Status
The United States and Vietnam signed an income tax agreement and protocol in July 2015 (Treasury lists it as July 7, 2015). It has not entered into force. Until it does, there is no income tax treaty with Vietnam, and payments to Vietnamese residents are withheld under the Code with no treaty reduction.
What to withhold
- U.S.-source fixed or determinable income (dividends, royalties, rents, interest that is not otherwise exempt, pay for services performed in the United States) is withheld on at 30% of the gross payment.
- The Code's own exemptions still apply: portfolio interest, bank deposit interest, and income effectively connected with a U.S. trade or business documented on Form W-8ECI.
- Pay for services performed entirely outside the United States is foreign-source: no withholding and no Form 1042-S.
- A W-8BEN or W-8BEN-E that claims treaty benefits for Vietnam cannot be relied on for the claim, but still documents foreign status. A nonresident working in the U.S. has no treaty exemption to claim on Form 8233.
- Payments are reported on Form 1042-S with the payee's country code, whether or not tax was withheld.
What the signed agreement would change
None of this applies yet. Once both countries notify completion of their procedures, the withholding provisions would apply to amounts paid or credited from January 1 of the year after entry into force (Art. 29), a longer wait than most U.S. treaties.
| Payment | Under the signed agreement | Article |
|---|---|---|
| Dividends to a company holding directly 25% of the voting stock | 5% | 10(2)(a) |
| Other dividends | 15%; 0% to pension funds | 10(2)(b); Protocol para. 4 |
| Interest | 10%; 0% when paid by a government or central bank; contingent interest up to 15% | 11 |
| Rent for industrial, commercial or scientific equipment | 5% | 12(2)(a) |
| Copyright, film, patent, trademark and similar royalties | 10% | 12(2)(b) |
| Services by a Vietnamese company | A permanent establishment after more than 6 months of services in any 12 months | 5(3)(b) |
| Individual contractor | Taxable with a fixed base or after 183 days in any 12 months | 14 |
| Performers and athletes | Taxable above $5,000 of gross receipts | 17 |
| Social Security | Taxable only by the paying country | 18(2) |
| Students and business apprentices | Foreign maintenance payments exempt, plus $10,000 a year of service income | 21 |
| Other income | The source country may also tax it | 22(3) |
The agreement has a limitation-on-benefits article without derivative benefits or headquarters tests, and a triangular rule capping dividends, interest and royalties at 15% for income routed through a low-taxed third-country branch.
Documents
Questions payers ask
Is there a U.S.-Vietnam tax treaty in effect?
No. An agreement was signed in July 2015 but has not entered into force. Payments to Vietnamese residents are withheld under the Code, at 30% on U.S.-source dividends, interest that is not otherwise exempt, royalties and other fixed income.
Do we withhold on a Vietnamese contractor who works only in Vietnam?
No. Pay for services performed outside the United States is foreign-source income, with or without a treaty. Keep the contractor's W-8BEN or W-8BEN-E on file.
What would the treaty do for software and equipment payments?
Copyright and similar royalties would be capped at 10% and equipment rent at 5%, from January 1 of the year after the agreement enters into force.