Lately, I got here throughout an replace referring to an official letter clarifying tax points referring to overseas e-commerce suppliers. I am going to focus on this in a bit extra element, however in essence it says that overseas e-commerce suppliers can be handled like all overseas service suppliers for tax functions. Currently, I have been looking Vietnam’s steady efforts to develop its authority over abroad suppliers within the digital area, so after I learn this new improvement, it bought me pondering.
Why is Vietnam so decided to attempt to management offshore our on-line world suppliers?
I’ve no reply for this, though I think there are two causes. First, the federal government needs to broaden its tax base – tax incentives are at all times as much as governments – and second, it has a really pressing want to regulate its residents’ entry to the Web. Via the assorted legal guidelines and draft new decrees that cope with totally different facets of our on-line world, the federal government repeatedly contains the potential of ending entry to Vietnam for overseas service suppliers who don’t comply with its insurance policies. He missed the chance to impose a nationwide filter like China, so now he is attempting to select and select what info he needs to cross up. No less than, that is what I think behind these continued insurance policies of expansionist management of our on-line world.
However I digress. As a Vietnam-based blogger, it isn’t for me to theorize too broadly on these points. What I wish to focus on, though associated, has a narrower scope. Digital commerce, particularly overseas digital commerce, and when deemed to be underneath the management of Vietnamese legal guidelines.
The remainder of this text will cowl three issues. First, the present coverage concerning overseas e-commerce suppliers. Second, the latest ruling on the tax therapy of those overseas e-commerce suppliers. And third, the proposed coverage for the therapy of overseas e-commerce suppliers which is at present underneath overview.
Present coverage for overseas e-commerce suppliers
Present e-commerce insurance policies date again to 2013 earlier than the federal government of Vietnam launched into its present political trajectory. As such, they’re of restricted scope. Typically, they don’t apply to overseas e-commerce service suppliers. The declared utility is, actually, restricted to:
Vietnamese merchants, organizations or people;
Overseas individuals residing in Vietnam;
Overseas merchants and organizations current in Vietnam via funding operations, institution of branches and consultant workplaces or web site creation underneath a Vietnamese area identify
This could recommend that overseas e-commerce service suppliers have little or no obligation to adjust to Vietnamese legal guidelines. However that’s earlier than making an allowance for the 2018 cybersecurity regulation which requires anybody
perform assortment, exploitation [using], information evaluation and processing [being] private info, relationship information of service customers and information generated by service customers in Vietnam
should not solely have servers in Vietnam by which to retailer this info, however should even have a consultant workplace or department within the nation. Subsequently, overseas e-commerce service suppliers who supply their companies to clients in Vietnam would most actually be required to adjust to this coverage and subsequently fall inside the scope of Vietnamese legal guidelines.
On December 17, 2020, the tax service launched an official letter in response to Netflix’s obvious demand to be handled in another way from conventional offshore enterprise entities which can be topic to the overseas entrepreneur tax. In its official letter, the tax division denied Netflix’s request and introduced that there’s at present no authorized foundation for treating overseas e-commerce suppliers as totally different from overseas enterprise entities that present items or companies. to Vietnamese residents. This implies, subsequently, that overseas e-commerce suppliers who present items or companies cross-border to Vietnamese residents (together with companies) are topic to the Overseas Entrepreneur Tax similar to any overseas service supplier.
Overseas entrepreneurs tax
As I’m not a tax professional, I’ll quote our quickly to be up to date authorized information on the topic:
Though not a separate tax, the FCT is the regime by which the income of overseas corporations or offshore people offering companies to Vietnamese tax residents (“overseas entrepreneur”) are taxed. It’s a mixture of VAT [value added tax] and CIT [corporate income tax] or PIT [personal income tax]. There are three strategies by which a overseas entrepreneur can select to be taxed by Vietnam. First, the deduction technique that requires the overseas entrepreneur to register with the Ministry of Finance, do Vietnamese accounting, and pay taxes as in the event that they had been a Vietnamese tax resident. Second, the direct technique permits the Vietnamese purchaser of the products or companies of the overseas entrepreneur to withhold the related taxes from their fee to the overseas entrepreneur after which submit this withholding quantity to the tax authorities on behalf of the overseas entrepreneur. . Lastly, the hybrid technique permits the overseas entrepreneur to behave as a Vietnamese tax resident for VAT functions however to have his IS or PIT withheld by the Vietnamese purchaser. The relevant tax charges are revealed individually by the Ministry of Finance and differ relying on the character of the products or companies offered in Vietnam.
That is all I’ve to say in regards to the tax on overseas entrepreneurs.
Proposed coverage for overseas e-commerce suppliers
Final 12 months, the federal government issued a second draft decree amending current rules on digital commerce. There are just a few factors to discover right here. First, the draft decree adjustments the scope of the rules. The present guidelines at present apply to the next overseas suppliers:
The draft decree amends this record and expands it to incorporate “overseas merchants and organizations finishing up e-commerce actions in Vietnam”.
This modification alone enormously expands Vietnam’s means to entry overseas e-commerce suppliers. If this language is adopted, it’s going to embrace any overseas e-commerce supplier thought of “in” Vietnam based on more and more broad definitions adopted by the Nationwide Meeting and the federal government.
However the draft decree goes additional and truly defines when an e-commerce web site has “actions in Vietnam”.
Two approaches are proposed within the invoice.
The primary strategy would impose compliance obligations on any e-commerce web site utilizing a Vietnamese area identify, the Vietnamese language, or having greater than 100,000 transactions from Vietnam in any given 12 months. Any overseas e-commerce supplier who meets any of those standards can be required to register their enterprise and open a consultant workplace in Vietnam.
The second strategy would apply to any overseas e-commerce web site that makes use of a Vietnamese area identify, the Vietnamese language, or whose whole variety of transactions / views / orders from Vietnamese organizations or people exceeds a quantity to be decided by authorities. Any overseas e-commerce supplier who meets any of those standards can be required to register their actions and appoint a authorized consultant in Vietnam.
Both means, the proposed coverage would have the impact of considerably increasing Vietnam’s attain, though a minimum of it’s going to doubtless require a hyperlink to Vietnam.
Digital commerce is a serious market. In keeping with Statista.com, e-commerce accounted for over $ 6 billion in 2020, a big share of the nation’s GDP. With almost seventy % of the inhabitants accessing the web in 2019, there may be big potential for e-commerce suppliers, home and overseas, to make revenue in Vietnam. The federal government additionally has monumental potential for tax income. Regardless of the motives of the Nationwide Meeting – usually opaque – to increase its attain to overseas actors in our on-line world, Vietnam is on the transfer. Overseas e-commerce suppliers ought to know the foundations earlier than coping with Vietnamese clients and perceive that they might have already got authorized obligations within the nation.