Israel – Vietnam Tax Treaty

Business Activity in Vietnam

Vietnam offers a promising growth environment, as it is one of the fastest-growing middle and affluent classes in the region, driven by strong demand for goods and services. The country has actively pursued bilateral trade agreements worldwide to hike its global trade network. With a large population of nearly 100 million and half under the age of 30, in addition to a strong GDP growth expected to continue in the medium term, Vietnam presents significant market potential.

As Vietnam rapidly develops, key opportunities for foreign companies will be in telecommunications, IT, power generation, transportation infrastructure, environmental technologies, aviation, defense, and education. The healthcare sector is also set to grow, driven by government programs and rising demand from a wealthier population.

Bilateral Agreements Between Vietnam, and Israel

1. Double Tax Agreement

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Vietnam regarding the avoidance of double taxation was signed on August 3, 2009, and entered into force on December 31, 2009.

To read the agreement in English click here.

Applicability of the MLI

Both Vietnam and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.

Israel signed the MLI on the 7th of July 2017, with its provisions entering into force on the 1st of January 2019. Vietnam on the other hand, affixed its signature to the MLI on February 9, 2022, and its provisions became effective as of May 23, 2023.

Residency for Tax Purposes in Vietnam

Residence of an Individual

An individual is considered a tax resident if it meets at least one of the following criteria:

• They stay in Vietnam for at least 183 days in a calendar year or within 12 months starting from their arrival date.
• They have a permanent residence in the country, by having a registered permanent or temporary residence in Vietnam; renting a house in Vietnam for at least 183 days in a tax year, and they cannot prove to be a tax resident in another country.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

Businesses set up under Vietnamese law are considered tax residents in Vietnam.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Vietnam

Vietnam Tax Authority is called the General Department of Taxation.

Income Taxation: 5 % to 35%

Taxation of Companies and Branches: 20%

VAT: 10%

Capital Gains Tax: 20%

Withholding Tax

Inheritance Tax and Estate Tax in Vietnam

Individuals in Vietnam must pay personal income tax on inherited real estate, including:

• Land use rights
• Land with attached assets
• Homeownership (including future houses)
• Infrastructure or buildings (including future constructions)
• Land or water lease rights
• Other real estate income

Exceptions (tax-exempt) – Inheritance between:

• Spouses
• Parents and children (biological or adoptive)
• Parents-in-law and children-in-law
• Grandparents and grandchildren
• Siblings

A tax of 10% is applied to inherited real estate in Vietnam.

Relocation to Vietnam

Vietnam’s economy is one of the fastest-growing in Southeast Asia, presenting a wealth of opportunities for businesses across various sectors. The country boasts a large, youthful population, creating a dynamic labor market that is eager to learn and adapt, making it attractive for employers seeking skilled workers. Strategically located in the heart of Southeast Asia, Vietnam acts as a gateway to regional markets, enhancing trade and logistics prospects.

The government of Vietnam encourages foreign investment with incentives like tax breaks and support to priority sectors in technology, agriculture, and renewable energy. These are supplemented by other incentives in the form of an increasingly robust demand for goods and services across a broad spectrum, driven by a rapidly developing middle class that drives a very lucrative market. The infrastructure, especially for transport and telecommunications, continuously improves, further facilitating business operations and connectivity.

Vietnam’s expanding economy has revitalized the Jewish presence in Hanoi and Ho Chi Minh City. The Jewish community, known as “Do Thai,” consists of over 100 members in Hanoi and around 200 in Ho Chi Minh City, formerly known as Saigon.

Real Estate Taxation in Vietnam

In Vietnam, the property taxes are levied by municipal authorities. Land rental and nonagricultural land use are subject to tax, calculated as percentages of the land price, depending on the province in which the land is located. Ownership of real estate is subject to a stamp tax, which may be as much as 0.5 percent.

The transfer of property of individuals or enterprises is subject to Corporate Income Tax or Personal Income Tax respectively. Regarding the tax filing procedures, pursuant to the local law, the income from real estate transfer must be separately determined for tax declaration and payment.

Transfer of Funds from Israel to Vietnam

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Vietnam

• Limited Liability Company is ideal for small to medium-sized businesses and can be set up as a single-member LLC (with one owner) or a multi-member LLC (with 2-50 members).
• Joint-stock company suits larger enterprises seeking to raise capital through shareholders, requiring at least three shareholders but with no upper limit. This type of company can also issue shares publicly and be listed on the stock exchange.
• A Partnership is typically used for professional services, such as law or consulting, and involves at least two partners, with one having unlimited liability.
• Foreign Businesses can establish a Representative Office to explore the market and manage relationships, though they cannot engage in direct profit-making activities.
• The Branch Office allows foreign companies to conduct business and earn profits in Vietnam but requires approval from local authorities.

Incentive Laws in Vietnam

Vietnamese businesses earning income from overseas investments can receive a tax credit for the Corporate Income Tax or similar taxes paid in the foreign country, including taxes on dividends. However, the credit cannot exceed the amount of Corporate Income Tax owed in Vietnam.

Tax incentives in Vietnam are offered based on priority sectors, locations, and project size. Encouraged sectors include education, healthcare, technology, environment, infrastructure, agriculture, software production, and renewable energy. Manufacturing projects supporting high-tech industries or sectors like textiles, electronics, and automobiles also receive incentives.

Preferred locations include economic zones, high-tech zones, and areas with challenging socio-economic conditions. Large projects with investments over VND 6 trillion or VND 12 trillion, meeting capital or employment targets, are eligible for incentives.

Tax rates:

• 10% or 17% preferential CIT for 10-15 years (with possible extensions).
• 15% CIT for the entire project life in specific cases.
• Social sectors (e.g., education, health) enjoy a 10% rate for the project’s life.

Special incentives for large or Research and Development projects can offer a 5% tax rate for 37 years, 6 years of tax exemption, and a 50% tax reduction for 13 years, along with exemptions on land and water rental fees.

Green incentives offer financial benefits to promote projects that reduce environmental harm. These include cash grants and tax breaks to encourage eco-friendly investments.

In addition to tax incentives, eligible projects can receive other benefits, such as:

Priority land allocation and reduced land rental fees; Access to favorable financial programs; Exemptions or reductions in environmental protection taxes and fees; Subsidies for environmentally friendly products and services.

Vietnam Double Tax Treaties

*The Double Tax Treaties with these countries have not yet entered in force.