05 Grounds for Determining an Individual as a Resident of Vietnam

Currently, a “resident of a Contracting State” is defined as an entity that, under the laws of a Contracting State, is subject to taxation in that state and is also a resident of Vietnam. This is specifically regulated in Circular 205/2013/TT-BTC.

Illustrative image (source: internet)

If an entity is both a resident of Vietnam and a resident of a Contracting State with which Vietnam has concluded an Agreement, the residential status of that entity is determined as follows:

Firstly, for individuals: The following criteria, in order of priority, are used to determine whether an individual is a resident of Vietnam:

- If the individual has a permanent home in Vietnam (homeownership, rental home, or home use rights of that individual);- If the individual has permanent homes in both countries but has closer economic ties to Vietnam, such as employment; place of business; location of personal asset management; or has closer personal ties to Vietnam, such as family relationships (relatives like father, mother, spouse, children, etc.), social connections (membership in social organizations, professional associations, etc.);- If it cannot be determined whether the individual has closer economic or personal ties to one country or if the individual does not have a permanent home in either country but spends more time in Vietnam during the tax year;- If the individual is regularly present in both Vietnam and the Contracting State or neither but holds Vietnamese nationality or is recognized as a Vietnamese citizen under the principle of effective Vietnamese nationality;- If the individual holds the nationality of both Vietnam and the Contracting State or holds the nationality of neither, the competent authorities of Vietnam and the Contracting State will resolve this matter through a bilateral agreement procedure with the competent authorities of the Contracting State.

Secondly, for entities other than individuals: Depending on specific regulations in each Agreement, the following criteria are generally used to determine whether an entity is a resident of Vietnam:

- If the entity was established or registered for operation in Vietnam, it is considered a resident of Vietnam; or- If the entity has its principal office in Vietnam, it is considered a resident of Vietnam; or- If the entity’s place of effective management is in Vietnam, it is deemed a resident of Vietnam (the place of effective management is typically where senior officials or the board of directors meet, review, discuss, and make management decisions or business decisions, or where the key accounting records are kept); or- In cases where the entity was established or registered in both countries or has a principal office or a place of effective management in both countries, the competent authorities of Vietnam and the Contracting State will determine the entity’s residency by bilateral agreement. If the Contracting States do not reach a mutual agreement, the entity is not considered a tax resident of either country for the purpose of applying the Agreement.

The regulations regarding residents are outlined in the Residential Clause (typically Article 4) of the Agreement.

See the full regulations at Circular 205/2013/TT-BTC effective from February 6, 2014.

Thu Ba

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