Do foreign enterprises without a permanent establishment in Vietnam have to pay corporate income tax?

Do foreign enterprises without a permanent establishment in Vietnam have to pay corporate income tax?

Pursuant to Article 2 of Decree 218/2013/ND-CP stipulating subjects liable to corporate income tax as follows:

Taxpayers

Taxpayers are governed by Article 2 of the Law on Corporate Income Tax and Clause 1 of Article 1 of the Law amending and supplementing certain articles of the Law on Corporate Income Tax.

1. Taxpayers under Clause 1 of Article 2 of the Law on Corporate Income Tax include:

a) Enterprises established and operating under the provisions of the Law on Enterprises, the Law on Investment, the Law on Credit Institutions, the Law on Insurance Business, the Law on Securities, the Law on Petroleum, the Law on Commerce, and regulations in other legal documents in the forms of: joint stock company; limited liability company; partnership; private enterprise; parties in business cooperation contracts; parties in oil and gas product sharing contracts, oil and gas joint ventures, joint operating companies;

b) Enterprises established under foreign laws (hereinafter referred to as foreign enterprises) with or without a permanent establishment in Vietnam;

c) Public service providers outside the public sector producing or trading goods and services with taxable income as stipulated in Article 3 of this Decree;

d) Organizations established and operating under the Law on Cooperatives;

đ) Other organizations besides those mentioned in Points a, b, c, and d of this Clause engaged in production and business activities with taxable income as stipulated in Article 3 of this Decree.

2. Organizations established and operating (or registered to operate) under Vietnamese law, and individual businesses are taxpayers liable to withholding tax when purchasing services (including services attached to goods, goods provided or distributed in forms of on-spot import and export or international commercial terms) based on contracts signed with foreign enterprises stipulated in Points c and d of Clause 2 of Article 2 of the Law on Corporate Income Tax.

The Ministry of Finance provides specific guidance on tax withholding as stipulated in this Clause.

Thus, according to the above regulations, foreign enterprises with or without a permanent establishment in Vietnam are required to pay corporate income tax.

Do foreign enterprises without a permanent establishment in Vietnam have to pay corporate income tax? (Image from the Internet)

What is a permanent establishment for a foreign enterprise in Vietnam?

Based on Point d, Clause 1, Article 2 of Circular 78/2014/TT-BTC, a permanent establishment of a foreign enterprise is defined as a production and business facility through which the foreign enterprise conducts part or all of its production or business activities in Vietnam, including:

- Branch, management office, factory, workshop, transport means, oil, gas field, or other places for natural resource exploitation in Vietnam;

- Construction site, construction, installation, or assembly project;

- Service provision facility, including consultancy services through employees or organizations, individuals;

- Agent for the foreign enterprise;

- Representative in Vietnam in cases where the representative has the authority to sign contracts on behalf of the foreign enterprise or representative without authority to sign contracts on behalf of the foreign enterprise but regularly conducts delivery of goods or provision of services in Vietnam.

Note: In cases where a Double Taxation Avoidance Agreement signed by the Socialist Republic of Vietnam stipulates otherwise concerning permanent establishments, the provisions of that Agreement shall apply.

What entities are the corporate income taxpayers in Vietnam?

According to Article 2 of the Law on Corporate Income Tax 2008 (amended and supplemented by Clause 1 of Article 1 of the Amended Law on Corporate Income Tax 2013), the subjects liable to corporate income tax include:

(1) Corporate income taxpayers are organizations engaged in production, trading of goods, and services with taxable income according to this Law (hereinafter referred to as enterprises), including:

- Enterprises established under the provisions of Vietnamese law;

- Enterprises established under foreign laws (hereinafter referred to as foreign enterprises) with or without a permanent establishment in Vietnam;

- Organizations established under the Law on Cooperatives;

- Non-business units established under the provisions of Vietnamese law;

- Other organizations conducting production and business activities with income.

(2) Enterprises with taxable income as stipulated in Article 3 of this Law are required to pay corporate income tax as follows:

- Enterprises established under the provisions of Vietnamese law shall pay tax on taxable income arising in Vietnam and income taxable arising outside Vietnam;

- Foreign enterprises with a permanent establishment in Vietnam shall pay tax on taxable income arising in Vietnam and income taxable arising outside Vietnam related to the activities of that permanent establishment;

- Foreign enterprises with a permanent establishment in Vietnam shall pay tax on taxable income arising in Vietnam, whereby this income is not related to the activities of the permanent establishment;

- Foreign enterprises without a permanent establishment in Vietnam shall pay tax on taxable income arising in Vietnam.

(3) A permanent establishment of a foreign enterprise is a production and business facility through which the foreign enterprise conducts part or all of its production or business activities in Vietnam, including:

- Branch, management office, factory, workshop, transport means, oil, gas field, mine, or other place for natural resource exploitation in Vietnam;

- Construction site, construction, installation, assembly project;

- Service provision facility, including consultancy services through employees or organizations, individuals;

- Agent for the foreign enterprise;

- Representative in Vietnam in cases where the representative has the authority to sign contracts on behalf of the foreign enterprise or a representative without authority to sign contracts on behalf of the foreign enterprise but regularly conducts delivery of goods or provision of services in Vietnam.