The General Department of Taxation has received the Official Dispatches No. 2110-01/2013 and No. 2110-02/2013 dated October 21, 2013 of Samsung Electronics Co., Ldt. (SEC) requesting guidelines for determining the status of Korean technical support employees (hereinafter referred to as “employees”) and tax liability of foreign individuals who earn incomes from salaries and remunerations in Vietnam. Below are instructions of General Department of Taxation:

1. Regarding the employee staying in Vietnam for more than 183 days in a tax year.

- Pursuant to Article 4 (Resident) of the Agreement between the Government of the Socialist Republic of Vietnam and the Government of South Korea (officially the Republic of Korea) for the avoidance of double taxation (hereinafter referred to as “the Agreement”):

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

2. Where by reason of the provisions of paragraph 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 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 centre of vital interests cannot be determined, or if he has no 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;

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- Pursuant to South Korea’s Law on Income Tax: “an individual who has a home available to him or has had a home available to him in South Korea for at least 1 year shall be deemed to be a resident”

- Pursuant to Clause 2 Article 2 Chapter I of Vietnam’s Law on Person Income Tax No. 04/2007/QH12:

“2. A resident shall meet one of the following conditions:

a) He/she has been present in Vietnam for at least 183 days during a calendar year or 12 consecutive months from the initial date of arrival in Vietnam;

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In SEC’s case, a regular employee who has had a home available to him in South Korea for at least 1 year and has been present in Vietnam for more than 183 days in a tax year shall be deemed to be a resident of both Contracting States.

Considering the period of time of residence to determine the status of an employee in the tax year (from January to December), if a regular employee has a permanent home available to him in both States but has his centre of vital interests in Vietnam because he has an habitual abode of working and living in Vietnam, he shall be deemed to be a resident of Vietnam in the tax year under Clause 2 Article 4 of the aforementioned Agreement.

Pursuant to Section I, Part B of the Circular No. 84/2008/TT-BTC dated September 30, 2008 and Clause 2 Article 7 Chapter II of the Circular No. 111/2013/TT-BTC dated August 15, 2003 of the Ministry of Finance, the taxable income of the resident of Vietnam is the income arising within and outside Vietnam’s territory. Incomes from salaries and remunerations are subject to progressive personal income tax.

2. Regarding employees staying in Vietnam for less than 183 days in a tax year.

If a temporary employee (employee staying in Vietnam for less than 183 days in a tax year) is deemed to be a resident of Korea, his incomes from salaries and remunerations derived by him in respect of an employment exercised in Vietnam shall be subject to personal income tax under Clauses 1 and 2 Article 15 (Dependent personal services) of the Agreement. To be specific:

“1. Subject to the provisions of Articles 16, 18, 19, 20 and 21, salaries, remunerations 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 State.

2. “Notwithstanding the provisions of paragraph 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 State for a period or periods not exceeding in the aggregate 183 days in any twelve month period, and

b. the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

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

According to the aforementioned regulation, the incomes derived by a temporary employee in respect of an employment exercised in Vietnam shall be subject to personal income tax only in South Korea (he is exempted from personal income tax in Vietnam) if the three conditions mentioned in a., b. and c. are met.

In such case, the remuneration derived by a temporary employee in respect of an employment exercised in Vietnam shall be taxed if he is present in Vietnam for a period not exceeding in the aggregate 183 days (the condition mentioned in a. is satisfied) and meets neither the condition b nor the condition c. Accordingly, South Korea is required to adopt methods for elimination of double taxation that are specified in Clause 2 Article 23 (Methods for elimination of double taxation) of the Agreement.

Guidelines for determining whether a temporary employee satisfies the 2 conditions mentioned in b. and c.:

+ Regarding the condition mentioned in b.: According to Point 3 Section 10 Article 31 of the Circular No. 205/2013/TT-BTC dated December 24, 2013 of the Ministry of Finance providing guidelines for the definition “real employer”. A person shall be deemed to be a real employer in the following cases:

(i) That person has the right over the products and services created by the employee and take responsibility and risks to such employee;

(ii) That person provides instructions and means of labor to the employee;

(iii) That person is entitled to control and bears responsibility for the workplace.

In order to determine a real employer in the aforementioned cases, the Department of Taxation shall check the contract (or agreement) and consider whether SEC has the right over the products created by its employees and takes responsibility and risks if such employees fail to fulfill their tasks or SEC provides compensation if the products created is of bad quality. It is also required to consider whether SEC provides means of labor, controls tasks and takes responsibility for the workplace, and consider SEC’s benefits gained from sending employees to work for Samsung Electronics Vietnam Co., Ltd. (SEV).

+ Regarding the condition mentioned in (c): In the cases where SEC is an employer of employees sent to work in Vietnam, it is required to consider whether SEC’s provision of services through sending its employees to work for SEV constitutes a permanent establishment in Vietnam as prescribed in Article 5 (Permanent establishment) of the Agreement. To be specific:

(i) SEC maintains a “place of business” in Vietnam or not; and

(ii) This place is fixed, meaning a fixed place is established and/or maintained habitually or not; and

(iii) SEC wholly or partly carries out its business through such place or not.

To form a basis for determining the fulfillment of the aforementioned conditions, the Department of Taxation shall determine the presence of SEC's fixed place of business (in this case, the fixed place of business is the infrastructure hired or owned by SEC to serve activities which employees undertake, including SEV's infrastructure used by SEC against the market principles); period of time over which SEC has sent its employees to Vietnam; period of time over which SEC’s employees are present in Vietnam; responsibilities, entitlements, benefits and commitments of each party upon sending employees to work for SEV, etc.

SEC is requested to provide the tax authority (the Department of Taxation of Bac Ninh province) with information and documents concerning the transactions between SEC and SEV to form a basis for inspecting the fulfillment of the aforementioned conditions.

For your information and compliance./.