Draft Law on Corporate Income Tax of Vietnam: Shall foreign enterprises engaging in e-commerce platforms pay CIT in Vietnam?

Draft Law on Corporate Income Tax of Vietnam: Shall foreign enterprises engaging in e-commerce platforms pay CIT in Vietnam?

The Ministry of Finance is drafting a revised Law on Corporate Income Tax, which will consist of 4 chapters and 30 articles.

Draft Law on Corporate Income Tax...Download

Foreign enterprise e-commerce platforms are expected to pay corporate income tax on revenues generated in Vietnam. This means that Vietnam's taxing rights will be expanded in cases where foreign enterprises have virtual permanent establishments in Vietnam.

Point d, Clause 2, Article 2 of the Draft Law on Corporate Income Tax supplements the provisions on taxpayers for foreign enterprises providing goods and services in Vietnam through e-commerce business forms. Businesses on digital platforms must pay taxes on taxable income generated in Vietnam.

Thus, foreign enterprises are expected to pay corporate income tax for activities providing goods and services through e-commerce platforms. Unlike before, when corporate income tax was only applied to foreign service enterprises, transactions related to goods were treated like regular import-export transactions.

Draft Law on Corporate Income Tax of Vietnam: Shall foreign enterprises engaging in e-commerce platforms pay CIT in Vietnam? (Image from the Internet)

Which entities are corporate income taxpayers in Vietnam?

According to Article 2 of the Law on Corporate Income Tax 2008, amended and supplemented by Clause 1, Article 1 of the Amended Law on Corporate Income Tax 2013, taxpayers are defined as follows:

- Corporate income taxpayers are organizations engaged in the production, business of goods, and services with taxable income as regulated by this Law (hereinafter referred to as enterprises), including:

+ Enterprises established under the laws of Vietnam;

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

+ Organizations established under the Cooperative Law;

+ Non-business units established under the laws of Vietnam;

+ Other organizations that conduct production, business activities with income.

- Enterprises with taxable income regulated in Article 3 of the Law on Corporate Income Tax 2008 must pay corporate income tax as follows:

+ Enterprises established under Vietnamese law pay tax on taxable income generated in Vietnam and taxable income generated outside Vietnam;

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

+ Foreign enterprises with a permanent establishment in Vietnam pay tax on taxable income generated in Vietnam where this income is not related to the permanent establishment's activities;

+ Foreign enterprises without a permanent establishment in Vietnam pay tax on taxable income generated in Vietnam.

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

+ Branches, management offices, factories, workshops, means of transportation, oil wells, gas wells, mines, or places of natural resource extraction in Vietnam;

+ Construction sites, construction, installation, and assembly works;

+ Service provision establishments, including consulting services through employees or organizations, individuals;

+ Agents for foreign enterprises;

+ Representatives in Vietnam with the authority to conclude contracts in the name of foreign enterprises or without authority but regularly delivering goods or providing services in Vietnam.

How to determine taxable income in Vietnam?

According to Article 7 of the Law on Corporate Income Tax 2008, amended and supplemented by Clause 4, Article 1 of the Amended Law on Corporate Income Tax 2013, taxable income is determined as follows:

- Taxable income in a tax period is determined by the taxable income minus tax-exempt income and losses carried forward from previous years.

- Taxable income equals revenue minus deductible expenses from production and business activities plus other income, including income received outside Vietnam.

- Income from real estate transfer, investment project transfer, participation right in investment projects transfer, exploration, mining rights transfer must be separately determined for tax declaration and payment. Income from the transfer of investment projects (excluding exploration, mining projects), income from the transfer of participation right in investment projects (excluding exploration, mining), income from real estate transfer if at a loss can be offset against the profit from production, business activities in the tax period.