19 January 2017
Vietnams' General Department of Taxation has announced that the income tax treaty with Portugal entered into force on 9 November 2016. The treaty, signed 3 June 2015, is the first of its kind between the two countries.
The treaty covers Portuguese personal income tax, corporate income tax, and surtaxes on corporate income tax. It covers Vietnamese personal income tax and business income tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Both countries apply the credit method for the elimination of double taxation. A provision is also included for a tax sparing credit, whereby Portugal will deem tax paid in Vietnam to include any amount that would have been payable as Vietnamese tax for any year but was exempted or reduced under specified provisions of Vietnamese law.
The final protocol to the treaty provides that the benefits of the treaty will not be granted to a resident of a contracting state that is not the beneficial owner of the income.
The protocol also provides that the provisions of the agreement will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the property or right in respect of which the income is paid was to take advantage of those provisions by means of such creation or assignment.
The final protocol to the treaty provides that if Vietnam enters into a tax treaty with an EU Member State after the Portugal-Vietnam treaty enters into force, and such other treaty provides for a lower withholding tax rate or exemption in respect of Article 10 (Dividends), 11 (Interest), or 12 (Royalties), then such lower rates or exemption will automatically replace the rates provided in the Portugal-Vietnam treaty from the date such other treaty enters into force.
The treaty applies from 1 January 2017.
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