The Covid-19 pandemic has changed all aspects of our lives, and education is one of the major industries that was significantly impacted. Many students around the world had to use distance learning to attend classes during the pandemic lockdowns.
In response to significant demand, educational institutions have focused on developing online learning platforms—not only for their students to continue studying away from campus during lockdown, but also to change strategy to offer online courses to students worldwide.
In recent years, we have seen many educational institutions providing online courses to Vietnamese students, raising the issue of whether virtual learning is subject to tax in Vietnam, and how to make a tax declaration and tax payment. This article will discuss the relevant tax regulations and tax filing requirements for overseas educational institutions in Vietnam.
General Legal Framework
During the Covid-19 pandemic, witnessing the breakdown of many traditional economic activities, the Vietnamese government became increasingly aware of the importance of responding to the Fourth Industrial Revolution, or Industry 4.0, and providing the legal framework to adapt to the global digital revolution.
In response to this digital transformation, the Vietnamese Ministry of Finance has updated the Law on Tax Administration, focusing in particular on administration with respect to e-commerce businesses, digitally based businesses, and other services of overseas suppliers without a permanent establishment in Vietnam. Government Decree No. 126/2020/ND-CP and Circular No. 80/2021/TT-BTC, which provide guidelines on the Law on Tax Administration, took effect from Jan. 1, 2022.
Circular No. 80/2021/TT-BTC provides a definition of digitally based business as one that provides service through the internet or an electronic network, where the nature of such provision is basically automated with little to no human intervention and cannot be done without using information technology. In this regard, the educational courses provided via an online platform will also be regarded as digitally based business, and will need to comply with Vietnamese tax regulations.
Tax Implications
Under the current regulations, a foreign business organization with or without a permanent establishment in Vietnam will be regarded as a foreign contractor and subject to foreign contractor tax, normally known as withholding tax, which consists of corporate income tax and value-added tax, if generating income in or from Vietnam. The applicable tax rates and tax declaration method will differ depending on the nature of the income.
The income generated from online courses for students within Vietnamese territory will be subject to FCT at 5% CIT, and exempted from VAT as stipulated by law. Apart from the tuition fee, we have observed that universities normally collect other administrative fees such as assessment or examination fees, admission fees, and registration fees. The tax rates applicable to each of these fees are also relevant.
The current regulations provide that “revenues from training activities (including the examinations and issuance of qualifications [that] are part of the training course)” are not subject to VAT, which could be understood to mean that the assessment fee or fee charged for taking examinations will also be considered as income deriving from education provision and hence exempted from VAT, while the CIT rate is 5% as stipulated by law. The regulations are silent on the administrative fees, i.e. admission fee, registration fee, but we are of the opinion that these will be subject to FCT at 5% CIT and 5% VAT, on the basis of service provision.
Tax Registration, Declaration, and Payment
Given that students pay tuition fees directly to the universities, there is no Vietnamese organization in this case to register, declare, withhold, and pay FCT on behalf of the universities, as there is for other normal overseas suppliers. Although the regulations require commercial banks, where they incur payment transactions between Vietnamese individuals and overseas suppliers, to be responsible for withholding and paying FCT on behalf of the overseas suppliers, this has yet to be carried out in practice.
Prior to the effective date of Circular No. 80/2021/TT-BTC of Jan. 1, 2022, the administrative system did not allow the registration of non-Vietnam established businesses directly with the tax authority, so it is hard to know how the tax registration and declaration would be implemented. Nevertheless, at present, overseas educational institutions are able to carry out tax registration and quarterly tax declarations on an electronic portal of the General Department of Taxation.
Once the tax returns are submitted successfully, an acknowledgment and guidance on tax payment will be sent to the registered email.
It should also be noted that the overseas institutions are able to authorize organizations or tax agents in Vietnam to conduct tax registration, declaration, and payment on their behalf.
Double Taxation
Institutions that are tax residents of their home country having an effective double taxation agreement with Vietnam may look for the potential for avoiding double taxation. The tax relief under the DTA is only applied for CIT and is subject to certain administrative procedures.
In addition, it should be noted that there are currently no specific regulations providing for DTA application and implementation for foreign contractors carrying out digitally based business or e-commerce in Vietnam. The current DTA application dossier for CIT exemption/reduction in Vietnam requires contracts signed between the foreign contractor and Vietnamese individuals or organizations to be submitted, whereas it seems that only an admission letter or a confirmation letter/matriculation process issued by the university is available in this case, and may not be accepted by the local tax authorities.
Moreover, given that the DTA application dossier is still required to be submitted directly to local tax authorities in hard copy, as well as that the tax authorities issue the results by post to taxpayers, this may present problems in implementation for overseas institutions without a permanent establishment in Vietnam. We look forward to updated guidance soon on this.
At this moment, overseas institutions may consider declaring and paying FCT in Vietnam and applying for the tax credit in their home country, to minimize double taxation according to domestic Vietnamese law.
Conclusion
Although the world has gradually been recovering from the pandemic, distance learning has stayed popular due to the advantages it brings to both academics and students. At the same time, in light of the development of the digital economy, the Vietnamese government is gradually developing its infrastructure and legal framework for overseas suppliers and investors to be able to invest in the country.
Companies needing support to ensure their tax compliance status on completing their FCT declaration for tuition fees in Vietnam may wish to consider professional advice on the main issues—for example, the tax implications, tax registration and filing requirements, and the necessary supporting documents.
Dam Bao Ngoc is a tax manager and Lac Boi Tho is a tax director with Grant Thornton (Vietnam). The authors may be contacted at: ngoc.dam@vn.gt.com; tho.lac@vn.gt.com Source: https://news.bloombergtax.com/daily-tax-report-international/online-learning-in-vietnam-tax-implications-for-foreign-suppliers
