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Tax Treaty between Turkey and Vietnam in Force

According to a decision published by Turkey in the 17 March 2018 edition of the Official Gazette, the income tax treaty with Vietnam entered into force on 9 June 2017. The treaty, signed 8 July 2014, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Turkish income tax and corporation 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 of one Contracting State furnishes services in the other State 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.

Withholding Tax Rates

  • Dividends -
    • 5% if the beneficial owner is a company directly holding at least 50% of the paying company's capital or has invested more than USD 10 million, or equivalent in Turkish or Vietnamese currency, in the capital of the paying company;
    • 10% if the beneficial owner is a company directly holding at least 25% but less than 50% of the paying company's capital;
    • otherwise 15%
  • Interest - 10%
  • Royalties - 10%

Note – Article 10 (Dividends) also provides that the profits of a company of a Contracting State carrying on business in the other Contracting State through a permanent establishment situated in that other State may, after having been taxed under Article 7 (Business Profits), be taxed on the remaining amount in the Contracting State in which the permanent establishment is situated, but the tax rate may not exceed 5%.

Capital Gains

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

  • Gains from the alienation immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares or comparable interests in a company whose assets consist wholly or principally of immovable property situated in the other State, and
  • Gains from the alienation of shares issued by a company resident in the other State, if the beneficial owner of the shares directly holds less than 25% of the capital of that company and if the period between acquisition and alienation does not exceed one year.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. 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 entered into force.

MFN Clause

The final protocol to the treaty includes the provision that if Vietnam enters into an agreement with any other country that provides for a longer period of time before a construction PE is deemed constituted, then such longer period will apply for the purpose of the Turkey-Vietnam tax treaty from the date such other agreement is effective.

The protocol also includes the provision that if Vietnam signs a tax treaty after 23 October 2009 with an OECD member state that provides for a lower withholding tax rate(s) on dividends, then such lower rate(s) will apply to residents of Turkey. Vietnam signed a tax treaty with Estonia on 26 September 2015 that provides for a top rate of 10% on dividends (5% if at least 70% ownership). It is uncertain if the competent authorities have agreed to apply the lower top rate (10%) under the Turkey-Vietnam treaty, but it would generally have no impact given that Vietnam does not generally impose withholding tax on dividends under domestic law.

Effective Date

The treaty applies from 1 January 2018.

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