I. Legal basis
- Unified Writing The Law on enterprise income tax 2014 (“The Law on Enterprise income tax 2014”);
- Unified Writing The Law on personal income tax 2014 (“The Law on Personal income tax 2014”);
- Agreement between Vietnam and Singapore for the avoidance of double taxation (“Agreement for the avoidance of double taxation”);
- Law on Investment 2014.
II. Article content
Investment activities from foreign investors into Vietnam are taking place. However, in the opposite direction when Vietnamese investors invest aboard are also in the direction of rising sharply. For foreign investment activities, the problem is the most interested investors are profits and tax obligations for the yield investment. At this article will present the legal issues related to the profits from personal, the organization (collectively the investor) how foreign investment in Singapore will be handled and determine the tax obligation for the aforementioned profit.
1. Regulation on profit processing
On the profit from investing in Singapore there will be two ways to handle. Firstly, if the investor wants to transfer profits from Singapore to Vietnam, the base on Clause 1, Article 65 of Law on Investment 2014, within 06 months from the date of reporting the settlement of tax or text of equivalent legal value in accordance with the law of the investment recipient country – here is Singapore, the investor is forced to transfer all the profits and other earnings from investment in Singapore to Vietnam. When the expiration of the specified 06-month period above that the investor has not been transferred profits and other earnings from investments in Singapore to Vietnam, the investor must have written to report the Ministry of Planning and Investment, the State Bank of Vietnam for extension. This extension is no more than two times, each time no more than 06 months, and must have written approval from the Ministry of Planning and Investment.
Secondly, in case the investor does not transfer the profits from investment activities, from investment projects in Singapore to Vietnam which uses that profit to invest abroad pursuant to Article 66 of Law on Investment 2014. For profitable use cases for reinvestment such as capital gains, expansion of investment operations in Singapore, at the same time the investor needs to carry out procedures to adjust the Certificate of investment registration to Singapore and report to the State Bank of Vietnam. In case, the investor uses the profit from the investment project in Singapore to implement other investment projects in Singapore or in another overseas Singapore, the investor conducts the procedure on adjusting the Certificate of investment registration to aboard for the new investment project, the capital account must be registered, the progress of capital investment in cash with the State Bank of Vietnam.
2. Determining a tax obligations for the profits gained after the investment in Singapore
2.1 How to calculate taxes
The investor shall be responsible for the full implementation of the financial obligations for the State of Vietnam in accordance with the law.
For the investor is the enterprise, pursuant to Paragraph 2 Clause 2 Article 3 of The Law on Enterprise income tax 2014 regulations: “Vietnamese enterprises invest in foreign countries to transfer their income after they have paid overseas enterprise income tax of enterprises to Vietnam, for countries where Vietnam has signed the Agreement for the avoidance of double taxation, it will follow the provisions of the agreement.” Since Vietnam and Singapore has signed the Agreement for the avoidance of double taxation, it is advisable to determine the payable tax of the investor’s business will be complying with provisions of this Agreement.
For individual investors, the provisions of Article 9 of The Law on Personal income tax 2014 have clearly stated, the Agreement for the avoidance of double taxation between Vietnam and Singapore is also given the priority to calculate the income tax for investors in case of this Agreement is different from the Law.
So, for the case of investment in Singapore, the Agreement for the avoidance of double taxation between Vietnam and Singapore is included in the applicable regulation. However, if the provisions of the Law into force in Singapore and Vietnam on tax adjustment for incomes in these countries are not contrary to the provisions of the Agreement for the avoidance of double taxation, these laws are still applicable to regulate. Therefore, in cases such as: determining the time of tax calculation, calculation of payable taxes in Vietnam will be determined according to the provisions of The Law on Enterprise income tax 2014, The Law on Personal income tax 2014 and other legal documents related[1].
With income taxed in both Singapore and Vietnam, the removal double taxation will be observed in Point a, for Clause 2 of Article 24 of the Agreement for the avoidance of double taxation. The regulations are understood that the tax amount payable when a “resident of Vietnam”[2] derives income, which in accordance with the provisions of this Agreement, may be taxed in Singapore, Vietnam shall allow as a deduction from the Vietnamese tax on the income of that resident an amount equal to the tax paid in Singapore. Where such income is a dividend paid by a company which is a resident of Singapore to a resident of Vietnam which is a company owning directly or indirectly not less than 10% of the share capital of the first-mentioned company, the deduction shall take into account the Singapore tax paid by that company on the portion of its profits out of which the dividend is paid. The deduction shall not. However, exceed that part of the Vietnamese tax, as computed before the deduction is given, which is attributed to that income.
The content of this tax-deduction method means: When a resident of Vietnam has taxable income in Singapore due to income arising in Singapore and has taxable income in Vietnam by that the subject of residence in Vietnam. In order to avoid double taxation, the tax is collected in Singapore, investors proceed to submit as usual as prescribed. The tax payable by the investor in Vietnam will deduct the amount of tax paid in Singapore. But it is subject to the principle exceed that part of the Vietnamese tax, as computed before the deduction is given, which is attributed to that incomes.
For example, Ms. A is a resident of Vietnam contribute capital investment to the establishment of a company in Singapore, Ms. A must pay personal income tax in Vietnam for income from capital investment with a 5% tax rate. In the event that Ms. A has paid taxes on dividend in Singapore, Ms. A will be deducted from the tax amount payable in Vietnam. But the deductible tax is not exceeded personal income tax payable in Vietnam. If Ms. A does not pay taxes on dividend in Singapore (not in the case of such tax-empty income, tax reduction income in Singapore), Ms. A will not be deducted from the personal income tax amount payable in Vietnam.
In addition, at the Official Dispatch No. 1664/TCT-HTQT guiding the implementation of the Agreement for the avoidance of double taxation has explained to the case if a resident in Vietnam receives income in Singapore and in accordance with the income regulations must pay taxes in both countries. In accordance with the law of Singapore this tax above is exempted or reduced, Vietnam still gives investors the tax payable in Vietnam the tax amount that must be paid in Singapore but is not payable due to exemption or reduction of taxes. The rule that tax payable in Singapore should not be greater than the tax payable in Vietnam.
2.2 Determine the time of tax calculation income
However, an important issue is to clearly define the tax calculation income in Vietnam as income pre-or after tax deduction in Singapore. In the manner specified in Clause 2 Article 2 of The Law on Enterprise income tax 2014, as well as instructions at the first bullet number one of Clause 1 Article 1 Circular No. 96/2015/TT-BTC, the income that the business uses to declare, as a basis of tax calculation is the profit transferred to Vietnam after the tax deduction in Singapore and the applicable tax rate in Vietnam is 20%. Accordingly, the income tax calculation is determined in accordance with Article 7 of the Law on Enterprise income tax 2014. With this rule will help to avoid double taxation.
For individuals, when investing in Singapore, they will be charged tax on taxable income from capital investments. And the time to determine this taxable income is the time when the tax payers receive incomes as specified in Clause 2 Article 12 of The Law on personal income tax 2014. To calculate the tax calculation income will be based on taxable income from capital investment defined in Clause 3 Article 3 of The Law on personal income tax 2014 and a full tariff at the current tax rate is 5%.
Conclusion, the full content above of Apolat Legal about important notes concerning profits from capital investment aboard in Singapore. If you have any questions, please contact Apolat Legal for more advice!
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This article is for general information only and is not a substitute for legal advice.
[1] Decree No. 218/2013/ND-CP detailing and enforcing some things of The Law on Enterprise income tax 2014; Circular No. 78/2014/TT-BTC guiding the Decree No. 218/2013/ND-CP and guiding The Law on Enterprise income tax 2014; Unified Writing No. 05/VBHN-BTC Circular guiding the implementation of The Law on Personal income tax 2014.
[2] Article 4 The Agreement for the avoidance of double taxation, under which term “resident of Vietnam” is used to be general for both individuals and organizations.
