Cross-border businesses providing services directly to individual users earn huge revenue from Vietnamese customers but they have not paid taxes to Vietnam.
According to statistics of the Vietnam General Department of Taxation, tax revenue paid by Vietnamese enterprises signing advertising contracts with foreign organizations from 2018 to 2020 was VND3,082 billion, including VND770.6 billion in 2018; VND1,167.9 billion in 2019; VND1,143.7 billion in 2020.
In 2021, tax revenue collected from Vietnamese organizations that have signed online advertising contracts with foreign organizations that do not have legal entities in Vietnam such as Google, Youtube, Facebook was VND1,314 billion, including VND521 billion from Facebook; VND490 billion from Google; and VND164 billion from Microsoft.
However, for many years, Vietnam has not collected taxes from transactions between cross-border businesses and individual users in Vietnam. For example, Netflix which provides movie watching services primarily to individual customers.
Revising the law
Mr. Chung Thanh Tien, from the HCM City Accounting Association, said that cross-border businesses providing services directly to individual users earn huge revenue from Vietnamese customers but they have not paid taxes to Vietnam.
“If individual customers use the services supplied by cross-border corporates, the companies are obliged to pay taxes. The fees paid by the service users is inclusive of value added tax. These corporates have not declared taxes with Vietnamese tax authorities because they provide cross-border services and do not have a legal presence in Vietnam. If businesses in Vietnam use the services of such companies, they can declare and pay contractor tax. As for individual users, taxes have not been collected yet,” said Mr. Tien.
Regarding businesses providing cross-border services, the Law on Value Added Tax does not identify them as subjects to value-added tax, as it assumes that an enterprise without a legal presence in Vietnam is not subject to value-added tax. However, the later-issued Circular 80 clearly states that no matter where the enterprise has a legal entity, when the service is consumed in Vietnam, it will still be subject to value added tax, according to Mr. Tien.
Circular 80 specifically guiding the implementation of the Law on Tax Administration offered a clear legal basis for collecting VAT from cross-border companies.
Specifically, Circular 103 did not include all cases of revenue generated in Vietnam for companies without permanent offices in the country (in particular, the case of revenue received from non-business individuals), making it impossible for cross-border businesses to pay taxes. Therefore, there was a misunderstanding that cross-border businesses intentionally evaded tax obligations for revenue coming from individual users.
Vietnam lacks guidelines for transactions between cross-border businesses and individual users in Vietnam, so cross-border businesses cannot pay tax on this revenue.
In Circular No. 80/2021/TT-BTC, there is a separate chapter regulating tax administration for e-commerce business, digital-based business and other services of overseas suppliers that do not have a permanent establishment in Vietnam.
Accordingly, an overseas supplier that does not have a permanent establishment in Vietnam, if it conducts e-commerce, digital-based business and other services with organizations and individuals in Vietnam, can directly or authorize organizations or tax agencies operating under Vietnamese law to register, declare, and pay tax with Vietnamese tax authorities.
Digital tools to collect cross-border taxes
Tax registration, declaration and payment of overseas suppliers is performed electronically on the website of the General Department of Taxation from January 1, 2022 when Circular No. 80/2021/TT-BTC takes effect.
Although Circular 80 takes effect from January 1, 2022, the electronic portal for cross-border businesses to declare tax has not started.
Mr. Nguyen Van Phung, Director of the Large Corporate Tax Department (General Department of Taxation), said that the General Department of Taxation is building this portal and it will start operating in March.
Mr. Nguyen Ngoc Quang, from the Vietnam Association of Practicing Accountants, said that in principle, providing services in the Vietnamese territory is subject to value-added tax. This has been in the provisions of the Law on Value Added Tax for a long time. Value-added tax is essentially a tax on the final consumer, so in principle it is reasonable for the General Department of Taxation to introduce this content.
According to experts, Circular 80 focuses on tax administration issues and transactions between taxpayers and state management agencies. But problems arising in implementing e-invoices and reducing VAT lead to concerns that collecting taxes from cross-border transactions will be in the same situation.
The General Department of Taxation on March 21 held a conference to launch a portal for foreign suppliers and an electronic tax mobile app – Etax-Mobile.