India-Vietnam DTAA: Complete Guide to the Double Taxation Treaty

Quick answer: The India-Vietnam DTAA, signed 7 September 1994 and effective from 2 February 1995, is based on the UN Model and applies a flat 10% withholding rate to dividends, interest, royalties, and fees for technical services (0% for interest paid to governments or central banks) — well below India's 20% domestic rate. The treaty is now a Covered Tax Agreement under the MLI, relevant as bilateral trade reached roughly USD 14.8 billion in 2024-25.

Key takeaways:

• Signed 7 September 1994; effective 2 February 1995 (UN Model).
• Dividends, interest, royalties and FTS all capped at a flat 10%.
• Interest paid to governments or central banks is fully exempt.
• A 2016 protocol strengthened tax-information exchange provisions.
• Bilateral trade reached approximately USD 14.8 billion in 2024-25.

Overview of the India-Vietnam DTAA

The Double Taxation Avoidance Agreement (DTAA) between the Republic of India and the Socialist Republic of Vietnam is a key bilateral tax treaty governing cross-border taxation between two of Asia's fastest-growing economies. Originally signed on 7 September 1994 in Hanoi, the treaty entered into force on 2 February 1995. The agreement is based primarily on the UN Model Tax Convention, reflecting both countries' status as developing economies seeking to balance source-state and residence-state taxing rights.

The primary objective of the India-Vietnam DTAA is to eliminate or reduce double taxation on income earned by residents of one country in the other, promote bilateral trade and investment, and provide tax certainty for businesses and individuals operating across both jurisdictions. The treaty covers various income types including business profits, dividends, interest, royalties, fees for technical services, capital gains, and employment income.

India-Vietnam bilateral trade has grown significantly, reaching approximately USD 14.8 billion in 2024-25, making Vietnam one of India's largest trading partners in ASEAN. For businesses structuring India-Vietnam operations, understanding this treaty is essential. Beacon Filing's tax advisory services can help you navigate the treaty provisions and maximize available benefits.

Treaty History and Current Status

The India-Vietnam DTAA was negotiated in the early 1990s during a period of warming diplomatic relations and economic liberalization in both countries. The treaty was signed on 7 September 1994 in Hanoi and entered into force on 2 February 1995 following the exchange of instruments of ratification.

A significant amending protocol was signed on 3 September 2016 in Hanoi. The protocol updated the treaty's exchange-of-information provisions in line with internationally accepted standards and provided for assistance in the collection of taxes, strengthening cooperation between the two tax authorities. These amendments were driven by the need to align the treaty with internationally accepted standards for tax transparency and cooperation.

Both countries have subsequently ratified the OECD Multilateral Instrument (MLI). India ratified the MLI on 25 June 2019, with it entering into force on 1 October 2019. Vietnam signed the MLI on 9 February 2022 and deposited its instrument of ratification on 23 May 2023, with it entering into force on 1 September 2023. As a result, the India-Vietnam DTAA is now a Covered Tax Agreement under the MLI, subject to modifications including the Principal Purpose Test (PPT) and potentially modified permanent establishment definitions.

This distinguishes the India-Vietnam treaty from DTAAs with countries that have not ratified the MLI, such as the India-USA DTAA.

Key Treaty Articles

The India-Vietnam DTAA contains articles covering the full range of cross-border income categories. Below are the provisions most relevant to businesses and investors:

Article 5 — Permanent Establishment

Article 5 defines when an enterprise of one contracting state creates a permanent establishment (PE) in the other state. The definition includes a fixed place of business such as a place of management, branch, office, factory, workshop, mine, oil or gas well, or quarry. A building site or construction, installation, or assembly project constitutes a PE if it lasts for more than six months. The furnishing of services, including consultancy services, creates a PE if such activities continue for an aggregate period of more than 183 days within any 12-month period.

Article 7 — Business Profits

Business profits of an enterprise of one contracting state are taxable in the other state only if the enterprise carries on business through a PE situated in that other state. Profits attributable to the PE are determined on the basis of the profits the PE would be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities.

Article 10 — Dividends

Dividends paid by a company resident in one contracting state to a resident of the other state may be taxed in both states, but the treaty caps the source-state tax at 10% of the gross amount of dividends if the beneficial owner is a resident of the other state.

Article 11 — Interest

Interest arising in one contracting state and paid to a resident of the other state may be taxed in both states, but the source-state tax is capped at 10% of the gross amount. Interest paid to the government, political subdivisions, or the central bank of either country is exempt from tax in the source state.

Article 12 — Royalties and Fees for Technical Services

Royalties and fees for technical services arising in one contracting state and paid to a resident of the other state are taxable at a maximum rate of 10% of the gross amount. The definition of royalties covers copyrights, patents, trademarks, designs, secret formulas, and information concerning industrial, commercial, or scientific experience. Fees for technical services include payments for managerial, technical, or consultancy services.

Article 13 — Capital Gains

Gains from the alienation of immovable property may be taxed in the state where the property is situated. Gains from the alienation of movable property forming part of a PE's business property may be taxed in the state where the PE is situated. Gains from alienation of ships or aircraft operated in international traffic are taxable only in the state where the enterprise is resident. Gains from alienation of shares deriving more than 50% of their value from immovable property may be taxed in the state where the property is situated.

Withholding Tax Rates Summary

The following table compares the treaty rates with India's domestic withholding tax rates for payments to Vietnamese residents:

Under Section 90(2) of the Income Tax Act, taxpayers can apply whichever rate is more beneficial — the treaty rate or the domestic rate. Since all DTAA rates (10%) are lower than the domestic rate (20%), the treaty rate will always apply. For a detailed rate-by-rate breakdown, see our dedicated withholding tax rates page for India to Vietnam.

Permanent Establishment Rules

The PE provisions in the India-Vietnam DTAA are critical for Vietnamese companies operating in India and Indian companies operating in Vietnam. Article 5 establishes several categories of PE:

Fixed Place PE: A place of management, branch, office, factory, workshop, mine, oil or gas well, quarry, or any other place of extraction of natural resources. A fixed place of business used solely for storage, display, or delivery of goods, or for purchasing goods or collecting information, is generally excluded from PE status.

Construction PE: A building site or construction, installation, or assembly project, or supervisory activities in connection therewith, constitutes a PE if it lasts for more than six months. This is a relatively short threshold compared to many DTAAs that use 12 months.

Services PE: The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise, constitutes a PE if such activities continue within the other state for a period or periods aggregating more than 183 days within any 12-month period.

Agency PE: A person acting on behalf of an enterprise who habitually exercises authority to conclude contracts in the enterprise's name creates a PE. However, independent agents acting in the ordinary course of their business do not constitute a PE.

Vietnamese companies should carefully monitor the duration and nature of their activities in India to avoid triggering an unintended PE. Beacon Filing's India entry strategy services include PE risk assessments for Vietnamese companies entering the Indian market.

Tax Residency and Certificate Requirements

To claim treaty benefits, a person must be a tax resident of one of the contracting states. Under Article 4, residence is determined by each country's domestic law. In India, the 182-day presence test under the Income Tax Act applies. In Vietnam, tax residency is determined under Vietnamese domestic law based on presence of 183 days or more in a 12-month period, habitual abode, or rented dwelling.

For individuals who are resident in both states, the tie-breaker rule applies sequentially: permanent home, center of vital interests, habitual abode, and nationality. If the tie cannot be broken, the competent authorities resolve the matter by mutual agreement.

To claim reduced treaty rates in India, a Vietnamese resident must provide a Tax Residency Certificate (TRC) issued by the General Department of Taxation of Vietnam. The recipient must also furnish Form 10F to the Indian payer with prescribed details. Indian payers must comply with Form 15CA/15CB requirements when making remittances to Vietnamese residents.

Mutual Agreement Procedure

Article 26 of the treaty provides for a Mutual Agreement Procedure (MAP) where a resident of either country believes that the actions of one or both contracting states result in taxation not in accordance with the treaty. The resident may present the case to the competent authority of the state of which they are a resident within three years from the first notification of the action giving rise to taxation.

The competent authorities shall endeavour to resolve the case by mutual agreement. They may also communicate directly with each other to reach agreement on cases not provided for in the treaty. The MAP process is particularly relevant for transfer pricing disputes and cases where both countries claim taxing rights over the same income.

The 2016 protocol amendment strengthened the exchange of information and assistance in collection of taxes provisions, enabling more effective cooperation between Indian and Vietnamese tax authorities.

How to Claim Treaty Benefits

Claiming benefits under the India-Vietnam DTAA requires compliance with both procedural and substantive requirements:

Step 1: Obtain a Tax Residency Certificate (TRC)

The Vietnamese resident must obtain a TRC from the General Department of Taxation of Vietnam certifying their tax residency for the relevant fiscal year. This is the foundational document for claiming treaty benefits in India.

Step 2: Provide Form 10F

The non-resident must furnish Form 10F to the Indian payer containing prescribed information such as name, status, nationality, tax identification number, and the period of residential status. This form can be filed electronically on the Indian Income Tax portal.

Step 3: Self-Declaration

A self-declaration confirming that the recipient does not have a permanent establishment in India (if claiming that income is not attributable to a PE) and that the recipient is the beneficial owner of the income.

Step 4: Indian Payer Compliance under Section 195

The Indian payer must deduct tax at the treaty rate (or domestic rate, whichever is more beneficial) under Section 195 and file Form 15CA electronically before making the remittance. For payments exceeding INR 5 lakh, a Chartered Accountant's certificate in Form 15CB is also required.

Step 5: Claim Relief under Section 90

Indian residents earning income in Vietnam can claim double taxation relief under Section 90 of the Income Tax Act by way of a foreign tax credit for Vietnamese taxes paid, subject to the provisions of Rule 128.

Beacon Filing's FEMA and RBI compliance services ensure all documentation is properly prepared for claiming treaty benefits.

Frequently Asked Questions

What is the India-Vietnam DTAA and when was it signed?

The India-Vietnam DTAA is a bilateral tax treaty signed on 7 September 1994 between the Republic of India and the Socialist Republic of Vietnam. It entered into force on 2 February 1995 and has been effective since then. An amending protocol was signed on 3 September 2016 to strengthen information exchange provisions.

Does the MLI apply to the India-Vietnam DTAA?

Yes. Both India and Vietnam have signed and ratified the MLI. India's MLI became effective on 1 October 2019, and Vietnam's MLI became effective on 1 September 2023. The India-Vietnam DTAA is a Covered Tax Agreement, so MLI provisions including the Principal Purpose Test now apply.

What are the withholding tax rates under the India-Vietnam DTAA?

The treaty provides a uniform 10% withholding tax rate on dividends, interest, royalties, and fees for technical services. Interest paid to government entities and central banks is exempt. These rates are significantly lower than India's domestic withholding rate of 20%.

How does a Vietnamese company avoid creating a PE in India?

A Vietnamese company can avoid PE exposure by ensuring construction projects do not exceed six months, services are not furnished for more than 183 days in any 12-month period, no fixed place of business is maintained in India, and no dependent agents habitually conclude contracts on its behalf in India.

What is the construction PE threshold under the India-Vietnam DTAA?

A building site, construction, installation, or assembly project constitutes a PE if it lasts more than six months. This is shorter than many other DTAAs that use a 12-month threshold, so Vietnamese construction companies should monitor project durations carefully.

What documentation is required to claim DTAA benefits in India?

The Vietnamese resident must provide a Tax Residency Certificate from the General Department of Taxation, Form 10F, and a self-declaration of beneficial ownership and non-PE status. The Indian payer must file Form 15CA and Form 15CB for payments exceeding INR 5 lakh.

How are capital gains from Indian shares taxed for Vietnamese residents?

Under Article 13, gains from alienation of shares deriving more than 50% of their value from immovable property in India may be taxed in India. Other share disposals are generally taxable per domestic law. Vietnamese residents can claim a foreign tax credit in Vietnam for taxes paid in India to avoid double taxation.