Bond Taxation Changes in Vietnam

May 17, 2010 Taxation in Vietnam

Government Guest HouseThe legislation governing taxation of interest earned on bonds and certificates of deposit (CD) held by foreign investors carrying out business in Vietnam have changed, resulting in a greatly increased tax burden.

The Government of Vietnam recently released Circular 64, a new piece of legislation taking effect on June 7th and altering the tax treatment of the interest earned on bonds and CD held by overseas investors. Under the new regulations, interest earned will be subject to a 10 percent level of taxation. The new rate of interest will be calculated and paid after the sale or transfer of the bond. Previously, the tax liability was calculated as 0.1 percent of the cumulative total of interest earned and the instrument’s face value.

According to Do Thu Ha, a tax partner of KPMG Vietnam, the new changes were instated because of the ambiguity of previous legislation. Despite the added taxation certainty provided to foreign investors, finance industry experts have spoken out against the changes. Hoang Gia Hiep, deputy general director of Vinashin Finance Company, has decried the legislation as a “shock for the local bond market”. He explained that the finance industry has held large scale petitioning to the Government to take action and lure foreign indirect investment capital back into Vietnam, and the the current changes are counter-productive. Tom McClelland, Tax Partner at Deloitte Vietnam, also objected to the new tax rate, saying that the withholding rate on interest should be completely eliminated or at least thoroughly reduced, for the nation to draw the much needed capital required for economic growth. He added that funding costs are a major aspect of any infrastructure project, and the elimination of withholding rates on interest could be a great influence in whether projects are carried out or receive foreign investment.

Photo by E8Club