Dividend Tax Rate Between India and Vietnam Under DTAA

Quick answer: Under the India-Vietnam DTAA, dividends paid across the border are capped at a flat 10% withholding rate under Article 10(2), with no shareholding tiers, versus India's domestic rate of 20% under section 207(1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) — a 50% reduction. The treaty was signed 7 September 1994 and entered into force 2 February 1995, taking effect in India from 1 April 1996. Claiming the rate requires a Tax Residency Certificate from Vietnam's General Department of Taxation and Form 41 (formerly Form 10F). Since Dividend Distribution Tax was abolished from 1 April 2020, dividends are taxed in the recipient's hands, so the 10% treaty cap applies directly to the withholding.

Key takeaways:

• Flat 10% DTAA dividend rate vs 20% domestic rate under section 207(1) — a 50% reduction.
• Applies uniformly regardless of the Vietnamese shareholder's ownership percentage; the treaty has no tiered rates and no most-favoured-nation clause.
• Treaty signed 7 September 1994; in force 2 February 1995, effective in India from 1 April 1996.
• Requires a Tax Residency Certificate from Vietnam's General Department of Taxation plus electronically filed Form 41.
• Vietnam is a Covered Tax Agreement under the MLI, so the Principal Purpose Test applies to dividend claims from 1 April 2024 for India-source payments.

Dividend Tax Rate Between India and Vietnam

The Double Taxation Avoidance Agreement (DTAA) between India and Vietnam, signed on 7 September 1994 in Hanoi and in force from 2 February 1995, provides meaningful relief on dividend taxation for cross-border investors. Under Article 10 of the treaty, the maximum withholding tax rate on dividends paid between the two countries is capped at 10% of the gross amount, compared to India's domestic rate of 20% under section 207(1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961).

This reduced rate applies equally to Indian companies paying dividends to Vietnamese shareholders and to Vietnamese companies distributing dividends to Indian residents. Unlike several of India's other treaties, the India-Vietnam DTAA sets a single flat rate rather than tiering the rate to shareholding percentage, which simplifies compliance for both portfolio and strategic investors.

Vietnam is one of India's largest trading partners in ASEAN, and the corridor has grown steadily since the ASEAN-India Free Trade Agreement took effect in 2010. As Indian companies expand manufacturing and IT operations into Vietnam, and Vietnamese groups invest in Indian markets, understanding the dividend withholding provisions is essential for efficient structuring. Beacon Filing's tax advisory services help investors navigate treaty provisions on both sides of the corridor.

Treaty Rate vs Domestic Rate: Detailed Comparison

The contrast between the DTAA rate and the domestic withholding rate on dividends is substantial. Here is how the two regimes compare:

Domestic Rate (Without DTAA)

Under Indian domestic law, dividends paid by an Indian company to a non-resident shareholder are subject to withholding tax at 20% (plus applicable surcharge and health & education cess) under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). This rate applies to all foreign shareholders regardless of country of residence, unless a more favourable treaty rate is available and properly claimed.

DTAA Rate (With Treaty)

Article 10(2) of the India-Vietnam DTAA limits the withholding tax to 10% of the gross amount of dividends, provided the recipient is the beneficial owner of the dividend income. This is a maximum rate — nothing prevents either country from applying a lower domestic rate, though India's own domestic rate for non-residents remains higher at 20%.

Unlike some Indian DTAAs (such as the India-USA treaty, which uses tiered rates for substantial versus portfolio shareholdings), the India-Vietnam treaty applies the flat 10% rate irrespective of the percentage of ownership the Vietnamese shareholder holds in the Indian company. The treaty also contains no most-favoured-nation (MFN) clause, so the rate cannot be reduced further by reference to a more favourable rate India may agree with a third country.

Effective Tax Savings

For a Vietnamese company receiving INR 1 crore in dividends from its Indian subsidiary, the DTAA saves INR 10 lakh in withholding tax (10% instead of 20%). The Vietnamese recipient can then claim a foreign tax credit in Vietnam for the Indian tax paid, eliminating double taxation on the same income under Article 24 of the treaty.

Who Qualifies for the Reduced Rate

Claiming the reduced 10% dividend withholding rate under the India-Vietnam DTAA requires satisfying conditions under both the treaty and Indian domestic law.

Beneficial Ownership Requirement

The Vietnamese recipient must be the beneficial owner of the dividend income — someone with the unrestricted right to use and enjoy the income, not merely a nominee, agent, or conduit obligated to pass it on to another party. A holding company inserted purely to access the treaty rate, with no independent economic function, would fail this test.

Tax Residency Requirement

The recipient must be a tax resident of Vietnam under Article 4 of the DTAA. Vietnamese domestic law treats an individual as tax resident where they are present 183 days or more in a calendar year or in any 12 consecutive months, or where they have a habitual residence (including a registered permanent residence) or a leased dwelling in Vietnam under a lease of 183 days or more. Companies are resident where incorporated or where their place of effective management is situated. Where an individual is a dual resident, Article 4's tie-breaker sequence applies: permanent home, then centre of vital interests, then habitual abode, then nationality, with unresolved cases referred to the competent authorities.

Anti-Abuse Rules: MLI Principal Purpose Test

Both India and Vietnam have ratified the OECD Multilateral Instrument (MLI), and the India-Vietnam DTAA is a matched Covered Tax Agreement (CTA). This means the MLI's Principal Purpose Test (PPT) applies: a treaty benefit, including the 10% dividend cap, can be denied if obtaining that benefit was one of the principal purposes of an arrangement, unless granting it would be in accordance with the object and purpose of the treaty. Vietnam deposited its MLI ratification on 23 May 2023 (effective 1 September 2023); because the PPT's entry into effect follows each jurisdiction's chosen taxable period, it applies to India-source dividend payments from 1 April 2024 and to Vietnam-source payments from 1 January 2024. The treaty has no Limitation of Benefits article and no MFN clause, so the PPT and India's domestic General Anti-Avoidance Rules (GAAR) (effective April 2017) are the operative safeguards against treaty shopping.

No Permanent Establishment Connection

The reduced rate does not apply if the Vietnamese beneficial owner carries on business in India through a permanent establishment (PE) and the shareholding generating the dividends is effectively connected with that PE. In that case, the dividend income is taxed as business profits under Article 7 instead of under Article 10.

Dividend-Specific Treaty Provisions Under Article 10

Article 10 of the India-Vietnam DTAA sets out the complete framework for cross-border dividend taxation.

Article 10(1) and (2): Shared Taxing Rights, Rate Cap

Dividends paid by a company resident in one Contracting State to a resident of the other may be taxed in the recipient's state of residence. However, the source state may also tax the dividend, at a rate not exceeding 10% of the gross amount, provided the recipient is the beneficial owner. Both states therefore retain a taxing right, with the source state's right capped at 10%.

Article 10(3): Definition of Dividends

The treaty defines "dividends" broadly to include income from shares and other rights participating in profits (not being debt-claims), together with income from other corporate rights that is subjected to the same tax treatment as income from shares under the domestic law of the state in which the distributing company is resident.

Article 10(4): Permanent Establishment Exception

Where the beneficial owner of the dividends carries on business in the payer's state through a PE, and the shareholding generating the dividends is effectively connected with that PE, Article 10 does not apply. The dividend income is instead governed by Article 7 (Business Profits) and taxed at the applicable corporate rate rather than the 10% treaty cap.

Article 10(5): Extra-Territorial Taxation Rule

Neither state may impose tax on dividends paid by a company resident in the other state merely because that company derives profits or income from the first state, unless the dividends are paid to a resident of the first state or the shareholding is effectively connected with a PE situated there. This prevents either country from reaching into dividends with no genuine connection to it beyond the paying company's foreign earnings.

Documentation Required to Claim the Reduced Rate

Indian payers must follow a defined compliance process to apply the 10% treaty rate instead of the 20% domestic rate on dividends paid to Vietnamese shareholders.

Tax Residency Certificate (TRC)

The Vietnamese shareholder must obtain a Tax Residency Certificate from Vietnam's General Department of Taxation confirming tax residency for the relevant fiscal year. This is the primary document required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Form 41 (formerly Form 10F)

If the TRC does not contain all the prescribed particulars — name, status, nationality or country of incorporation, tax identification number, period of residential status, and address — the Vietnamese shareholder must also file Form 41 electronically on the Indian Income Tax portal. Electronic filing has been compulsory since October 2023, and a PAN is not mandatory for this filing — a non-PAN registration route is available.

Self-Declaration

The Vietnamese shareholder should provide a self-declaration confirming beneficial ownership of the dividend income and the absence of a permanent establishment in India to which the shareholding is attributable.

Withholding Procedure for Indian Payers

Indian companies distributing dividends to Vietnamese shareholders must follow specific procedures under Indian tax law.

Section 393(2): TDS Obligation

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), any person making a payment to a non-resident that is chargeable to tax in India must deduct tax at source at the time of payment or credit, whichever is earlier — at 10% if treaty documentation is in order, or 20% under domestic law if it is not.

Forms 145 and 146 (formerly Forms 15CA and 15CB)

Before remitting the dividend to Vietnam, the Indian company must file Form 145 electronically on the Income Tax portal. Where the remittance exceeds INR 5 lakh in a financial year, a Chartered Accountant must also issue Form 146, certifying taxability, the applicable rate, and that TDS has been correctly deducted.

Lower Withholding Certificate (Section 395(1))

If the Vietnamese shareholder expects the actual tax liability to be lower than the amount that would otherwise be withheld, they may apply to the Assessing Officer for a lower or nil withholding certificate under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961).

Common Issues and Compliance Notes

No Shareholding-Based Tiers

Investors familiar with treaties that apply a lower rate to substantial shareholdings sometimes assume a similar tier exists here. It does not: the India-Vietnam DTAA applies a single 10% rate to every category of shareholder, from minority portfolio investors to wholly-owning parents.

No MFN Clause

The India-Vietnam DTAA does not contain a most-favoured-nation clause. A lower dividend rate that India may agree in a future treaty with another country does not automatically flow through to the India-Vietnam treaty; any rate change would require a fresh protocol.

DDT Is History, Not the Present Regime

Before 1 April 2020, Indian companies paid Dividend Distribution Tax (DDT) under the erstwhile section 115-O, and the treaty rate cap did not attach cleanly to that corporate-level levy. Since DDT's abolition, dividends are taxed directly in the recipient's hands, and the 10% Article 10(2) cap applies straightforwardly to the withholding at source.

Practical Examples and Calculations

Example 1: Vietnamese Parent Receiving Dividends from Indian Subsidiary

Hanoi Investments JSC, a Vietnamese company, holds 100% of Delta Pvt Ltd, an Indian subsidiary. Delta declares dividends of INR 2 crore to Hanoi Investments JSC.

• Without DTAA: TDS at 20% = INR 40 lakh. Hanoi Investments JSC receives INR 1.60 crore.
• With DTAA: TDS at 10% = INR 20 lakh. Hanoi Investments JSC receives INR 1.80 crore.
• Tax saving: INR 20 lakh on this distribution.

Hanoi Investments JSC then claims a foreign tax credit in Vietnam for the INR 20 lakh Indian tax paid, so the dividend is not taxed twice on the same income.

Example 2: Indian Individual Investing in a Vietnamese Company

Ms. Iyer, an Indian resident, holds shares in a Vietnamese joint-stock company and receives VND 200 million in dividends.

• Vietnamese withholding: Article 10(2) caps Vietnam's tax at 10% of the gross dividend, so Vietnam may withhold no more than VND 20 million; Vietnam's own domestic rate applies if it is lower.
• Indian taxation: The full dividend amount is included in Ms. Iyer's total income in India and taxed at her applicable slab rate.
• Relief: Ms. Iyer claims a foreign tax credit under section 159 of the Income-tax Act, 2025 (section 90 of the Income-tax Act, 1961) for the Vietnamese tax withheld, reducing her Indian tax liability accordingly.

Example 3: PE Attribution Scenario

A Vietnamese company has a branch office (a PE) in India and separately holds a small portfolio stake in an unrelated listed Indian company. Dividends on the portfolio stake, held independently of the PE, qualify for the 10% treaty rate. If the same shares were instead held through and effectively connected with the branch, the dividends would be taxed as business profits under Article 7 at the applicable corporate rate rather than at 10%.

For structuring guidance on India-Vietnam investment flows, see Beacon Filing's India entry strategy services and the complete India-Vietnam DTAA guide and withholding tax rates page.

Frequently Asked Questions

What is the dividend tax rate under the India-Vietnam DTAA?

The maximum withholding tax rate on dividends under Article 10(2) of the India-Vietnam DTAA is 10% of the gross amount, provided the recipient is the beneficial owner. This compares to India's domestic rate of 20% under section 207(1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961).

Do I need a Tax Residency Certificate to claim the reduced rate?

Yes. A Tax Residency Certificate issued by Vietnam's General Department of Taxation is required to claim DTAA benefits. Form 41 must also be filed electronically with the Indian Income Tax Department if the TRC does not contain all prescribed particulars.

Does the 10% rate depend on how much of the company the Vietnamese shareholder owns?

No. The India-Vietnam DTAA applies a single flat 10% rate to every beneficial-owner shareholder regardless of shareholding percentage. There are no tiered rates and no exempt minimum-holding category.

What happens if the Vietnamese company has a PE in India?

If the shares generating the dividends are effectively connected with a permanent establishment the Vietnamese company has in India, the 10% rate under Article 10 does not apply. Instead, the dividends are taxed as business profits under Article 7 at the applicable corporate rate.

Can the Indian tax department deny DTAA benefits on dividends?

Yes. Since the India-Vietnam DTAA is a Covered Tax Agreement under the MLI, treaty benefits can be denied under the Principal Purpose Test where obtaining the benefit was a principal purpose of the arrangement. Benefits can also be challenged under the beneficial-ownership requirement in Article 10(2) or India's domestic GAAR.

How does Vietnam relieve double taxation on dividends taxed in India?

Under Article 24, Vietnam allows a credit against Vietnamese tax for the Indian tax paid on the same dividend income, up to the amount of Vietnamese tax otherwise payable on that income, so the recipient is not taxed twice on the same amount.