register and pay taxes voluntarily.

Question 4: Even if our company registers Vietnam-sourced income and pays taxes, do our business customers in Vietnam need to report and withhold tax on their payments to us?

answer: No, it's not. If you register as a foreign vendor and pay taxes, this will be announced through GDT's online tax portal and local customers in Vietnam will not have to withhold tax. This was confirmed by official letter no. 17832/ /CTHN-TTHT, issued by Hanoi Provincial Tax Department on April 4, 2023.

Question 5: Our company is located and operates in a country that has a DTAA with Vietnam. Do we have to pay taxes only to the federal government? Should income earned from Vietnamese customers be tax-free pursuant to the DTAA?

answer: Please note that tax credits granted by the DTAA are not automatically applied. It is necessary to identify the types of income derived from Vietnam and assess whether they qualify for tax relief. If the eligibility conditions for tax relief are met, you can apply for tax exemption or reduction from the Vietnamese tax authorities.

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Officially, the DTAA is an “Agreement to Avoid Double Taxation and Prevent Fiscal Evasion Regarding Taxes on Income.'' This means that only income tax is eligible for tax exemption or reduction due to the DTAA between Vietnam and other tax jurisdictions. As of 2023, Vietnam has negotiated and signed DTAA with more than 80 countries and regions.

Reference: Introduction to double taxation avoidance in Vietnam

Once the tax authorities agree that you meet the conditions for tax relief and your eligibility is confirmed, you only need to pay VAT from now on.

Assessing and applying for tax relief under the DTAA is a complex and time-consuming process. We highly recommend consulting with a tax accountant who can provide technical analysis and hands-on assistance with the application process.

summary

Although there is guidance and regulation, tax registration and reporting procedures for foreign e-commerce vendors are still considered “voluntary.” This is because the Vietnamese tax authorities have not officially announced any legal action or recourse against non-compliant vendors. Furthermore, withholding measures can not only impose a significant compliance burden on commercial banks, but also create a significant risk of double collection.

Furthermore, it remains unclear how banks and financial intermediaries can meet the administrative requirements outlined for forcing foreign businesses to meet their tax obligations on Vietnam-derived income. Therefore, this issue will be the subject of further official debate and governance in the coming years.