A draft tax law in Vietnam that would have a significant effect on cross-border eCommerce (previously planned for July 1, 2020) is unlikely to be implemented any time soon.
Back in June 2019, Vietnam adopted the ‘Law on Tax Administration’. Contained within this regulatory update were plans for foreign eCommerce companies to register for Vietnam VAT purposes. These plans were due to come into effect on July 1, 2020.
Place of consumption rules are already in place in Vietnam. However, a 10% tax is currently withheld at source by the Vietnamese party to the contract. This is known as a ‘Foreign Contractor Tax’ of which half is VAT and half is an income tax.
Vietnam’s draft law attempts to push this withholding liability for all foreign payments onto payment providers such as banks and credit card issuers. It would also impose personal Tax Identification Numbers (TINs) on every individual in Vietnam, which currently does not exist.
The reason the government wants to push the withholding obligation onto banks is that foreign payments are currently difficult for Vietnamese businesses and individuals to make due to currency controls. Personal credit cards, however, are an exception outside the Vietnamese tax authorities’ control as cardholders can spend on foreign currency transactions with their cards.
The draft law is experiencing significant resistance from payment providers that do not have sufficient information or systems to cope. It is also the view of payment providers that there is no legal basis upon which they can be forced to exchange such information with the Vietnamese tax authorities.
We will, of course, keep you up-to-date on developments in Vietnam.
NOTE: With thanks to Matthew Lourey of Domicile Corporate Services.
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