Vietnam and Singapore Sign Second Protocol to Amend DTA

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Jan. 16 – On September 12, 2012, Singaporean Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam and Vietnamese Minister of Finance Vuong Dinh Hue signed a second Protocol to amend the existing double taxation agreement (DTA) between the two countries. The DTA entered into force on January 11, 2013 in Singapore, and will be effective in Vietnam on January 1, 2014.

The original Protocol, which was concluded on March 2, 1994 and entered into force on September 9, 1994, is being revised to update certain articles so as to enhance trade and investment flows between Vietnam and Singapore. Furthermore, this amendment will also ensure that the DTA is in line with the internationally-agreed upon standard for the exchange of taxpayer information so as to enhance information flow cooperation.

Specifically, changes were made to the following Articles: 2, 5, 9, 10, 11, 12, 13, 14, 23, 25, and 27. The key amendments are as follows:

Article 5 – Permanent Establishment (“PE”): Clarifies when service providers are considered to have a PE in Vietnam:

“The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within a Contracting State for a period or periods aggregating more than 183 days within any 12 month period.”

Article 11 – Interest: Paragraph 9 was inserted to clarify taxation of interest, and to enact a reduction in the previously-agreed 10 percent withholding tax on interest charged by Vietnam if a DTA with any other country includes a lower rate. It reads as follows:

“With respect to the taxation of interest as provided under Paragraph 2 of Article 11, if Vietnam, in any agreement for the avoidance of double taxation with any other State, provides for a rate of less than 10 per cent on the gross amount of interest, the same lower rate shall apply for the purposes of Paragraph 2 of Article 11.”

Article 12 – Royalties: A clarification on the tax rate on royalties is provided, with the current 15 percent rate being lowered to 10 percent (except for the use of any patent or industrial, commercial or scientific equipment, which will remain at 5 percent). It states that royalties arising in a Contracting State and paid to a resident of the other Contracting State “may also be taxed in the Contracting State in which they arise, and according to the laws of that Contracting State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed… 10 percent of the gross amount of royalties in all other cases.”

Article 13 – Capital Gains: This article was revised to clarify that the gains obtained from selling the shares of a company in one State may be taxed in the other State if it is not a listed company and if more than 50 percent of the value of the shares in the respective company is derived from immovable property situated in the State in which the company is located. It states:

“Gains derived by a resident of a Contracting State from the alienation of shares, other than shares of a company quoted on a recognized stock exchange of one or both Contracting States, deriving more than 50 percent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.”

Article 27 – Exchange of Information: The original Article 27 is to be deleted and updated with the internationally agreed upon standard with reference to the exchange of taxpayer information, and to also clarify that no restrictions or impositions may be placed on the exchange of such information.