New withholding tax rules applicable to non-resident enterprises selling goods and services into Vietnam via digital and e-commerce supply chains are effective in Vietnam beginning 1 January 2021.
Recognizing that the sale or supply of goods and services to individuals via an e-commerce business model may have historically fallen outside the scope of the Vietnamese income tax system, the new withholding tax rules are intended to address this gap. Specifically, payments made to “non-resident e-commerce businesses” (a term not yet defined) will be subject to a new withholding tax, to be collected by financial intermediaries such as banks. This withholding tax will apply to all designated business-to-consumer (B2C) and business-to-business (B2B) transactions.
Originally, implementation of the new e-commerce withholding tax regime in Vietnam was to be effective 1 July 2020. This effective date has been postponed for six months, and will be effective 1 January 2021 (even though the mandated effective date in the law is 1 July 2020).
- Financial institutions will remain responsible for collecting the withholding tax on the subject transactions (how they are to do this remains unclear).
- The withholding tax rates to be applied to the subject transactions are not statutorily prescribed and need to be determined on a case-by-case basis by reference to the foreign contractor tax (FCT) rates by treating at each transaction separately. In other words, the withholding taxes to be collected are variable and consist of a value added tax (VAT) component, at rates of 2% – 5% and corporate income tax component, at rates of 1% – 10% (tax professionals believe that this approach would likely result excessive withholding tax).
- Financial institutions will need to update their customer terms and conditions to accommodate this new law (and specifically regarding the obligation to withhold amounts from payment under instructions received from account holders).
- The Vietnamese government is currently developing a new centralized IT platform to specifically deal with this withholding tax collection matter.
Source Credit – KPMG