On 13 June 20191, the National Assembly adopted the Law on Tax Administration, which will take effect and replace the currently Law on Tax Administration from 1 July 2020.

Among the various amendments related to tax administration matters, the law introduces a new taxation regime for foreign service providers including ecommerce business. In particular, under Articles 27.3 and 42.4, both banks and foreign suppliers (having no permanent establishment in Vietnam) are required to file and pay tax in Vietnam.

Article 27.3 Commercial banks’ obligations, rights and liabilities in relation to tax administration:

"3. Withholding and paying tax on behalf of offshore organizations, individuals doing e-commerce business and deriving income from Vietnam.”

Article 42 regarding principle of tax declaration and calculation

“4. Regarding e-commerce business activities, business conducted on digital platform and other services provided by offshore suppliers having no permanent establishment in Vietnam, offshore suppliers shall directly or authorize [a third party] to conduct tax registration, tax declaration and payment in Vietnam as guided by the Ministry of Finance.”

Additionally, the law also provides that a Vietnamese contracting party is required to use a tax code issued to an organization or individual that has no presence in Vietnam and conducts cross-border business activities on a digital platform for the purpose of withholding and paying tax on behalf of that organization or individual (Article 35.6 regarding the use of tax code).

Based on these provisions, there would seem to be 3 entities held liable for tax declaration and payment with respect to typical e-commerce transactions or transactions on a digital platform.

However, the law does not specify which circumstance a particular entity (bank, foreign service provider without permanent establishment or customer) is responsible for tax declaration and payment. The law is also silent as to whether the tax registration, filing and payment is also applicable to foreign service providers having a permanent establishment. Accordingly, the Government and Ministry of Finance are expected to address these grey areas in their upcoming guidelines.

If you would like further updates in relation to the Law on Tax Administration, or indeed any other tax matters, please do not hesitate to get in touch with the team.

1 We note that our Client Alert is based on the latest draft of the law publicly available before the adoption. A more detailed Client Alert will follow shortly once the passed version is made public.
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