On 20 June 2018, the Latvian Parliament (Saeima) approved for ratification the pending income tax treaty with Vietnam. The treaty, signed 19 October 2017, is the first of its kind between the two countries.
The treaty covers Latvian enterprise income tax and personal income tax and covers Vietnam personal income tax and business income tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting Party through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.
The following capital gains derived by a resident of one Contracting State may be taxed by the other Party:
Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.
Note – The final protocol to the treaty includes an MFN clause, which provides that if either Contracting State signs a tax treaty or amendment to a tax treaty with another state that is a member of the EU or the OECD and such treaty or amendment provides for the taxation of gains from the indirect alienation of shares of a company resident in a Contracting State, then the fourth point above will read as gains from the direct or indirect alienation of shares from the date the other treaty or treaty amendment is effective.
Latvia generally applied the exemption method for the elimination of double taxation, while Vietnam applies the credit method. However, Latvia applies the credit method in respect of income that may be taxed in Vietnam in accordance with Articles 10 (Dividends), 11 (Interest), and 12 (Royalties and Fees for Technical Services).
A provision is also included for a tax sparing credit for tax that would have been payable as Vietnamese tax for any year but for an exemption or reduction of tax granted under provisions of Vietnamese law specified in the treaty and any subsequent laws agreed by the competent authorities of the Contracting States. The relief will apply for a period of ten years beginning the date the treaty becomes effective.
The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.
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