Cyprus and Vietnam will sign a double taxation agreement on Monday aimed at encouraging trade and investment by preventing businesses and individuals from being taxed twice on the same income.
Finance Minister Makis Keravnos and Vietnamese Deputy Minister of Economy Cao Anh Tuan will sign the treaty at 11:30am at the Finance Ministry in Nicosia.
The agreement eliminates a barrier to cross-border commerce: without such treaties, a Cypriot company doing business in Vietnam could face corporate tax in both countries on the same profits, whilst Vietnamese workers in Cyprus might pay income tax twice on the same salary.
How the treaty works
The deal allocates taxing rights between the two countries and establishes which nation can tax specific types of income. It typically works by having one country tax the income at a reduced rate, whilst the other gives a tax credit for what was already paid.
For example, a Cyprus resident earning royalties from Vietnam would normally face tax bills in both countries. Under the treaty, Vietnam might tax the royalties at a reduced rate of 5%, whilst Cyprus taxes them at normal rates but credits the 5% already paid. The result: the person pays roughly the same total tax as if the income came entirely from Cyprus, but Vietnam gets its share.
The agreement covers avoidance of double taxation and prevention of tax evasion with respect to taxes on income. It also includes provisions for information sharing between tax authorities to combat tax fraud.
Encouraging investment
Countries sign such treaties to make cross-border business more attractive by removing the penalty of double taxation. Businesses are more likely to invest in markets where clear rules establish exactly what tax they’ll pay and where.
The treaty will benefit Cypriot companies operating in Vietnam, Vietnamese businesses in Cyprus, and individuals working or investing across both countries.
Cyprus has signed similar agreements with dozens of countries to position itself as a hub for international business and encourage foreign investment.