AGREEMENT

BETWEEN THE GOVERNMENT OF THE SOCIALIST REPUBLIC OF VIETNAM AND THE SWISS FEDERAL COUNCIL FOR THE AVOIDANCE OF DOUBLE TAXATION WITH RESPECT TO TAXES ON PROPERTY AND INCOME (1996)

The Government of the Socialist Republic of Vietnam and the Swiss Federal Council,

Desiring to conclude an Agreement for the avoidance of double taxation and the prevention of tax evasion and tax fraud with respect to taxes on properties and income,

Have agreed as follows:

Article 1. Personal scope

This Agreement shall apply to persons who are residents of one or both of the Contracting States.

Article 2. Taxes covered in the Agreement

1. This Agreement shall apply to taxes on income and properties imposed in a Contracting State or local government of such State irrespective of the manner in which they are levied.

2. There shall be regarded as taxes on income and properties all taxes imposed on total income and properties, including taxes on gains from the alienation of movable or immovable property, taxes on the total amounts of wages and salaries paid by enterprises as well as taxes on capital appreciation.

3. The existing taxes to which the Agreement shall apply are in particular:

a. In Vietnam:

(i) the personal income tax;

(ii) the profit tax; and

(iii) the profit remittance tax;

(hereinafter referred to as "Vietnamese tax");   

b. In Switzerland:

Federal taxes, state taxes and ward and commune taxes levied on

(i) Income (total income, income from labor, properties, industrial and commercial profits, property alienation profits and other incomes); and

(ii) Property (total properties, movable and immovable property¸ business property, contributed capital and reserve capital and other properties);

(Hereinafter referred to as Swiss tax)

4. This Agreement shall also apply to any identical or substantially similar taxes, which are imposed after the date of signature of this Agreement in addition to, or in place of existing taxes. The competent authorities of the Contracting States shall notify each other of any substantial changes which have been made in their respective taxation laws within a reasonable period of time after such changes.

Article 3. General definitions

1. For the purposes of this Agreement, unless the context otherwise requires:

a. The term "Vietnam" means the Socialist Republic of Vietnam and when used in a geographical sense, it means all its national territory, including its territorial sea, and any area beyond and adjacent to its territorial sea, within which Vietnam by Vietnamese legislation and in accordance with international law, has sovereign rights of exploration for and exploitation of natural resources of the sea bed and its sub-soil and superjacent waters;

b. The term "Switzerland" means the Swiss Confederation;

c. The terms "a Contracting State" and "the other Contracting State" mean Vietnam or Switzerland as the context requires;

d. The term "person" includes an individual, a company and any body of persons;

e. The term "company” means any corporate body or any entity which is treated as a corporate body for tax purposes;

f. The terms "Enterprise of a Contracting State" and "Enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

g. The term “national” means:

(i) Any individual possessing the nationality of a Contracting State; or

(ii) Any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State;

h. The term “international traffic” means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State; and

i. The term "competent authorities" means:

(i) In the case of Vietnam, the Minister of Finance or his authorized representative; and

(ii) In the case of Switzerland - the Director of Federal Tax Department or his authorised representative;

2. As regards the application of this Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the laws of that State relating to the taxes to which the Agreement applies.

Article 4. Resident

1. For the purposes of this Agreement, the term "resident of a Contracting State" means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

2. Where by reason of the provisions of the Clause 1, an individual is a resident of both Contracting States, then his status shall be determined as follows:

a. He shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);

b. If the Contracting State in which he has his center of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

c. If he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;

d. If each Contracting State considers him to be its national or if he is a national of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3. Where by reason of the provisions of the Clause 1, a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated.

Article 5. Permanent establishment

1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

2. The term "permanent establishment" shall include especially:

a. a place of management;

b. a branch;

c. an office;

d. a factory;

e. a workshop;

f. a mine, an oil or gas well, quarry or other place of extraction of natural resources;

3. The term "permanent establishment" shall also include:

a. a building site, construction, installation or assembly project or supervisory activities in connection therewith, which continue for a period of more than six months;

b. the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within the country for a period or periods aggregating more than 06 months within any 12-month period.

4. Notwithstanding the provisions of this Article, the term "permanent establishment" does not include:

a. the use of facilities solely for the purpose of storage, display delivery of goods or assets belonging to the enterprise;

b. the maintenance of a stock of goods or assets belonging to the enterprise solely for the purpose of storage or display;

c. the maintenance of a stock of goods or assets belonging to the enterprise solely for the purpose of processing by another enterprise;

d. the maintenance of a fixed place of business solely for the purpose of purchasing goods or assets or for collecting information for the enterprise.

e. the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

f. the maintenance of a fixed place of business solely for any combination of activities mentioned in point (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

5. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom clause 7 applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State in respect of any activity which that person undertakes for the enterprise, if such a person:

a. Has and habitually exercises in that Contracting State an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in clause 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that clause; or

b. Has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf  of the enterprise. 

6. Notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom clause 7 applies.

7. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, commission body or any other agent of an independent status, where such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he shall not be considered an agent of an independent status within the meaning of this clause

8. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise), shall not of itself constitute either company as a permanent establishment of the other.

Article 6. Income from immovable property

1. Income derived from immovable property of a resident in a Contracting State (including income from agriculture or forestry) is taxable only in the Contracting State in which such property is situated.

2. The term "immovable property" shall be defined in accordance with the law of the Contracting State in which the property in question is situated. The term "immovable property" shall in any case include the property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships and aircraft shall not be regarded as immovable property.

3. The provisions of Clause 1 shall apply to all income derived from the direct use, letting, sharing or use in any other form of immovable property.

4. The provisions of Clause 1 and 3 shall also apply to income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7. Business profits

1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other Contracting State, but only on the profits attributable to that permanent establishment.

2. Subject to the provisions of Clause 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses of the enterprise, being expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred and which would be deductible if the permanent establishment were an independent entity which paid those expenses, whether incurred in the Contracting State in which the permanent establishment is situated or elsewhere.

4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

5. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in Clause 2 shall preclude such Contracting State from determining the profits to be taxed by such an apportionment as may be customary. The method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article.

6. For the purposes of the preceding clauses, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there are good and sufficient reasons to the contrary.

7. Where profits include items of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8. Shipping and air transport

1. Income derived by a resident of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that Contracting State.

2. The provisions of Clause 1 shall also apply to income from the participation in a pool, a joint business or an international operating agency.

Article 9. Associated enterprises

Where:

a. An enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

b. the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State, and in either case, conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would have accrued to one of the enterprises, but, by the reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

Article 10. Dividends

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

2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that Contracting State, but, if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed:

a. 7 per cent of the gross amount of the dividends if the beneficial owner is a company which controls directly at least 50 per cent of the capital in the company paying the dividends;

b. 10 per cent of the gross amount of the dividends if the beneficial owner is a company which controls directly at least 25 per cent of the capital in the company paying the dividends;

c. 15 per cent of the gross amount of the dividends in all other cases.

The competent authorities of the two contracting states shall develop measures to apply the above limit by mutual agreement.

This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

3. The term "dividends" as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, and income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

4.The provisions of Clauses 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding by virtue of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other Contracting State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, not subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State. There is no content in this clause is interpreted as preventing a Contracting State from applying income tax, according to the laws of that State, to the profits which are transferred or divided out of that State.

Article 11. Loan interest

1. Loan 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 the interest the tax so charged shall not exceed 10 percent of the gross amount of the interest.

The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation.

3. Notwithstanding the provisions of clause 2,

a. Loan interest arising in Vietnam and paid to a financial establishment as a resident of Switzerland from the loans guaranteed, insured or financed by the Swiss Confederation shall be exempt from Vietnamese tax, and

b. Loan interest arising in Switzerland and paid to a financial establishment as a resident of Vietnam from the loans guaranteed, insured or financed by the Government of Vietnam shall be exempt from Swiss tax.

4. The term "loan interest" as used in this Article means income from debt-claim of every kind, whether or not secured by mortgage, and whether or 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.

5. The provisions of clause 1, 2 and 3 shall not apply if the beneficial owner of the loan 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.

6. Loan 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 Contracting State in which the permanent establishment or a fixed base is situated.

7. 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.

Article 12. Royalty

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

2. However, such royalties 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 the interest the tax so charged shall not exceed 10 percent of the gross amount of the royalty.

The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation.

3. The term "royalty" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films, films, tapes or disc for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

4. The provisions of clauses 1 and 2 shall not apply if the beneficial owner of the royalty, being a resident of a Contracting State, carries on industrial or commercial activity in the other Contracting State in which the royalty arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein and the right or property in respect of which the royalty 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.

5. Royalty 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 royalty, 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 royalty is paid was incurred, and such royalty is borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the Contracting State in which the permanent establishment or a fixed base is situated.\

6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other persons, the amount of the royalties, having regard to the use, right or information for which they are 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.

Article 13. Gains from alienation of property

1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) may be taxed in that other State.

3. Gains from the alienation of ships, boats or aircraft operated by an enterprise of a Contracting State in international traffic or movable property pertaining to the operation of such ships, boats or aircraft, shall be taxable only in that Contracting State.

4. Gains derived by a resident of a Contracting State from the alienation of shares of the capital stock of a legal person the property of which consists directly or indirectly principally of immovable property situated in the other Contracting State may be taxed in that other State.

5. Gains derived by a company as a resident of a Contracting State from the alienation of shares, other than the companies referred to in paragraph 4 and such shares account for at least 20 percent of such company may be taxed in that State, but the tax applicable in that State shall be reduced by an amount equal to 50 percent of the calculated tax.

6. Gains from the alienation of any property other than that referred to in clauses 1, 2, 3, 4 and 5 shall be taxable only in the Contracting State of which the alienator is a resident.

Article 14. Independent personal services

1. Income derived by an individual who is resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State except in the following circumstances, when such income may also be taxed in the other Contracting State:

a. If he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State; or

b. If his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days in the relevant financial year; in that case, only so much of the income as is derived from his activities performed in that other State may be taxed in that State.

2. The term "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Article 15. Dependent personal services

1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State, unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other Contracting State.

2. Notwithstanding the provisions of Clause 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

a. the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in the Calendar year; and

b. the remuneration is paid by or on behalf of an employer or employer’s representative who is not a resident of the other Contracting State; and

c. the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other Contracting State.

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in that State.

Article 16. Director’s fee

Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other Contracting State.

Article 17. Income of artistes and athletes

1. Notwithstanding the provisions of Articles 14 and 15, income derived by entertainers such as a theater, motion picture, radio or television artistes, and musicians, and by athletes, from their personal activities as such, may be taxed in the Contracting State in which the activities are exercised.

2. Where income in respect of personal activities exercised by an entertainer or an athlete in his capacity as such accrues not to the entertainer of athlete himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised.

Article 18. Pension

Subject to the provisions of Clause 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.

Article 19. Income from government service

1.a. Remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

b. However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

(i) is a national of that State; or

(ii) did not become a resident of that State solely for the purpose of rendering the services.

2.a. Any pension paid by a Contracting State, local authority or statutory body thereof to an individual directly or deducted from the funds they found to pay an individual in respect of services rendered to that State, local authority or statutory body thereof shall be taxable only in that State.

b. However, such pension shall be taxable only in the other Contracting State if the individual is a resident and a national of that Contracting State but not a national of the first-mentioned State.

3. The provisions of this Article 15, 16 and 18 shall apply to remuneration and pension in respect of services rendered in connection with any business carried on by either of the Contracting State, a political subdivision or a local authority thereof.

Article 20. Students and apprentices

Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned Contracting State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall be exempt from tax of the first-mentioned Contracting State, provided that such payments are made to him from outside that  first-mentioned Contracting State.

Article 21. Property

1. Property is the immovable property set forth in Article 6 that is derived by a resident of a Contracting State and is situated in the other Contracting State will be taxed in that State.

2. Property is the immovable property integrated into business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, or the movable property belonging to a fixed base that a resident of a Contracting State has in the other Contracting State to perform an independent profession, must be taxed only in that State.

3. The property of a resident of a Contracting State is ships and aircraft operated in international traffic as well as the movable property pertaining to the business of such ships and aircraft shall be taxed in this State.

4. Other property of a resident of a Contracting State shall be taxed only in this State.

Article 22. Elimination of double taxation

1. In the case of Vietnam, double taxation shall be avoided as follows:

Where a resident in Vietnam derives income or property which shall be levied in Switzerland in accordance with the provisions of this Agreement, Vietnam shall:

a. allow as a credit against the tax imposed on the income of that resident an amount equal to the income tax paid in Switzerland.

b. allow as a credit against the tax imposed on the property of that resident an amount equal to the property tax paid in Switzerland.

The amount of credit in both cases, however, shall not exceed the amount of the Vietnamese tax on that income or property, before permitted tax credit, as the case may be, shall be allocated for the income or property levied in Switzerland.

2. In the case of Switzerland, double taxation shall be avoided as follows:

2.1.If a resident of Switzerland owns property or income which are taxable in Vietnam under the provisions of this Agreement, Switzerland shall comply with the provisions under point 2.2, and exempt tax for such income or property but while computing the tax over the remaining income or property of that resident, the tax rate which should have been applied may be applied if the tax exemption is not applied for the real income or property which is exempted from tax. However, when the income or profit gained from an enterprise as a resident of Switzerland from various sources in Vietnam subject to Vietnamese tax in accordance with clause 5 of Article 13, the Swiss tax which is applied on that income or profit shall be reduced a half.

2.2. When a Swiss resident receives dividends, loan interests or royalties which may be levied in Vietnam based on the provisions in Articles 10, 11 or 12, Switzerland shall, based on the requirement, permit tax reduction to that resident. The tax reduced may include:

a. The tax amount deducted from the income tax of that resident is equal to the amount of tax collected in Vietnam according to the provisions of Articles 10, 11 or 12. However, the withholding tax will not exceed the Swiss tax calculated before the permitted deduction corresponding to taxable income in Vietnam, or

b. A Swiss package tax amount reduced

c. Amount of tax partially exempted in Switzerland for dividends, loan interests or royalties, in all cases at least includes the tax applied in Vietnam over the total amount of dividends, loan interests or royalties.

Switzerland shall determine the applicable tax relief and regulations on procedures in accordance with the regulations of Switzerland on the implementation of the international agreements of the Swiss Confederation in order to avoid double taxation.

2.3. When a resident of Switzerland receives the dividends, loan interests or royalties which may be levied at the tax rate equal to or higher than the tax rate specified in clause 2 of Article 10, 11 or 12 in accordance with the Vietnamese tax laws. However, for the purpose of encouragement of economic development in Vietnam, such gains shall be exempted in Vietnam or be subject to the tax rate lower than the tax rate specified in clause 2 of Article 10, 11 or 12. Switzerland shall, as required, permit the deduction of that resident within the range that resident is entitled to, an amount equal to the amount of tax applicable in Vietnam in accordance with the provisions in this Agreement where the dividends are not subject to the exemption from Swiss tax in accordance with the provisions under point 2.4 of this Article.

2.4. A company as a resident of Switzerland and that company receives dividend from a company as a resident of Vietnam, while determining the Swiss tax to that dividend, it shall also be subject to tax reduction equal to a tax reduction rate applicable to a company if the company making payment of dividend is a resident of Switzerland.

Article 23. Non-discrimination

1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation to which nationals of that other State in the same circumstances are or may be subjected.

2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities. This provision shall not be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

3. Except where the provisions of Article 9, clause 7 of Article 11, or clause 4 of Article 12, apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State.

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State are or may be subjected.

5. The provisions of paragraphs 2 and 4 of this Article shall not apply to the Vietnamese profit remittance tax, which in any case shall not exceed 10 per cent of the gross amount of profits remitted, and the Vietnamese taxation in respect of agricultural production activities.

6. Nothing contained in this Article shall be construed as obliging either Contracting State to grant to individuals not resident in that State any of the personal allowances, reliefs and reductions for tax purposes which are granted to individuals so resident.

7. The provisions of this Article shall apply only to the taxes which are the subject of this Agreement.

Article 24. Mutual agreement procedure

1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Agreement, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident or a national if the case of that person is subject to the provisions of clause 1 of Article 23 irrespective of the remedies provided by the domestic law of those States. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of this Agreement.

2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Agreement.

3. The competent authorities of the Contracting States shall jointly endeavour to resolve by mutual agreement any difficulties or doubts arising as to the application of the Agreement. They may also consult together for the elimination of double taxation in cases not provided for in the Agreement.

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding clauses. The competent authorities, through consultations, shall develop appropriate bilateral procedures, conditions, methods and techniques for the implementation of the mutual agreement procedure provided for in this Article.

Article 25. Diplomatic and consular officers

Nothing in this Agreement shall affect the fiscal privileges of diplomatic agents or consular officers under the general rules of international law or under the provisions of special agreements.

Article 26. Entry into force

Each Contracting Party shall notify the other Contracting Party of the completion of the necessary procedures under their laws related to the entry into force of this Agreement. This Agreement shall enter into force 30 days after the date of receipt of the final notification:

(i) in respect of taxes withheld at source, for amounts paid or credited on or after the first day of January next following the date on which the Agreement enters into force; and

(ii) in respect of other income taxes for taxable period beginning on or after the first day of January next following the date on which the Agreement enters into force.

Article 27. Termination

This Agreement shall remain in force indefinitely but either of the Contracting States may terminate the Agreement through the diplomatic channels, by giving to the other Contracting State written notice of termination not later than 30 June of any calendar year and in that case the Agreement shall cease to be effective:

(i) in respect of taxes withheld at source, in relation to taxable amount paid on or after 1 January following the calendar year in which the notice of termination is given, and in any subsequent calendar years;

(ii) in respect of other taxes, in relation to taxable amount paid on or after 1 January following the calendar year in which the notice of termination is given, and in any subsequent calendar years;

IN WITNESS WHEREOF the undersigned, being duly authorized thereto, have signed this Agreement.

DONE in duplicate in Hanoi this 06th day of May of the year one thousand nine hundred and ninety six in the Vietnamese, English and German languages. All texts being equally authentic. In case of divergence, the English text shall prevail.

PROTOCOL

GOVERNMENT OF THE SOCIALIST REPUBLIC OF VIETNAM AND THE SWISS FEDERAL COUNCIL

Have agreed, at the time of signing in Hanoi on May 6, one thousand nine hundred and ninety-six the Agreement on avoidance of double taxation for taxes on income and property. The following provisions shall be an integral part of the said Agreement:

1. With respect to Article 5:

Concerning point (a) and (b) in clause 4 of Article 5, the maintenance of a stock of goods or assets for delivery or maintenance of means for delivery of goods or assets is construed to create a permanent establishment when the conditions specified under point (b), clause 5 in that Article are not met.

2. With respect to Article 7:

In the case of fraud organization, clause 1 of Article 7 shall be construed to be applied if the enterprise sells goods or assets or carries on its business of the same or similar type with the goods sold out or business activities done by the permanent establishment if that permanent establishment may demonstrate to play a decisive role in those activities.

3. With respect to Article 12:

Clause 3 is construed that the money paid for scientific, technical or geological as the money paid for special analysis or research with scientific, technical or geological nature, money paid for special mechanical services, consultation services shall not be deemed as the money paid for information related to the industrial, commercial or scientific experience. In such case, the provisions in Article 7 or 14, as the case may be, shall apply.

4. With respect to Article 22:

The term “tax reduction” specified in clause 2.4 includes the Swiss tax to be reduced for the company’s profits in equivalent proportion to the ratio between net revenues over the capital participation with the large proportion (to be defined in the tax law of Switzerland) and the total net profits. For the federal direct tax, the regime of tax reduction is applied for the minimum contributed capital by 20% or 2 million Swiss francs.

5. With respect to Article 23:

No content specified in Article 23 is construed that Vietnam must allow a permanent establishment in Vietnam of a Swiss enterprise or Vietnamese enterprise with capital wholly or partly owned, directly or indirectly controlled by one or many residents of Switzerland to be entitled to any investment privileges which Vietnam applies to the other Vietnamese enterprises taking into account the specified conditions specified in the Law on foreign investment in Vietnam 1987 modified from time to time.

This protocol is done in duplicate in Hanoi this 06th day of May of the year one thousand nine hundred and ninety six in the Vietnamese, English and German languages. All texts being equally authentic. In case of divergence, the English text shall prevail.

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