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India-Vietnam Double Taxation Avoidance Agreement (DTAA)

The Double Taxation Avoidance Agreement (DTAA) between the Republic of India and the Socialist Republic of Vietnam was initially signed on September 7, 1994, and came into force on February 2, 1995. To meet internationally accepted standards, an amending protocol was signed on August 30, 2017, replacing Article 27 with the article on ‘Assistance in the Collection of Taxes’ and inserting a new sub-article 27A.

Applicability of the DTAA

The taxes covered under this DTAA are:

In India:

  • Income-tax, including any surcharge thereon.

In Vietnam:

  • Personal income-tax
  • Profit tax
  • Profit remittance tax

Key Provisions of the DTAA

  1. Residency Definition: The term “resident of a Contracting State” refers to any person who, under the laws of that state, is liable to tax.
  2. Taxation of Immovable Property: Income derived by a resident of a contracting state from immovable property in the other contracting state may be taxed in that other state.
  3. Taxation of Enterprise Profits: The profits of an enterprise of a contracting state are taxable only in that state unless the enterprise operates through a permanent establishment in the other contracting state.
  4. Taxation of Dividends: Dividends paid by a company resident in one contracting state to a resident of the other contracting state are taxed in the other state.
  5. Taxation of Technical Fees: Technical fees derived by a resident of one contracting state from the other contracting state may be taxed in that other state.
  6. Taxation of Capital Gains: Capital gains from the alienation of immovable property in one contracting state by a resident of the other contracting state may be taxed in the latter state.
  7. Taxation of Professional Services: Income from professional services exercised by a resident of a contracting state in the other state is taxable only in the former state.
  8. Taxation of Directors’ Fees: Directors’ fees and similar payments derived by a resident of one contracting state in his capacity as a board member of a company in the other state may be taxed in the latter state.
  9. Taxation of Personal Activities: Income derived by a resident of one contracting state through personal activities in the other state may be taxed in the latter state.
  10. Double Taxation Avoidance: The laws of each contracting state continue to govern the taxation of income, except where contrary provisions of the DTAA apply.

Inference

The amendments made through the amending protocol aimed to align the DTAA with international practices and implement provisions agreed upon in the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The exchange of information clause and the addition of Article 27A regarding assistance in the collection of taxes enhance transparency and reduce instances of tax evasion. The confidentiality of shared information is mandated, and the clause facilitates the routine or request-based sharing of information. Additionally, the DTAA allows contracting states to collect the ‘revenue claim’ on behalf of the other country concerning any tax liability of the assessee.

To know more about DTAA relations between India and Vietnam, please download our Guide.

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