Vietnam - Interest

Article 11. Interest

1.   Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2.   However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the recipient is the beneficial owner of such interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

3.   Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be taxable only in the other Contracting State to the extent that such interest is:

i)    derived by the Government of the other Contracting State, including political subdivisions and local authorities thereof;

ii)   derived by the Central Bank of the other Contracting State;

iii)  derived by a financial institution owned or controlled by the Government of the other Contracting State, including political subdivisions and local authorities thereof;

iv)  paid in respect of a loan made by or guaranteed or insured by the Government of that other State including political subdivisions or local authorities thereof, the Central Bank of that other State or any other financial institution owned or controlled by the Government of that other State.

4.   The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of paragraphs 2 and 3.

5.   The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, but not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.

6.   The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

7.   Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or a fixed base is situated.

8.   Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

Protocol:

VIII. Ad Article 11, paragraph 2

1.   Nothwithstanding the provisions of paragraph 2 of Article 11, as long as, under the provisions of the Netherlands taxation laws and to the future amendments thereto, the Netherlands does not levy a tax at source on interest paid to a resident of Vietnam, the percentage provided for in this paragraph shall be reduced to 7 per cent of the gross amount of the interest.

2.   If Vietnam after 1 July 1993 has signed an Agreement for the avoidance of double taxation with a member State of the Organisation for Economic Cooperation and Development which provides for a lower rate on interest (including a zero rate) then this lower rate will apply to residents of the Netherlands.

X. Ad Articles 10, 11, 12 and 24, paragraph 2

Where tax has been levied at source in excess of the amount of tax chargeable under the provisions of Articles 10, 11, 12 or 24, paragraph 2, applications for the refund of the excess amount of tax have to be lodged with the competent authority of the State having levied the tax, within a period of three years after the expiration of the calendar year in which the tax has been levied.