According to Clause 2 Article 16 of the Law on Commerce 2005, foreign traders have rights to establish representative offices in Vietnam. However, foreign representative offices in Vietnam only can conduct some commercial promotion activities but not profitable activities as prescribed in the law. Therefore, a foreign representative office in Vietnam has fewer tax duties than an enterprise.
According to Clause 3 Article 17 of the Law on Commerce 2005, foreign representative offices have rights to recruit Vietnamese or foreign employees to work there. Due to that, personal income tax is the only tax duty of a foreign representative office.
To determine the payable tax, foreign representative offices have to do the tax audit. Tax audit is the process of calculating and checking all the revenues and expenses during the tax term to establish grounds for declaring and paying tax. Simultaneously, tax audit may be the grounds for tax exempt, reduction and refund.
Personal income tax audit for foreign representative offices:
Taxable incomes of people working at representative offices are wages regulated at Clause 2 Article 3 of the Law on Personal income tax 2007. Duties to declare, deduct, pay and audit personal income tax for workers of a representative office belong to it.
During the tax audit process, a representative office could consider and list out kind of incomes eligible for tax exemption or tax reduction to claim for it. According to Clause 1 Article 62 of the Law on Tax administration:
“If taxpayers determine by themselves tax amounts to be exempted or reduced, a tax exemption or reduction dossier includes:
- Tax declaration form;
- Documents related to determination of the tax amount to be exempted or reduced.”
Taxpayers are residents and non-residents:
- Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months counting from the first date of their presence in Vietnam;
- Having a place of habitual residence in Vietnam, which is a registered place of permanent residence or a rented house in Vietnam under a definite contract;
- Tax period: Annual.
- People who do not satisfy the above conditions;
- Tax period: Upon each time of income generation.
Besides that, tax audit also helps representative offices establish grounds for tax refund if paid tax amounts are larger than payable tax amounts. Tax audit is a complicated duty related to many legal regulations.