On April 14 2015, the FYR Macedonian parliament ratified the tax treaty signed with Vietnam on October 15 2014. The ratification law was published in the Official Gazette No. 63 of April 20 2015.
The treaty covers personal income tax and profit tax in FYR Macedonia and the personal income tax and business income tax in Vietnam. The agreement will also be applicable to similar taxes that may be imposed after its signing, provided that the contractual party notifies the other party of the tax changes introduced.
As usual, the agreement is mostly harmonised with the OECD model, with the below specifics that are of interest.
Permanent establishments (PEs) are deemed to arise when a building/construction site or an installation project (including any related site activity of supervisory nature) lasts for more than six months. Provision of services (including consultancy services) will also be considered to constitute a PE if such supply exceeds an aggregate of six months within any 12 month period.
As far as withholding taxes are concerned, dividends will be taxed at 15% unless participation criteria which result in a lower rate are met (5% in case of at least 70% participation or 10% in case of a 25%-69% participation in the dividend-paying company). A standard 10% withholding tax rate on interest has been agreed upon, which is also applicable to royalties.
In regards to the provisions for the elimination of double taxation, the treaty stipulates that both parties will allow deduction from taxes in the amount of tax paid to the other state. Both countries also reserve the right to take into account any exempted income or capital for which tax has been paid in the other country when calculating the amount of tax payable for the remaining income or capital.
Pending ratification of the treaty by Vietnam and its subsequent entry into force, the agreement provisions will be effective from the calendar year following the year during which it enters into force.
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