Withholding Tax Exemption on JBIC Loan Interest Under the Vietnam-Japan Double Tax Treaty
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Based on:205/2013/TT-BTC - Ministry of Finance
This explanation was generated by AI and checked by an automated AI review, not by a human expert. It is not legal, tax or accounting advice and may contain errors. Check the official document before you rely on it.
A company asked whether loan interest paid by Kyoei Steel Vietnam Co., Ltd. to Japan's JBIC bank between July 2014 and October 2018 qualifies for corporate income tax (foreign contractor withholding tax) exemption under the Vietnam-Japan Double Taxation Avoidance Agreement. The Ministry of Finance response states that this specific case was already addressed by the former Ninh Binh Provincial Tax Department in Official Letter No. 4448/CT-TTKT3 dated December 5, 2019, and advises the company to compare that letter's guidance against its actual case file and documentation before applying the exemption. The response also flags the treaty benefit eligibility rule under Clause 1, Article 6 of Circular 205/2013/TT-BTC: tax authorities will refuse to apply treaty relief in certain situations, including when a taxpayer requests treaty benefits for tax that arose more than three years before the request date. Businesses with foreign loans or other cross-border income should keep this three-year window in mind when filing for treaty-based tax relief.
Question
Under Article 11 of the Vietnam-Japan Double Taxation Avoidance Agreement, on March 30, 2012 Kyoei Steel Vietnam Co., Ltd. (the Company) signed a loan agreement with the Japan Bank for International Cooperation - International Branch under the Japan Finance Corporation Group (JBIC). Interest payments under the loan ran from July 2014 to October 2018.
The Company asked whether the loan interest paid to JBIC during this period is exempt from corporate income tax under the foreign contractor tax regime, and requested the Ministry of Finance to cite the specific applicable legal document.
Answer
The Company's specific case was already addressed by the former Ninh Binh Provincial Tax Department in Official Letter No. 4448/CT-TTKT3 dated December 5, 2019, sent to Kyoei Steel Vietnam regarding treaty-based tax exemption on the JBIC loan interest. The Ministry of Finance advises the Company to review the guidance in that Official Letter No. 4448/CT-TTKT3 and compare it against its actual case file and supporting documents in order to comply correctly with regulations.
Treaty Benefit Eligibility Rule (Supplementary Guidance)
To give readers additional grounds for research and comparison during implementation, the tax authority also provided information on cases where treaty benefits are denied under the treaty benefit eligibility principle.
Under Clause 1, Article 6 of Circular No. 205/2013/TT-BTC dated December 24, 2013, issued by the Ministry of Finance to guide implementation of Vietnam's double taxation avoidance and tax evasion prevention agreements on taxes on income and property, application of a tax treaty must satisfy the treaty benefit eligibility principle. Specifically, unless the treaty itself provides otherwise on benefit limitations, Vietnamese tax authorities will refuse a request to apply the treaty in the following case: the applicant requests treaty application for tax that arose more than three years before the date of the request.
Illustrative example: from 2006 to 2012, Vietnamese enterprise V earned annual royalty income in Malaysia and paid Malaysian tax each year under the Vietnam-Malaysia tax treaty. On October 1, 2012, enterprise V filed a claim to credit, under the treaty, the entire amount of tax paid in Malaysia from 2006 to 2012. In this case, Vietnamese tax authorities would only consider a domestic tax credit for the amount paid against tax that arose within the three-year period from October 1, 2009 to October 1, 2012; tax arising before that window would not be creditable, as it falls outside the three-year limit.
Contact
Businesses with questions during implementation may contact the Ninh Binh Provincial Tax Department at 215 Dinh Tien Hoang Street, Hoa Lu Ward, Ninh Binh Province, for assistance. This answer was provided by the Ninh Binh Provincial Tax Department to reader Vu Thi Tuoi.