Vietnam: New draft ruling simplifies tax compliance for shipping lines
Vietnam is a country with a high volume of imports and exports, many of which are transported by sea. For this reason, most of the leading international shipping lines have been present in Vietnam for years via shipping agencies, forwarding agents and other commercial representatives. Vietnam's income tax regulations impose tax on foreign carriers for outbound transactions only. In addition, most of Vietnam's double taxation agreements (DTAs) have a clause on international traffic that gives the right to tax to the home country where the carrier is a resident. Given this, it seems that most foreign carriers should be exempt from tax in Vietnam on the income generated from international ocean traffic. However, the complexity of international transportation activities and a cumbersome process to apply for DTA exemption discourage many taxpayers from taking advantage of this benefit. There is often a long waiting period while the tax authority assesses the dossiers and comes to a final decision regarding DTA exemption. Now, in an effort to simplify the DTA notification process and assist taxpayers (ocean carriers) with tax treaty benefits, the Ministry of Finance (MOF) has drafted an official ruling for collection of opinions from experts.
At the moment, a carrier's agency in Vietnam has the obligation to withhold and pay tax on a monthly basis to the tax authority. To obtain a DTA exemption, either the carrier or the authorised agency must process a DTA exemption notification with the tax office on a self-declaration basis. To be eligible for tax exemption, the taxpayer must prove that it is an actual carrier, and only the income portion associated with the carrier is entitled to tax exemption. For this purpose, the current regulations require that all supporting documents must be submitted to the tax office together with the notification letter. The particular supporting documents required are not clearly specified for each case, but may include items such as:
A copy of the ship ownership registration, certified by the taxpayer;
A copy of the ship charter contract (if the carrier charters or is given the right to use the ship), certified by the taxpayer;
The original license for ship operation along a fixed route, or its copy certified by the port authority;
The original port entry permit, or its copy certified by the port authority;
The port authority's original certificate of the carrier's ships entering a Vietnamese port;
Other documents as appropriate.
A foreign carrier involved in a partnership, space swapping or leasing, or a bareboat charter, must additionally supply relevant documents regarding this (such as a partnership contract for joint operation of the means of transport, contracts on the space swap or contracts on bareboat charter).
Under the MOF's new draft , the frequency of tax returns will be on a quarterly basis instead of on a monthly basis, as presently required.
For DTA exemption notification, the taxpayer will need to submit a notification letter (in the standard form) to the tax office together with a certificate of residence (COR) issued by the tax authority in its home country. At the moment, taxpayers must submit the original COR; we note that the new draft allows for either the original or a certified copy of the COR to be provided.
In addition, the new draft does not require supporting documents to be submitted to the tax office. Instead, the requirement is only that the documents be maintained at the carrier's agency in Vietnam and presented upon request by the tax authority.
Another notable point in the new draft is that it specifies the documents that are needed for an application. Taxpayers will not need relevant documentation to be certified by the port authority, which is normally a long and burdensome process.
These significant changes give taxpayers more chances to enjoy the benefits under their applicable tax treaty. The exemption is still done on a self-declaration basis, and thus taxpayers need to conduct a thorough assessment of both their eligibility for exemption under the relevant tax treaty, and of their ocean transportation activities.
This new draft is expected to be retrospective in effect for international ocean transportation income triggered from January 1 2013.
Thuan Pham (email@example.com)
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