Tax residence and fiscal domicilei Corporate residence
The tax laws neither define the term 'corporate residence', nor provide the conditions under which a non-locally incorporated entity (or foreign enterprise) can be a resident in Vietnam. According to the current provisions of the EIT Law, it may be interpreted that an enterprise would be considered fiscally resident in Vietnam if it is established under Vietnamese law.ii Branch or permanent establishment
PEs of foreign enterprises are determined in accordance with the EIT Law, which defines PEs as including the following:
- a branch, management office, factory, workshop or means of transportation;
- a mine, oil or gas well, or place of extraction of natural resources;
- a building site, construction, assembly or installation project;
- an establishment furnishing services, including consultancy services, through employees or other personnel;
- an agency of the offshore company; and
- a representative in Vietnam in the following instances: he or she has the authority to enter into contracts in the name of the offshore company; or he or she does not have the authority to enter into contracts in the name of the offshore company, but regularly carries out deliveries of goods or provision of services in Vietnam.
If foreign enterprises are residents of a country that Vietnam has an effective tax treaty with, PE assessment will be in accordance with the tax treaty. Foreign enterprises from those countries may seek exemption from EIT on business income in Vietnam in accordance with the relevant tax treaty provisions, subject to certain procedures, provided that the concerned activities do not constitute a PE.
Currently Vietnam's World Trade Organization commitments allow foreign enterprises in certain service areas to set up branches in Vietnam, while such allowance for other service areas may be later phased in (e.g., non-life insurance, securities, computer and related services, management consultant services, construction and franchising). However, as a matter of practice, the government has only allowed foreign law firms and banks to set up branches in Vietnam. Branches in Vietnam are dependent units of foreign companies that operate under an establishment certificate issued by the competent licensing authority.
Foreign contractors engaging in construction works in Vietnam can obtain contractor permits issued by the competent licensing authority and then can set up management offices in Vietnam.
Foreign enterprises having PEs in Vietnam, adopting the Vietnamese accounting system and having a tax code (i.e., branches, foreign contractors having contractor permits) issued by the tax authorities are subject to EIT at a rate of 20 per cent of the actual assessable income, which is the same rate for enterprises established under Vietnamese law. Otherwise, tax rates deemed at a rate of 1, 2 or 5 per cent will be imposed on a foreign enterprise's revenue derived from Vietnam, and on its revenue derived outside Vietnam relating to the PE's activities.