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Latvia-Vietnam

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Update – Tax Treaty between Latvia and Vietnam

The income tax treaty between Latvia and Vietnam entered into force on 6 August 2018. The treaty, signed 19 October 2017, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Latvian enterprise income tax and personal income tax and covers Vietnam 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 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.

Natural Resources Exploitation PE

The treaty includes the provision that permanent establishment will be deemed constituted where activities are carried on offshore in a Contracting State in connection with the exploration or exploitation of the seabed and subsoil and their natural resources. No minimum period of activity set in the treaty.

Limited Force of Attraction Provision

Article 7 (Business Profits) includes a limited force of attraction provision whereby taxing rights are granted to a Contracting State on profits attributable to the sale of goods or merchandise or other business activities carried on in that Contracting State by a resident of the other State if the same or similar goods or merchandise or business activities are also sold or carried on by a PE maintained by that resident in the first-mentioned Contracting State, provided that it is established that such sales or activities were structured in a manner intended to take advantage of the treaty.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 70% of the paying company's capital; otherwise 10%
  • Interest - 10%
  • Royalties – 10%
  • Fees for Technical Services (managerial, technical, or consultancy) – 7.5%

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 of immovable property situated in the other State;
  • Gains from the alienation of shares in a company or of a comparable interest in a partnership, trust or other similar entity deriving more than 50% of their value directly or indirectly from 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; and
  • Gains from the (direct) 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 State.

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

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.

Double Taxation Relief

Latvia generally applies 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.

Effective Date

The treaty applies from 1 January 2019.

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