Lorenz & Partners
Legal, Tax and Business Consultants
International Taxation and
Double Taxation Agreements
Mr. Michael Lorenz
German Attorney at Law, Registered Foreign Lawyer in Hong Kong and Vietnam
21 December 2010
21 December 2010
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Lorenz & Partners
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About Lorenz & Partners
- International firm of business lawyers, headquartered in Bangkok since 1995
- The firm is specialised in legal, tax and business consultation for foreign
companies investing in Southeast Asia.
- We maintain offices in: Bangkok, Berlin, Hong Kong, Ho Chi Minh City and
Taipei.
- Our services, e.g.:
• International Commercial Law
• Mergers & Acquisitions, Joint Ventures
• International Tax Planning
• Labour Law Issues
• Management support
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Overview
• General
• International Tax Law
• Avoidance of Double Taxation
• Charateristics in Vietnam
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General
• What are taxes?
• Why are they raised?
• Different kinds of taxes
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4 different types of Taxes
• Tax  to tax is to impose a financial charge or other levy upon a
taxpayerby a state or the functional equivalent of a state.
• Duties  A duty is a kind of tax, often associated with customs, a payment
due to the revenue of a state levied by force of law.
• Fees  A fee is the price one pays as remuneration for services.
• Contributions  contributions are paid for being part of an organisation
etc. (e.g. Bar Associations, etc.)
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What is a tax?
A tax is a cash payment without an individual consideration.
Generally, those taxes are imposed by a public community in order to be able to
pay for public expenditure.
Taxes can be inflicted on everyone that realizes the tax-related circumstances.
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Why are they raised
Taxes are generally the main income source of a gouvernment and the main
instrument for funding of its territorially defined state and other (supranational)
tasks. Only few countries only raise a few or no taxes at all to their citizen (UAE
etc.).
In return, the state is able to use this revenue, for example in order to provide
infrastructure or to support the health or the social system.
The whole population benefits from the taxpayer.
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Different kinds of taxes
Taxes can be classified in different tax brackets. Mainly, they are divided into:
1. Classification by economic purpose
• Transaction Taxes such as the VAT or – internationally – the Foreign
Contractors Tax, customs duties etc.
• Excise Taxes such as electricity tax. (This kind of tax is not elevated in
Vietnam. There, some goods are subjected to a „special sales tax“, which
rates ranges from 10%-75%.)
2.
•
•
•
•
Classification by object of taxation
Excise tax, that build on the effort for a particular asset or behavior
Consumption tax, such as tobacco tax
Import duties etc.
Coporate Income Tax
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International Tax Law
• Basic Principle
• Definitions
• World income principle
• Territoriality principle
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Basic Principle
International tax law deals with the complexity of problems occuring in
cross border cases, which are of particular importance regarding the
taxation of natural persons, business partnerships and incorporate
companies.
Without legal regulations, improper double taxation would be found and
restrain international trade and investments.
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Definition
• Unlimited Tax Liability: Resident taxpayer is subjected to income tax with the
worldwide income by state of his residence.
• Limited Tax Liability: Non-resident taxpayer is subjected to income tax with
the income earned in the state of source.
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Worldwide Income Principle, (i.e. Germany, Vietnam)
Model case: Vietnam
Resident in Vietnam
and non resident
in Thailand
Unlimited tax liability
in Vietnam for worldwide
income
Non-resident in Vietnam
Limited tax
liability
in Vietnam
Double Taxation
Unlimited
tax liability
in country of
residence
Solution: DTA
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Territoriality Principle (i.e. Hong Kong, Singapore, Switzerland)
Model Case: Income generated in Hong Kong
Resident in
Hong Kong
Partly Tax liability
in Hong Kong
Non-resident in Hong Kong
Tax Liability for
work performed
in Hong Kong
Double Taxation
Unlimited
tax liability
in country of
residence
Solution: DTA
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Avoidance of Double Taxation
• Definition
• Unilateral measures
• Double Taxation Agreements („DTA“)
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Definition
Double Taxation occurs in transactions, in which income, that has already been
taxed according to national tax law, is taxed again in another country.
As tax law should be as less disortive as possible, transboundary double taxation
should be eliminated.
A cross-border double taxation should be avoided as this might affect investment
decisions of companies.
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Unilateral Measures
Unilaterally, double taxation is avoided if one state waives
ist right of taxation or credits the tax paid.
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Double Taxation Agreements
On a bilateral basis, the prevention of double taxation is achieved by
the conclusion of DTAs.
A DTA is a contract under international law between two countries
which regulates the extent a contracting party is entitled to its local
taxation, overruling its national laws.
The Organisation for Economic Co-operation and Development
(„OECD“) publishes and updates a model tax convention which
serves as a template for bilateral negotiations regarding tax
coordination and cooperation. This model is accompanied by a set of
commentaries which reflect OECD-level interpretation of the content
of the model convention provisions.
Most DTAs are modelled in accordance to the OECD Convention.
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Generally, there are two standard methods in bilateral agreements to
avoid double taxation
Exemption Method
Credit Method
Income tax paid in
one state is offsetted
on the income tax
payable in the other
state.
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Income taxed in one
state is not taxed in
the other state again.
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Characteristics in Vietnam
• DTA‘s of Vietnam
• Foreign Contractors Tax
• ASEA; duties exemptions
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DTAs of Vietnam
Vietnam concluded DTAs with the following states:
Austria, Belgium, Brazil, Australia, Algeria, Belgium, Bulgaria, Belarus,
Bangladesh, Brunei, China, Czech Republic, Canada, Cuba, Denmark, Egypt,
France, Finland, Germany, Hungary, India, Italy, Indonesia, Iceland, Japan,
Korea, South Korea, Rep.Laos, Luxembourg, Malaysia, Mongolia,
Netherlands, Norway, Poland, Philippines, Pakistan, Russia, Romania,
Sweden, Singapore, Switzerland, Spain, Seychelles, Srilanka, Thailand,
Taiwan, UK, Uzbekistan,Ukraine.
A DTA has also been concluded with Myanmar, but this has never been
implemented in the Myanmar law and is therefore in fact not in force.
There is no DTA with the USA so far.
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Foreign Contractors Tax
• The Foreign Contractors Tax is deducted by the Vietnamese customer
in case of supplying services or services associated with goods from a
Foreign Contractor or Foreign Sub-Contractor being supplied in or
outside Vietnam and which are consumed in Vietnam.
• The term Foreign Contractor means any foreign business organisation
with or without a permanent establishment in Vietnam, and all foreign
business individuals doing business in Vietnam.
• The Foreign Contractors Tax consists of two elements, namely the
collection of
a value-added tax
element
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and a corporate tax element
for corporations or a personal
income tax element for individual.
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The Foreign Contractors Act also has effects on double taxation issues.
Those shall be displayed using the example of DTA Germany-Vietnam:
The Foreign Contractors Tax is raised as a source tax, i.e. the tax
obligation of the Foreign Contractor is to be deducted by the Vietnamese
party from any payment made to a foreign contractor.
In accordance with the protocol to the DTA Vietnam, the Foreign
Contractor Tax is deemed a profit tax.
Corporate income Tax in Vietnam can now, under certain circumstances,
be offset against German tax.
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ASEAN
Vietnam is a member of ASEAN since 1995 and took over the position
of ASEAN Chairman for 2010.
ASEAN is aiming to create an ASEAN Economic Community (AEC) by
2015.
The foundation of the AEC is the ASEAN Free Trade Area (AFTA), a
common external preferential tariff scheme to promote the free flow of
goods within ASEAN.
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The primary goals of AFTA seek to:
Attract more direct
foreign investments
to ASEAN
Increase ASEAN's
competitive edge as a
production base in the
world market through the
elimination, within
ASEAN, of tariffs and
non-tariff barriers
ASEAN has also concluded free trade agreements with other countries,
such as the PR China, Korea, Japan, Australia, New Zealand and most
recently India. ASEAN is currently negotiating a free trade agreement
with the European Union. An FTA with the USA is not planned yet.
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Country
Population
(million)
European Union
USA
GER/FR/A
China
Japan
Germany
France
United Kingdom
Brazil
Russia
India
Netherlands
Switzerland
Taiwan
Austria
Thailand
Hong Kong
Malaysia
Singapore
Vietnam
Luxembourg
Burma (Myanmar)
493.0
307.0
154.4
1,338.0
127.0
82.0
64.0
61.0
198.0
140.0
1,156.0
16.7
7.6
23.0
8.4
66.0
7.0
25.7
4.6
88.5
0.5
48.1
GDP (billion US $)
2009*
16,200
14,256
6,410
4,909
5,068
3,353
2,676
2,184
1,574
1,229
1,236
795
495
379
381
264
211
191
177
92
52
28
2009**
15,900
14,430
6,318
4,814
5,108
3,273
2,666
2,224
1,499
1,232
1,095
799
490
374
379
270
211
210
165
93
47
27
2010*
GDP at PPP (billion US $)
2009*
14,837
14,256
4,946
8,765
4,159
2,806
2,108
2,139
2,013
2,110
3,526
658
315
736
322
540
302
382
240
257
38
72
2009**
14,680
13,820
5,213
6,473
4,262
2,816
2,074
2,154
1,794
1,985
2,816
636
301
673
323
509
281
346
218
210
38
53
2010*
*Data based upon estimation of the International Monetary Fund **Data based upon the CIA world Factbook***Data
partially based upon our own calculation and Economist Outlook 2009 **** Mc Donald's does not sell beef in India and
there is no McDonalds in Vietnam or Burma.
GDP per capita (US $) GDP per capita at PPP (US $)
2009*
31,098
46,381
43,203
3,678
39,731
40,874
42,747
35,334
8,220
8,694
1,031
48,223
67,560
16,392
45,989
3,940
29,826
6,897
37,294
1,060
104,512
459
2010*
2009*
29,252
46,381
35,576
6,567
32,608
34,212
33,678
34,618
10,513
14,920
2,941
39,938
43,008
31,834
38,838
8,060
42,748
13,769
50,523
2,942
78,395
1,197
2009**
29,130
46,300
35,466
4,900
33,400
34,200
32,800
35,500
9,400
14,000
2,500
38,600
40,000
29,500
39,400
7,900
40,500
14,200
48,500
2,500
79,600
459
2010*
Labour Labour Big Mac
costs/
costs/
Index
day*** month***
2010
in US $ in US $ in US $
180
4,320
3-9
120
200
4,800
170
4,080
164
3,600
180
4,320
8 - 15
360
15 - 30
720
1-7
84
n.a.****
165
3,960
250
6,000
35 - 80
1,920
160
3,840
4-8
250
70 - 100
2,400
8 - 14
336
140
3,360
1-5
60
n.a.****
250
6,000
1
40
n.a.****
HDI Rank
2008
15
94
8
23
11
21
70
73
132
6
10
7
81
22
63
28
114
9
135
Data sources: GDP - International Monetary Fund, www.imf.org, world economic outlook database of September 2009, data
for European Union based on the addition of the 27 EU-members' data. Big Mac Index June 2010: the Economist. HDI:
Human Development Report
GDP
HDI:
Gross Domestic Product (GDP). The market value of goods and services produced by labor and property in one country, regardless of nationality; GDP replaced GNP as the primary measure of production in 1991.
Human development index, a composite index measuring average achievement in three basic dimensions of human development; a long and heatlhy life, knowledge and a decent standard of living. There is no HDI for Taiwan.
PPP:
Big Mac Index:
The purchasing power parity (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power.This purchasing power exchange rate equalizes the purchasing power of different
The Economist's Big Mac index is based on the theory of purchasing-power parity, under which exchange rates should adjust to equalise the cost of a basket of goods and services, wherever it is bought around the world. Our basket
is the Big Mac. If the cheapest burger in our chart would be in China, where it would cost$1.30, compared with an average American price of $3.15. This would imply that the yuan is 59% undervalued.
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2009
13
92
10
22
8
21
75
71
134
6
9
14
87
24
66
23
116
11
138
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Lorenz & Partners
Legal, Tax and Business Consultants
Assistant to Mr. Lorenz
If you are (1) interested in international law and (2) your English skills are of
high standard we would like you to enquire for an assistant position with
Mr. Lorenz
You will receive a salary and your duties will involve:
- Email correspondence
- Organisation and check of homework for students
- Organisation of contact between L&P and Students
- Organisation of pick ups for Mr. Lorenz (Airport, Hotel, etc.)
- Office organisation (copying etc.)
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Lorenz & Partners
Legal, Tax and Business Consultants
Thank you for your attention!
Any questions?
Lorenz & Partners
22nd Floor, Sathorn City Tower
175 South Sathorn Rd., Sathorn
Bangkok 10120, Thailand
Tel.: +66 (0) 2 287 1882
Fax: +66 (0) 2 287 1871
e-mail: info@lorenz.co.th
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