What is the resident establishment of a foreign enterprise in Vietnam?

What is the resident establishment of a foreign enterprise in Vietnam?

The resident establishment of a foreign enterprise is the production and business establishment when the foreign enterprise conducts production and business activities in Vietnam without establishing a legal entity.

In particulars, pursuant to Clause 3, Article 2 of the Law on Enterprise income tax 2008 amended and supplemented on 2013, the resident establishment of a foreign enterprise is defined as follows:

Resident establishments of a foreign enterprise mean production and business establishments through which the foreign enterprise conducts some or all production and business activities in Vietnam,

Including:

- Vietnam-based branches, executive offices, factories, workshops, vehicles, oil fields, gas fields, mines or other sites for exploiting natural resources;

- Construction sites, construction, installation and assembly works;

- Establishments providing services, including consultancy services provided via employees or other organizations or individuals;

- Agents for the foreign enterprise;

- Vietnam-based representatives that are competent to sign contracts in the name of the foreign enterprise or representatives that are not competent to sign contracts in the name of the foreign enterprise but regularly deliver goods or provide services in Vietnam

Besides, in accordance with some Agreements on avoidance of double taxation between Vietnam and other countries such as Singapore, Korea...the resident establishment is the consistent business and production establishment where enterprise conduct some or all production and business.

The resident establishment includes: Headquarter, branch, office, factory, workshop, oils and gas field, wells or any exploitation places of natural resources; construction site, construction and installation work over 06 months.

At the same time, in accordance with the Sub-point 1.2.1, Point 1.2, Clause 1, Article 11 of the Circular No. 205/2013/TT-BTC, an enterprise of a Contracting State shall be regarded as having a permanent establishment in Vietnam if it fully satisfies the following three conditions:

1- Maintaining in Vietnam an “establishment”, e.g. a building, an office or part thereof, a means or equipment, etc.; and This establishment is fixed, i.e. it must be established at a specified place and/or maintained on a permanent basis. 

2- The fixedness of a business establishment does not necessarily mean that such establishment must be attached to a specific geographical location for a certain length of time; and

3- The enterprise carries out wholly or partly business activities through this establishment. 

Tax duties of the resident establishment of foreign enterprise

Incomes from business and production activities of foreign enterprises are taxed in Vietnam if these foreign enterprises have resident establishments in Vietnam and their incomes have direct or indirect relation to those resident establishments.

In particulars, in accordance with points b, c, Clause 2, Article 2 of the Law on enterprise income tax 2008, enterprises having taxable incomes shall pay enterprise income tax as follows:

 Foreign enterprises with Vietnam-based permanent establishments shall pay tax on taxable incomes generated in Vietnam and taxable incomes generated outside Vietnam which are related to the operation of such establishments;

Within that, taxable incomes include income from goods and service production and business activities and other incomes (incomes cover income from the transfer of capital or real estate; income from the right to own or use assets; income from the transfer, lease, or liquidation of assets; income from interests, loans or foreign currency sales; refund of provisions; recovery of bad debts already written off; a collection of payable debts of unidentifiable creditors; omitted income...). Here are the definitions of the resident establishment of a foreign enterprise in Vietnam.