Regulations on Representative Offices of foreign traders in Vietnam according to Vietnamese law

Is the income of a foreign individual at a representative office in Vietnam subject to personal income tax?

1. What is a representative office of foreign traders in Vietnam?

Pursuant to Clause 6, Article 3 of the 2005 Commercial Law, regulations on Representative Offices of foreign traders in Vietnam are as follows:

“Article 3. Interpretation of terms

In this Law, the following terms are understood as follows: following:

…

6. Representative offices of foreign traders in Vietnam are dependent units of foreign traders, established in accordance with Vietnamese law to explore the market and carry out a number of trade promotion activities permitted by Vietnamese law.”

2. What rights and obligations do representative offices of foreign traders in Vietnam have?

Pursuant to Article 17 of the 2005 Commercial Law, which stipulates the rights of representative offices of foreign traders in Vietnam as follows:

“Article 17. Rights of representative offices

1. Operate for the right purpose, scope and time The term is specified in the license to establish a Representative Office.

2. Rent headquarters, rent and purchase necessary facilities and equipment for the operation of the Representative Office.

3. Recruit Vietnamese and foreign workers to work at the Representative Office in accordance with Vietnamese law.

4. Open an account in foreign currency and Dong Vietnam has foreign currency origin at a bank licensed to operate in Vietnam and can only use this account for the activities of the Representative Office.

5. Has a seal bearing the name of the Representative Office in accordance with Vietnamese law.

6. Other rights as prescribed by law.”

Pursuant to Article 18 of the Commercial Law. 2005 regulates the obligations of Representative Offices of foreign traders in Vietnam as follows:

“Article 18. Obligations of Representative Offices

1. Must not carry out directly profitable activities in Vietnam.

2. Only carry out trade promotion activities within the scope permitted by this Law.

3. It is not allowed to enter into contracts, amend or supplement contracts already signed by foreign traders, except in cases where the Head of the Representative Office has a legal power of attorney from the foreign trader or the cases specified in Clauses 2, 3 and 4, Article 17 of this Law.

4. Pay taxes, fees, charges and perform other financial obligations according to Vietnamese law.

5. Report on the activities of the Representative Office in accordance with Vietnamese law.

6. Other obligations as prescribed by law.”

3. Is the income of a foreign individual at a representative office in Vietnam subject to personal income tax?

According to the regulations on Dependent Personal Service Activities specified in Article 15 of the Agreement on Avoidance of Double Taxation and Prevention of Tax Evasion for Taxes on Income and Assets between Vietnam and Countries and Territories in force in Vietnam, there are often provisions: (excerpt from the Agreement)

“1. Subject to the provisions of Articles 16, 18, 19, 20 and 21 salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, the amount so derived may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of employment in the other Contracting State shall be taxable in the first-mentioned State only if:

a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the financial year concerned, and

b) the employer or the employer’s representative paying the remuneration is not a resident of the other State, and

c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.”

According to the above regulations, income of foreign individuals from public work at Representative Offices will only be subject to PIT in foreign countries (exempt from PIT in Vietnam) if all 3 conditions a, b and c mentioned above are simultaneously satisfied.

– For condition (a): if the individual is a foreigner present in Vietnam for less than 183 days in a 12-month period beginning or ending in the tax year, this condition will be satisfied.

– For condition (b): For the case of the individual signing a labor contract directly with the parent company abroad and being appointed by the foreign company to work in Vietnam, the individual Must perform tasks serving the activities of the Representative Office. The Representative Office must be responsible and bear risks for the work of individuals during the operation, have rights to products and services created by individuals, be responsible for working facilities, working locations and wages of individuals paid by the Office in Vietnam. Therefore, the Representative Office is considered the real employer of the above individual.

– For condition (c): In case the Representative Office participates in carrying out activities in the business chain of the foreign Company. The activities are no longer of preparatory and auxiliary nature but are activities that contribute to generating profits for the Foreign Company such as negotiating, signing contracts, marketing, advertising, supporting sales activities, providing services, after-sales… In these cases, the Foreign Company has established a permanent establishment (CSTT) in Vietnam to carry out all or part of the business activities, therefore, an individual working for such a Representative Office will not satisfy the conditions. (c) above.

Request that the Department of Taxation examine each specific condition to determine the tax obligations of individuals in Vietnam. If all three of the above conditions are not satisfied at the same time, the individual must declare and pay personal income tax in Vietnam according to the provisions of the Personal Income Tax Law and current guiding documents.