Question:
My Company is a US-based enterprise planning to transfer ownership of Company B - which is a first-tier subsidiary of my Company in Canada - to Company E. Under current law, Company C is a subsidiary of Company B in Vietnam and a second-tier subsidiary of my Company - has the responsibility to declare taxes for this transaction. Accordingly, which company must bear taxes related to the aforementioned transaction, Company B or my Company?
Answer:
Pursuant to Clause 2, Article 2 of the Corporate Income Tax Law 2025:
"Article 2. Taxpayers
[...]
2. Enterprises with taxable income specified in Article 3 of this Law must pay corporate income tax as follows:
a) Enterprises established under Vietnamese law pay tax on taxable income arising in Vietnam and taxable income arising outside Vietnam;
b) Foreign enterprises with permanent establishments in Vietnam pay tax on taxable income arising in Vietnam and taxable income arising outside Vietnam related to activities of such permanent establishments;
c) Foreign enterprises with permanent establishments in Vietnam pay tax on taxable income arising in Vietnam where such income is not related to activities of the permanent establishments;
d) Foreign enterprises without permanent establishments in Vietnam, including e-commerce enterprises and digital platform-based enterprises, pay tax on taxable income arising in Vietnam."
According to Clause 3, Article 2 of the Corporate Income Tax Law 2025, Company C is not a permanent establishment of my Company in Vietnam (specifically, C is not a branch, representative office... of A in Vietnam) unless there is authentic evidence showing that C is a service provider, agent or regularly performs delivery of goods or provision of services for A in Vietnam.
Additionally, according to Clause 3, Article 3 of the Corporate Income Tax Law 2025, taxable income arising in Vietnamese territory is determined as income received originating from Vietnam. Although there are no specific regulations on this matter, based on practical experience, tax authorities may determine that income from A's transfer of B to E originates from Vietnam if the transfer value of B from A to E includes the value component of C in Vietnam.
Therefore, enterprises wishing to determine the tax-bearing entity for the aforementioned transaction must rely on the above criteria for specific determination.
Consultation: Tax Law Services
