Foreign enterprises not present in Vietnam to be taxed

National Assembly (NA) deputies expressed agreement with a proposed taxation method that imposed a rate representing a percentage of revenue generated by foreign enterprises providing goods and services in Vietnam through e-commerce and digital platform models. This approach is intended to ensure fairness and equity between all taxpayers, but many deputies emphasized the need for more detailed regulations and guidance on tax declaration and payment processes to guarantee transparency and feasibility in implementation.

Point d, Clause 2, of Article 2 of the draft Law on Corporate Income Tax (amended) introduces a new provision regarding taxpayers: Foreign enterprises providing goods and services in Vietnam through e-commerce and digital platforms are subject to taxation on their taxable income generated within Vietnam. Furthermore, Clause 2, Article 11, which outlines the tax calculation method, specifies that corporate income tax payable by enterprises mentioned in Points c, d, and đ, Clause 2, Article 2 of the Law, is determined as a percentage of revenue generated in Vietnam.

Transparent and practical policies

During last week’s discussions on the draft Law on Corporate Income Tax (amended), Deputy Pham Van Hoa from the Dong Thap delegation in the Mekong Delta supported the inclusion of foreign organizations conducting business on digital platforms as taxpayers. He noted that such entities had been previously overlooked, resulting in tax revenue losses and an uneven playing field for domestic businesses offering similar products.

While agreeing with the proposal, Deputy Hoa raised concerns about taxing businesses without a permanent establishment in Vietnam, especially those operating through electronic platforms where parent and subsidiary companies are based abroad. He underlined that current tax collection applies only to entities with a permanent establishment in Vietnam, which is defined as having a physical presence, such as a representative office, factory, or staff. “The law does not address this specifically, but the government must issue a decree with clear guidelines to facilitate international cooperation,” he suggested.

Deputy Nguyen Tam Hung from the Ba Ria-Vung Tau delegation in Vietnam’s south agreed with the necessity of requiring foreign enterprises supplying goods and services in Vietnam through e-commerce platforms to pay corporate income tax. He argued that this is a vital step in keeping pace with the growth of the digital economy. “It is recommended that the drafting committee consider and clarify the criteria for determining taxable income generated in Vietnam in cases where the business does not have a permanent establishment in the country,” he stressed. “Specific guidance on how to declare and pay taxes should also be added to ensure transparency and feasibility in implementation, especially for cross-border businesses. This will help reduce tax evasion and create a fair competitive environment.”

According to Deputy Nguyen Thi Le from the Ho Chi Minh City delegation, the draft law retains the current definition of “permanent establishment” in Clause 2, Article 2, which relates to taxpayers. However, she pointed out discrepancies between this definition in existing laws and tax treaties concerning cross-border e-commerce and digital platform businesses. She noted that some businesses operate using “virtual” permanent establishments without any actual physical presence. Ms. Le proposed revising the draft law to effectively address these inconsistencies.

The draft expands taxable income provisions for foreign enterprises without permanent establishments in Vietnam, including income from e-commerce and digital platforms, regardless of their business location. “This creates contradictions and challenges, as it combines the absence of a permanent establishment with the independence of business location,” she continued. “I recommend the drafting committee carefully review and adjust these provisions to address the outlined inconsistencies.”

In his presentation of the verification report on the draft law, Chairman of the NA’s Finance and Budget Committee Le Quang Manh recommended that the drafting committee address three key issues: the practical feasibility of collecting corporate income tax from foreign enterprises without a presence in Vietnam but supplying goods via e-commerce; the alignment of Vietnam’s taxation rights with existing tax treaties in cases where such foreign enterprises establish a permanent establishment in Vietnam; and the application of the law when discrepancies arise between its provisions and existing tax treaties, particularly regarding permanent establishments that lack physical presence.

Tackling challenges

Deputy Prime Minister Ho Duc Phoc emphasized the fundamental principle of corporate income taxation: that all income generated by businesses, including revenue from production, operations, and other sources, is taxed. He clarified that foreign businesses without a permanent address in Vietnam but earning income from activities conducted within the country are obliged to pay corporate income tax. Citing recent progress, he highlighted successful tax collection efforts from enterprises headquartered abroad operating through e-commerce platforms or online sales channels.

The Deputy Prime Minister also noted that the financial sector remains at the forefront of integrating information technology (IT) into management processes, spanning areas such as customs, taxation, and treasury operations. Efforts to incorporate AI and IT into management systems aim to streamline procedures for both businesses and taxpayers.

Data from the General Department of Taxation at the Ministry of Finance revealed that, as of October, 116 foreign suppliers had registered, declared, and paid taxes through the electronic portal designed for foreign providers. These include major companies such as Meta (Facebook), Google, TikTok, and Netflix. Since the portal’s launch in March 2022, cumulative State budget revenues from these foreign suppliers have reached VND19.774 trillion ($790.96 million). Year-to-date, revenues have totaled VND8.2 trillion ($328 million), representing an 18.9 per cent increase compared to the same period of 2023. Tax collections from cross-border business giants amounted to VND6.896 trillion ($275.84 million) last year.

In a recent discussion, Ms. Ly Thi Hoai Huong, Deputy Head of the Tax Administration Department for Small and Medium Enterprises, Business Households and Individuals at the General Department of Taxation, acknowledged the unique challenges posed by the digital economy and the rapid growth of e-commerce in Vietnam. These challenges include difficulties in comprehensively managing revenue sources and taxpayers, establishing clear taxable income bases, distinguishing between income types for taxation purposes, and controlling cash flows.

She emphasized that current tax policies must apply consistent tax rates and principles to both traditional business activities and e-commerce. In specific cases, enterprises owning e-commerce platforms or partnering with foreign suppliers are required to provide information and, in some instances, declare and pay taxes on behalf of individual e-commerce sellers.

To address these challenges, Vietnamese tax authorities are actively refining tax legislation, raising awareness about tax obligations among domestic businesses, foreign suppliers, and e-commerce platforms, and strengthening e-commerce databases to apply risk-based management approaches. Efforts are also focused on modernizing tax administration systems, conducting inspections of e-commerce businesses, and enhancing collaboration with other ministries and agencies to share and integrate data for more effective tax management in the e-commerce sector.