Income from bank deposit interest of the representative office of foreign trader in Vietnam

On 26 July 2024, the General Department of Taxation ("GDT") issued Official Letter No. 3227/TCT-CS ("OL 3227") in response to the Tax Department of Hanoi regarding tax implications related to bank deposit interest of the Representative Office of Foreign Traders in Vietnam ("RO").

GDT has agreed with the proposal of the Tax Department of Hanoi that if an RO earns interest income from bank deposits, it falls under taxable income subject to Corporate Income Tax ("CIT") as outlined in Article 2 and Article 3 of Decree No. 218/2013/ND-CP dated 26 December 2013 of the Ministry of Finance ("Decree 218/2013/ND-CP"). Therefore the RO must declare and pay CIT according to Article 11 of Decree 218/2013/ND-CP.

According to Article 2 of Decree 218/2013/ND-CP, "Taxpayers" include enterprises incorporated in Vietnam; enterprises incorporated established abroad with or without permanent establishments in Vietnam; other organizations engaging in manufacturing and business activities with taxable income, etc. The Article itself does not specifically define RO as a "taxpayer".

Article 3 of Decree 218/2013/ND-CP states that "Taxable income" includes other income such as interest income from bank deposits.

The OL 3227 provides general guidance in reference to Article 2, Article 3 and Article 11 of Decree 218/2013/ND-CP. It lacks specific instructions on whether RO pays CIT on the interest in case of "an enterprise incorporated abroad with or without a permanent establishment in Vietnam", or "other organizations engaging in manufacture and business activities with taxable income", or in any other cases. In addition, OL 3227 does not clarify whether the RO should pay CIT at the rate 20% as prescribed in Article 11.2 or 5% as prescribed in Article 11.3 of Decree 218/2013/ND-CP.

OL 3227 indicates that the tax authority considers RO's bank deposit interest income subject to CIT. Therefore, RO should be diligent in identifying any interest income from bank deposits and seek guidance from the tax authority to understand their tax obligations to avoid potential tax risks and reassessment.

Disclaimer: This publication is for general update. This should not be construed as professional advice for any specific case, entity, or individual. If you require further information or professional assistance concerning your specific circumstances, please feel free to contact us.

Dentons LuatViet acknowledges and thanks trainee Phuoc Nguyen for his contribution to the article.