Treaty Signed Between Cyprus and Vietnam

On 15 December 2025, Cyprus and Vietnam sealed a tax treaty to set out how taxes are divided between the countries and to improve the workability of both countries’ tax systems.

In line with the OECD and UN Conventions, such a treaty incorporates, among other articles, the concept of permanent establishment of the company, withholding taxes applicable to the case of distribution of dividends, interest and royalties, or sale of capital, and relief through a credit for underlying tax.

The treaty entered into force on 1 June 2026. However, its provisions will generally apply in both Contracting States from 1 January 2027.

Permanent Establishment

Typically, the notion of a stationary place of work for a PE, and the PE through an agent as set in the OECD Model Convention, is the starting point of the PE definition in this treaty. Nevertheless, such a definition has been supplemented with concrete rules in a number of situations by setting PE thresholds.

If a building project goes on for more than six months (not continuously), it is considered as a PE. The same rule goes for providing services for a duration of at least six months (not continuously) within a period of 12 months.

The treaty also sets out provisions relating to exploration and exploitation of natural resources. In this situation, the time limitation is not applicable.

By establishing the rules for differentiating whether business activities conducted in one Contracting State are taxable within that state or the other state. These paragraphs explain the tax treaty.

Dividends

Subject to certain conditions, the treaty provides for lowered Withholding Tax (“WHT”) on dividends.

Beneficial Owner will pay no more than 5% withholding tax on dividends if it is a (directly or indirectly) controlling company with a minimum of 70% shares in the other company (i.e., the payer of the dividends), the company, or the Beneficial Owner has invested at least USD 10 million.

In all other cases, the WHT on dividends shall not exceed 10%.

Interest

The treaty imposes a withholding tax that must not exceed 10% of the amount paid by the payer in interest that belongs to the beneficial owner according to the source country rules.

Therefore, this provision is about the maximum rate of taxation in the source country (levied in the case of) on interest income (which is a subject of the Tax Treaty).

Royalties

A tax treaty between Cyprus and Vietnam, which entered into force, also allows a country to apply a maximum withholding tax rate on royalties.

An amount of withholding tax that corresponds to at least 10% of the gross amounts of royalties payable by the beneficial owner is the maximum limit.

Capital Gains

Making a tax treaty on the attribution of tax rights for capital gains usually follows the OECD Model. Still, the tax treaty in the present case includes some provisions dealing with particular types of share disposals.

Firstly, the treaty allows the source State to tax capital gains derived from shares in companies whose value is primarily derived from real estate situated in that State. This provision refers to so-called property-rich companies.

Secondly, the tax treaty allows the taxation of capital gains that occur on the disposal or alienation of shares that represent more than 15% of the capital of a company and, at the same time, such disposal or alienation of the shares has been carried out for at least an initial period of one year.

Hence, these provisions establish the circumstances under which the source country could tax capital gains arising from the disposal of shares.

Credit for Underlying Tax

In addition to the provision for paying the dividend tax, a tax credit, i.e., a dividend withhold, the treaty also allows for a crediting of the underlying tax.

According to the treaty, if a company from one Contracting State has been receiving dividends from another Contracting State’s company, it is entitled to take a credit in its home State with respect to the dividend tax as well. Furthermore, the receiving company can also take a credit against the underlying tax paid by the dividend payment company for the profits.

To obtain the underlying tax credit, the company receiving the dividends must have a direct or indirect minimum investment of 10 percent in the voting power of the dividend-paying company.

The purpose of this mechanism is to relieve shareholders or underlying corporations from being taxed twice on the same profits, but the taxpayer’s compliance with the terms of the arrangement is a precondition.

Entry into Force and Effective Date

The tax treaty between Cyprus and Vietnam entered into force on 1 June 2026 following the completion of the required procedures in the two Contracting States. The treaty, however, does not generally begin to apply immediately upon entry into force.

Under its provisions, the treaty will have effect in both Contracting States on or after 1 January following the date on which the treaty enters into force. Accordingly, its provisions will generally apply from 1 January 2027.

The distinction between the treaty’s entry into force and the date from which its provisions apply is relevant for taxpayers planning or assessing cross-border transactions between Cyprus and Vietnam.

Expected Impact on Cyprus-Vietnam Economic Relations

The new tax treaty will help Cyprus and Vietnam build upon their tax relationship and further develop their economic cooperation.

With the treaty, the Contracting States clearly define who has the right to tax, and set limits on withheld taxes, providing a framework which is necessary to handle income flows between the two Parties of the treaty.

Conclusion

The tax treaty signed by two countries, Cyprus and Vietnam, on December 15, 2025, sets out the tax treatment rules for the two countries’ cross-border businesses and income. In addition to the permanent establishment, it mentions dividend, interest, royalty, capital gains, as well as the relief via the credit against the underlying tax.

The treaty entered into force on 1 June 2026, while its provisions will generally apply from 1 January 2027. Its implementation is expected to strengthen tax cooperation and contribute to the further development of the economic relationship between the two countries.

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