July 14, 2020
Vietnam implements taxation of digital transactions
Vietnam's National Assembly approved, in June 2019, a new Law on Tax Administration 38/2019/QH14 (the Law) which became effective on 1 July 2020. The Law introduces a new mechanism to collect tax from cross-border e-commerce traders and digital platform-based service providers.
This is not a new tax, but rather a new mechanism to collect digital taxes by the Government.
Specifically, foreign e-commerce traders and digital platform-based service providers without a permanent establishment (PE) in Vietnam are now required to register with the Vietnamese tax authority to enable declaration and payment of tax.
The Government is drafting detailed guidance for implementation of the Law, including setting up an online system for tax registration and declaration.
Deemed tax rates (both Corporate Income Tax (CIT) and Value-Added Tax (VAT) will be applied. The Government is considering what deemed tax rates would be appropriate.
These various changes may create challenges for taxpayers.
This Alert provides an overview of these topics.
Tax declaration and payment obligations for foreign e-commerce suppliers and digital service providers without a PE in Vietnam
Under the Law, foreign entities or individuals performing e-commerce activities or doing business via digital platforms without a PE in Vietnam must directly register to file tax in Vietnam or authorize other parties to do so on their behalf. This is a new requirement as the Government sees the current withholding mechanism fails to capture the increasingly popular cross-border B2C (business to consumer) transactions.
Set up an online system for tax registration and declaration
To implement direct filling, the Government is setting up an on-line registration and declaration system to allow easy access for foreign suppliers. Commercial banks through which payments are made will not be held responsible for withholding taxes on e-commerce or digital services in the first instance. The suppliers must declare tax on their own. However, if a foreign supplier fails to self-declare and pay taxes on their income earned from Vietnam, the tax authority will have the right to enforce tax collection via commercial banks.
Methods to declare tax for B2B (business to business), B2C and third-party marketplace service providers under the draft Circular
Challenges for businesses
Businesses may face many challenges, including being able to:
Actions for businesses
Businesses should work with their local tax professionals to:
For additional information with respect to this Alert, please contact the following:
Ernst & Young Vietnam Limited, Ho Chi Minh
Ernst & Young Vietnam Limited, Hanoi
PDF version of this Tax Alert