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Tax Treaty between Macau and Vietnam has Entered into Force

On 13 March 2019, Macau published Chief Executive Notice No. 11/2019 in the Official Gazette announcing that the income tax treaty with Vietnam entered into force on 3 October 2018. The treaty, signed 16 April 2018, is the first of its kind between the two jurisdictions.

Taxes Covered

The treaty covers Macau complementary tax, professional tax, and property tax, and covers Vietnamese personal income tax and business income tax.

Service PE

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 183 days within any 12-month period.

Limited Force of Attraction Provision

Article 7 (Business Profits) includes a limited force of attraction provision whereby taxing rights are granted to a Contracting Party on profits attributable to the sale of goods or merchandise or other business activities carried on in that Contracting Party by a resident of the other Party if the same or similar goods or merchandise or business activities are also sold or carried out by a PE maintained by that resident in the first-mentioned Contracting Party. Relief from taxation is provided where an enterprise is able to demonstrate that the sales or business activities were carried out for reasons other than obtaining treaty benefits.

Withholding Tax Rates

  • Dividends - 10%
  • Interest - 10%
  • Royalties – 10%

Capital Gains

The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:

  • Gains from the alienation of immovable property situated in the other Party;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party;
  • Gains from the alienation of shares of the capital stock of a company, or of an interest in a partnership, trust or estate, the property of which consists directly or indirectly principally (greater than 50%) of immovable property situated in the other Party; and
  • Gains from the alienation of shares, other than the above, of not less than 15% of the entire shareholding of a company that is a resident of the other Party.

Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.

Double Taxation Relief

Macau generally applies the exemption method for the elimination of double taxation, while Vietnam applies the credit method. However, Macau 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).

A provision is also included for a tax sparing credit for tax that would have been payable in a Contracting Party for any year but for an exemption or reduction of tax granted by the application of the provisions of the law of that Contracting Party designed to extend tax incentives to promote foreign investment for development purpose. The provision applies for a period of ten years beginning the date the treaty is effective.

A provision is also included that a credit for dividends will include the tax on the profits out of which the dividends are paid if the company receiving the dividends directly or indirectly controls at least 10% of the shares of the paying company.

Effective Date

The treaty applies from 1 January 2019.

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