FTS (Technical Fees) Tax Rate Between India and Vietnam Under DTAA

Quick answer: The India-Vietnam DTAA does have a fees-for-technical-services provision, but it is not part of the royalty article — it is a wholly separate Article 13, headed "Technical Fees", capping withholding at 10% under Article 13(2). India's domestic rate is 20% under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). There is no "make available" clause, so the definition is broader than in treaties like India-USA: any payment (other than to an employee) for technical, managerial, or consultancy services qualifies, whether or not it transfers technical knowledge. The treaty was signed 7 September 1994, in force from 2 February 1995, effective in India from 1 April 1996.

Key takeaways:

• Technical fees are governed by a standalone Article 13, not folded into the royalty article (Article 12) as in many other Indian treaties.
• Withholding capped at 10% under Article 13(2), versus a 20% domestic rate.
• No "make available" requirement — the definition covers any technical, managerial, or consultancy service payment.
• Article 5 contains no services-PE clause, so providing services in India does not by itself create a PE — but Article 13 still taxes the fee at 10% gross regardless of PE.
• Vietnam is a Covered Tax Agreement under the MLI; the Principal Purpose Test applies to India-source technical-fee payments from 1 April 2024.

Fees for Technical Services (FTS) Tax Rate Between India and Vietnam

The India-Vietnam Double Taxation Avoidance Agreement (DTAA), signed 7 September 1994 in Hanoi and in force from 2 February 1995, addresses fees for technical services through a structurally distinctive provision. Where many of India's treaties combine royalties and technical service fees into one article — or, like the India-USA treaty, cap FTS only where the services "make available" technical knowledge or a process the recipient can apply independently — the India-Vietnam DTAA instead devotes an entirely separate article, Article 13, titled simply "Technical Fees," to this category of income, with its own definition and its own paragraph structure running parallel to, but independent of, Article 12 (Royalties).

Under Article 13(2), the maximum withholding tax on technical fees is 10% of the gross amount, compared to India's domestic rate of 20% under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). As Indian consulting, engineering, and IT-services firms expand into Vietnam, and Vietnamese manufacturers increasingly draw on Indian technical and managerial expertise, correctly applying Article 13 — rather than mistakenly reasoning from the royalty article or from "make available" precedent developed under other treaties — is essential. Beacon Filing's tax advisory services support cross-border services engagements between India and Vietnam.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), fees for technical services paid to a non-resident are taxed at 20% (plus applicable surcharge and health & education cess), a rate that doubled from 10% under the Finance Act 2023.

DTAA Rate (With Treaty)

Article 13(2) of the India-Vietnam DTAA caps the source state's tax on technical fees at 10% of the gross amount, provided the recipient is the beneficial owner.

No "Make Available" Clause — A Broader Scope

Unlike the India-USA DTAA, where FTS is taxable only if the services make available technical knowledge, experience, skill, know-how, or processes that the recipient can apply independently, the India-Vietnam treaty imposes no such filter. Article 13(3) defines "technical fees" as "payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any services of a technical, managerial or consultancy nature" — full stop. A routine consultancy assignment, a one-off technical inspection, or ongoing managerial support all fall within scope, whether or not any transferable knowledge results. Practitioners used to "make available" treaties should not import that concept here.

Effective Tax Savings

For a Vietnamese engineering consultancy invoicing an Indian client INR 1 crore for technical advisory services, the DTAA reduces withholding from INR 20 lakh (20% domestic) to INR 10 lakh (10% treaty) — a straight INR 10 lakh saving, with a corresponding Vietnam-side credit available for the Indian tax withheld.

Who Qualifies for the Reduced Rate

Beneficial Ownership

The Vietnamese service provider must be the beneficial owner of the fee — entitled to it in its own right, not passing it on to a third party as a mere conduit.

Tax Residency

The recipient must be tax resident in Vietnam under Article 4, tested by incorporation/place of effective management for companies, or presence, habitual residence, or leased-dwelling criteria for individuals.

Anti-Abuse Rules: MLI Principal Purpose Test

The India-Vietnam DTAA is a matched Covered Tax Agreement. Vietnam's MLI ratification took effect 1 September 2023, and under the taxable-period rules that follow, the Principal Purpose Test applies to India-source technical-fee payments from 1 April 2024. Because Article 13's broad definition already captures most cross-border services payments without a "make available" filter, the PPT — together with India's domestic GAAR from April 2017 — is the main check on artificial fee-routing structures designed purely to access the 10% rate.

No PE or Independent-Personal-Services Connection

Article 13(4) provides that the 10% cap does not apply where the beneficial owner of the technical fees carries on business in the source state through a permanent establishment, or performs independent personal services there, and the fees are effectively connected with that PE or with those independent personal services — in which case the fees are taxed instead under Article 7 (Business Profits) or Article 15 (Independent Personal Services), as the case may be. This dual reference to both Article 7 and Article 15 is a distinctive feature of Article 13(4): it recognises that a technical-fee recipient might be operating either through a business PE or as a self-employed professional with a fixed base, and routes the fee to whichever article fits.

FTS-Specific Treaty Provisions Under Article 13 "Technical Fees"

Article 13(1): Residence-State Taxation

Technical fees arising in one Contracting State and paid to a resident of the other may be taxed in that other (recipient's) state.

Article 13(2): Source-State Taxation, 10% Cap

The source state may also tax the fee, at a rate not exceeding 10% of the gross amount, where the recipient is the beneficial owner.

Article 13(3): Definition — No Make-Available Test

"Technical fees" means payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any services of a technical, managerial, or consultancy nature. There is no requirement that the services transfer technical knowledge, skill, or a process the recipient can use independently — the definition turns solely on the character of the service performed.

Article 13(4): PE / Independent-Personal-Services Exception

As set out above, this paragraph shifts taxation to Article 7 or Article 15 where the fee is effectively connected with a PE or with independent personal services performed in the source state.

Article 13(5): Source Rule

Technical fees are deemed to arise in a Contracting State where the payer is resident there, or, where the payer has a PE bearing the cost of the fee, in the state where that PE is situated.

Article 13(6): Arm's-Length Adjustment

Where a special relationship between payer and recipient causes the fee to exceed an arm's-length amount, the 10% cap applies only to the arm's-length portion; the excess remains taxable under domestic law and is frequently scrutinised under India's transfer pricing rules.

Interaction With Article 5: No Services PE, But Fees Still Taxed at 10%

Article 5 (Permanent Establishment) of the India-Vietnam DTAA contains no services-PE clause — the mere furnishing of services in the other state, however long it continues, does not by itself create a PE, unlike treaties (or the UN Model option) that deem a PE where services continue beyond a threshold number of days. This does not mean technical or consultancy fees escape Indian tax when there is no PE: Article 13 taxes such fees at a flat 10% of the gross amount, without any requirement that the service provider have a PE or fixed base in India. In other words, the absence of a services-PE clause affects only whether net-basis business-profits taxation under Article 7 can apply (it generally cannot without a PE) — it does not exempt the payment from gross-basis withholding under Article 13.

Documentation Required to Claim the Reduced Rate

Tax Residency Certificate (TRC)

The Vietnamese service provider must obtain a Tax Residency Certificate from Vietnam's General Department of Taxation, 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)

Where the TRC lacks prescribed particulars, Form 41 must be filed electronically on the Indian Income Tax portal; a PAN is not mandatory for this filing.

Self-Declaration and Scope-of-Services Documentation

A self-declaration of beneficial ownership and absence of an Indian PE or fixed base, together with the service agreement describing the technical, managerial, or consultancy services performed, should be retained to support the Article 13 characterisation and rate applied.

Withholding Procedure for Indian Payers

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), the Indian payer must deduct tax at source on technical fees at the time of payment or credit, whichever is earlier.

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

Before remitting the fee to Vietnam, the Indian payer must file Form 145 electronically; for remittances above INR 5 lakh, a Chartered Accountant's certificate in Form 146 is also required.

Lower Withholding Certificate (Section 395(1))

Where the actual tax liability is expected to be lower than the standard deduction, the Vietnamese service provider can apply under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a lower or nil withholding certificate.

Common Mistakes and Compliance Notes

Mistake 1: Importing the "Make Available" Test

Practitioners accustomed to the India-USA or India-UK treaties sometimes assume FTS is taxable in India only where the service transfers usable technical knowledge. Article 13 of the India-Vietnam treaty has no such requirement — a routine consultancy or managerial-support fee is taxable at 10% regardless of any knowledge transfer.

Mistake 2: Assuming No PE Means No Tax

Because Article 5 has no services-PE clause, some payers wrongly conclude that a Vietnamese consultant working in India for a short assignment owes no Indian tax absent a PE. In fact, Article 13 taxes the gross fee at 10% irrespective of PE status; the PE question only affects whether net-basis Article 7 taxation could apply instead.

Mistake 3: Citing Article 12 for a Pure Services Payment

Because royalties and technical fees sit in separate articles under this treaty, a payment for consultancy or management services should be tested against Article 13(3), not Article 12(3). Citing the wrong article can lead to applying the wrong PE-exception paragraph or source rule, even where the headline 10% rate happens to be the same.

Mistake 4: Ignoring the Independent-Personal-Services Route

Article 13(4) can shift taxation to Article 15 (Independent Personal Services), not only Article 7, where the recipient is a self-employed professional with a fixed base in India. Payers assessing only the PE question under Article 7 may miss this alternative route.

Practical Examples and Calculations

Example 1: Management Consultancy Fee

A Vietnamese management consultancy advises an Indian retail chain on supply-chain restructuring for a fee of INR 60 lakh, with no ongoing presence in India.

• Without DTAA: TDS at 20% = INR 12 lakh.
• With DTAA: TDS at 10% under Article 13(2) = INR 6 lakh.
• Saving: INR 6 lakh, regardless of whether any transferable methodology was left behind — no "make available" test applies.

Example 2: Technical Inspection Services

An Indian machinery exporter pays a Vietnamese technical inspector USD 15,000 for a one-time factory-acceptance inspection.

• Characterisation: A technical service under Article 13(3), taxable at 10% under Article 13(2) even though it is a single short engagement with no PE and no ongoing presence.
• Indian TDS: USD 1,500 (10%), assuming valid TRC and Form 41.

Example 3: Consultant With a Fixed Base in India

A self-employed Vietnamese engineering consultant maintains a fixed base office in Mumbai for an extended assignment and is paid INR 40 lakh in fees effectively connected with that fixed base.

• Result: Article 13(4) shifts taxation away from the 10% cap; the fee is instead assessed under Article 15 (Independent Personal Services) by reference to income attributable to the fixed base, at applicable rates, rather than at a flat 10% of gross receipts.

For the related royalty rules and the full rate comparison, see Beacon Filing's royalty tax rate page, the withholding tax rates page, and the complete India-Vietnam DTAA guide.

Frequently Asked Questions

Does the India-Vietnam DTAA have a fees-for-technical-services article?

Yes, but it is a standalone Article 13 titled "Technical Fees," separate from the royalty article (Article 12). It caps withholding at 10% under Article 13(2), with its own definition, source rule, and PE-exception paragraph.

Does the India-Vietnam DTAA have a "make available" clause for technical fees?

No. Article 13(3) taxes "payments of any kind ... in consideration for any services of a technical, managerial or consultancy nature," with no requirement that the services transfer usable technical knowledge. This makes the definition broader than treaties like India-USA that use a make-available test.

If there is no services-PE clause, does a Vietnamese consultant escape Indian tax?

No. Article 5 has no services-PE clause, so short-term services alone do not create a PE, but Article 13 still taxes the fee at 10% of the gross amount regardless of PE status. The absence of a PE only affects whether net-basis Article 7 taxation could apply instead of the gross 10% withholding.

What is the domestic withholding rate on technical fees without the treaty?

20%, under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), a rate that doubled from 10% under the Finance Act 2023.

What documentation does a Vietnamese service provider need to claim the 10% rate?

A Tax Residency Certificate from Vietnam's General Department of Taxation, Form 41 filed electronically, and a self-declaration of beneficial ownership and no-PE/no-fixed-base status. The Indian payer must file Form 145 (and Form 146 for amounts exceeding INR 5 lakh).

How does the MLI affect technical-fee taxation under this treaty?

The India-Vietnam DTAA is a Covered Tax Agreement, so the Principal Purpose Test applies to India-source technical-fee payments from 1 April 2024. Fee-routing arrangements with no genuine commercial substance, designed mainly to access the 10% rate, can be denied treaty benefit under the PPT or India's domestic GAAR.