Thailand resident companies investing in Vietnam resident companies, the following rates of taxes would generally apply to the investment earnings paid by the Vietnam company to the Thailand company:
Business Profits Payments – No withholding tax on payments from the Vietnam company to the Thailand company (provided the Thailand company does not have a permanent establishment in Vietnam).
Dividend Payments – No withholding tax on payments from the Vietnam company to the Thailand company (exempted under local Vietnam law).
Interest Payments – Subject to 10% withholding tax in Vietnam on payment from the Vietnam company to the Thailand company.
Royalty Payments – Subject to 10% withholding tax in Vietnam on payment from the Vietnam company to the Thailand company.
Capital Gains Payments – Payments from Vietnam to Thailand for gains made from the sale of movable and immovable property, and shares and other securities are subject to tax in Vietnam at the Business Income Tax rate (standard rate currently 28%).
For the taxes paid in Vietnam, the Double Tax Treaty between Vietnam and Thailand provides for the relief of double taxation through Thailand’s allowance of a tax credit for the amount of tax paid on the income in Vietnam (the amount of the credit allowed is however limited to the amount of the Thai tax that is payable on the income).
In relation to Vietnamese-sourced interest, royalty and capital gains income received by a resident Thailand company, the Thailand company should therefore not have any further tax to pay on such income. However, this is not so for Vietnamese-sourced business profits income and dividend
Whilst the Vietnamese laws do not tax business profits and dividend payments in Vietnam, such income is the taxable income of the Thailand company, and as such, it is subject to tax in Thailand (standard tax rate 30%). Double Tax Treaty relief cannot be invoked because no Vietnam tax has been paid on the income, so the result (under the provisions of the Double Tax Treaty) is 30% corporate income tax on business profits and dividend income in Thailand.
However, in relation to dividend income received from foreign sources, Royal Decree No 442 grants Thailand companies an exemption from Thai corporate income tax on dividends received from investments in foreign companies. The conditions for exemption are:
- The Thailand company must hold at least 25% of the total voting rights of the shares in the company paying the dividends;
- The Thailand company must continuously hold the shares in that company for at least 6 months from the date of acquisition of the shares to the date of receipt of the dividends; and,
- The dividends must be paid out of net profits that have been subject to domestic corporate income tax of not lower than 15%.
With respect to the 3rd condition, Royal Decree No 442 further prescribes that where the source country has “special legislation” that gives reduction or exemption of income tax on the net profits, the Thai company is still entitled to exemption from tax under the Decree.
Provided the 3 conditions are met, Vietnam dividend income should therefore not be subject to corporate income tax in Thailand (including the case where the Vietnam company may be granted a preferential 10% corporate tax rate under their “special legislation”).
Steven Herring CA
Senior Taxation Consultant
RSM Thailand Tax Consulting