Vietnam and Singapore DTAA
In today’s dynamic and expanding economy, taxation serves as a vital mechanism for governments to generate revenue. As businesses increasingly engage in cross-border transactions and activities to foster growth and global reach, they may encounter the challenge of double taxation – a situation where the same income is subject to taxation in both the home country and the foreign country.
To address this issue and promote seamless business operations between Singapore and Vietnam, the governments of both countries have proactively negotiated and established the Double Taxation Avoidance Agreement (DTAA).
Through this guide, we would briefly discuss the Vietnam-Singapore DTAA and its related aspects.
Overview of the Vietnam and Singapore double taxation avoidance agreement
The Vietnam and Singapore Double taxation avoidance agreement is an accord ratified between the governments of Vietnam and Singapore that aims at eliminating double taxation and fiscal evasion of income taxes. The Vietnam and Singapore DTAA lays out the regulations and procedures for taxing various forms of income received by citizens as well as corporations incorporated in Singapore and Vietnam.
The Vietnam and Singapore double taxation avoidance agreement was entered into force on 9 September 1994 and took effect on 1 January 1993. The second protocol pertaining to Vietnam and Singapore was signed on 12th September 2012 and entered into force on 11 January 2013. Citizens of one or both of the contractual nations of Singapore and Vietnam would be subject to the provisions of this treaty.
Avoiding double taxes under the Vietnam-Singapore DTAA
The primary motive behind signing the DTAA between Vietnam and Singapore is eliminating double taxes on income generated in either of the two nations. The main strategy for avoiding double taxation is the foreign tax credit (FTC) program. The FTC is a decrease in foreign taxes paid on a dollar-for-dollar basis.
According to the DTAA requirements, dividends, royalties, and interest are subject to income tax in the state where the beneficiary resides as well as withholding tax in the state where the business receiving the dividends resides. Taxpayers may utilize the foreign tax credit to lessen their tax obligation and benefit from the DTAA’s decreased withholding taxes on dividends, interest, and royalties.
Taxes included by the DTAA between Vietnam and Singapore
Income taxes assessed on behalf of a contractual nation, its political subdivisions, or regional bodies are covered by the Vietnam-Singapore DTAA regardless of how they are collected. All taxes levied on the overall amount of revenue or specific components of earnings, such as taxes on gains from the sale of personal or real property, shall be considered income taxes.
The current taxes that the agreement will cover are:
A. In Singapore
- Income tax
B. In Vietnam
- Personal income tax
- Foreign contractor tax
- Foreign petroleum sub-contractor tax
- Profit remittance tax
- Profit tax
Any taxes that are levied on top of, or instead of, the current taxes that are the same or significantly comparable are likewise covered by the DTAA.
Tax residency as per the Vietnam and Singapore DTAA
As per the Vietnam and Singapore DTAA, an individual who is a “resident of a Contracting State” is one who, as per the legislation of that particular country, is subject to paying taxes there because of their domicile, location of residence, business, or any other comparable criteria.
Individuals tax residency
If a person resides in both contractual nations, the following criteria must be used for assessing his status:
- The person will be regarded as a resident of the nation in which the individual has a permanent abode.
- In case the person has a permanent resident in both jurisdictions, then the person will be regarded as a resident of the jurisdiction where his personal and professional ties are closest.
- The person is a resident of the jurisdiction where they have a habitual habitation if the aforementioned criteria are difficult to be met.
- The tax officials of the two states are required to resolve the issue by mutual agreement, regardless of whether the person resides habitually in one of the two nations or neither.
Tax residency for legal organizations
- If a business is a resident of more than one state, it ought to be regarded as a resident of the one where its location of effective management is located.
- If it is impossible to identify the location of effective management, the issue will be resolved by consensus between the tax officials of both nations.
Permanent establishment as per the Vietnam-Singapore DTAA
As per the Vietnam-Singapore DTAA, permanent establishment usually means an established location for a company where the corporation conducts all or part of its commercial activities. “Permanent establishment” refers to various structures, including a center of management, a branch location, a factory, and a workshop.
Taxes are required to pay on earnings as per the Vietnam and Singapore DTAA
|Kinds of Income
|Where is it taxable?
|Revenue generated from immovable property
|Taxable in the jurisdiction in which the property is located.
|Could be subject to taxation in both the state where the beneficiary resides and the state where the royalties are generated.
|Could be subject to taxation in both the state where the beneficiary resides and the state where the dividends are generated.
|Could be subject to taxation in both the state where the beneficiary resides and the state where the interests are generated.
|Taxable in the jurisdiction in which the seller resides.
|Liable for taxes in the state in which a business is managed and overseen
Revenue generated from immovable propertyA resident of one contractual jurisdiction (Singapore) who receives income from real estate located in another contractual jurisdiction (Vietnam) can be covered by taxation in that other jurisdiction (Vietnam).
RoyaltiesRoyalties that are generated from one contractual country (Singapore) and distributed to another contractual country (Vietnam) will be liable for taxation in the other country (Vietnam). But, these royalties can be taxable in the nation in which they originate (Singapore) and by its rules, although if the beneficiary of the royalties is a resident of the other nation (Vietnam), the tax thus imposed must not be higher than:
- 5% of all gross royalties obtained as compensation for the application of any patents, the right to utilize patents, or for access to scientific information.
- 15% of the royalties’ total value in all other circumstances.
DividendsA corporation that is a resident of one contractual nation (Singapore) that pays dividends to a resident of another contractual nation (Vietnam) might be subject to taxation in that other jurisdiction (Vietnam). However, these dividends could also be taxed under the regulations of the nation where the dividend-paying firm resides, if the receiver is the beneficial owner of the dividends; in such case, the tax applied should not surpass:
- 5% of the dividends’ total value if the beneficial proprietor has provided over US$10 million or over fifty percent of the dividend-paying organization’s capital, either directly or indirectly.
- 7% of the dividend’s aggregate value if the beneficial owner paid from twenty-five percent to fifty percent of the dividend-paying business’s capital, either directly or indirectly.
- In all other situations, 12.5% of the dividends’ aggregate value.
InterestsInterest that is generated in one jurisdiction (Singapore) and given to a citizen of another jurisdiction (Vietnam) can be liable for taxation in that other jurisdiction (Vietnam). Nevertheless, such interest can be further taxed in the jurisdiction where it originates (Singapore) and by the legislation of that State; but, if the recipient is the interest’s beneficial owner, the tax thus levied must not surpass 10% of the interest’s total value.
Capital gainsGains from the sale of all assets are typically only subject to taxation in the state where the seller resides. There are a few exceptions, though:
- Gains from the sale of real estate located in Vietnam that belong to a resident of Singapore are subject to taxation in Vietnam as well.
- Gains from the selling of movable assets that is a component of a PE’s commercial assets are also subject to taxation in the jurisdiction where the PE is located.
Company profitsThe profits of a corporation are solely taxable in the state where it has its legal residence unless the corporation has a Permanent Establishment (PE) in a different nation and conducts business there.
The Vietnam-Singapore DTAA plays a crucial role in fostering economic cooperation and trade between the two nations. In addition to that, Vietnam and Singapore’s double taxation avoidance agreement also provides a favorable environment for enterprises and individuals to participate in overseas operations without experiencing unnecessary tax liabilities by eliminating double taxation and giving clarity on tax duties.
Our team of seasoned specialists at Odint Consulting is dedicated to offering you the best caliber of support and direction and is well-versed in the complexity of the Vietnam-Singapore DTAA. We are available to answer any questions you may have regarding this bilateral tax treaty, regardless of whether you are a startup, an established firm, or an individual. We can assist you in navigating the tax environment in Singapore and Vietnam and ensure you take advantage of the possible benefits due to our in-depth understanding of the DTAA’s provisions.
The Vietnam and Singapore double taxation avoidance agreement is an accord ratified between the governments of Vietnam and Singapore that aims at eliminating double taxation and fiscal evasion with regard to income taxes.
The Vietnam and Singapore double taxation avoidance agreement was entered into force on 9 September 1994 and took effect on 1 January 1993.
The DTAA is crucial because it avoids the chance that income may be taxed twice—once in Singapore and once in Vietnam—reducing the tax obligation for cross-border taxpayers. It gives tax liabilities stability and predictability, encouraging international trade, investment, and economic cooperation.
The foreign tax credit (FTC) program is the primary method for preventing double taxation. The FTC is a decrease in the amount of foreign taxes paid on a dollar-for-dollar basis.
The DTAA covers a number of different sources of income, including dividends, immovable property revenue, business earnings, interest, royalties, and capital gains.
Yes, the DTAA has provisions for information sharing between Singapore’s and Vietnam’s tax authorities in order to stop tax evasion and other financial abuse. This encourages transparency and improves both nations’ capacity to combat tax-related offenses.