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Is it hard to collect tax from Airbnb?

Nguyen Thi Nga

Nguyen Thi Nga

nga.nguyen@phuoc-partners.com
The article titled: “Is it hard to collect tax from Airbnb?” from Lawyer Nguyen Thi Nga, is published on Sai Gon economic times, dated 20 September  2018.
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The boom of the digital economy in the 21st century has made it easy for everyone to become a business person. Through this internet, it is now possible to “sell” almost anything: skills, knowledge, or excess chattels or property such as cars, houses etc. However, the taxation regime has remained in the 20th century – leaving tax authorities, not only in Vietnam but all over the world, confused about how to collect taxes.

While Grab and Uber, which can turn any person’s car into a taxi service, has been so popular, Airbnb – a multinational company providing online room booking services – is relatively new to Vietnamese people. The rapid growth of Airbnb in the digital environment, which is no longer confined within the boundaries of any country, creates the exceedingly difficult conundrum of reasonably collecting tax from Airbnb. How will the Vietnamese taxation authorities cope with this issue?

LEGAL GROUNDS TO COLLECT TAX FROM AIRBNB?

Even though more and more people have registered their accounts on www.airbnb.com to look for tenants, Airbnb has so far not established any commercial presence in Vietnam. This does not mean that foreign organizations without any commercial presence in Vietnam like Airbnb will be put outside the application scope of the Vietnamese tax laws.

As prescribed by the applicable law, even if foreign business organizations have or do not have their permanent establishments in Vietnam but earn income from Vietnam based on contracts, agreements or covenants with Vietnamese organizations and individuals, they will be specified as tax payers governed by the contractor law[1]. Therefore, in terms of a legal corridor, Vietnam has sufficient legal grounds to levy a contractor tax on Airbnb (including value added tax and corporate income tax) and Airbnb is also liable to pay contractor tax to Vietnam for the income generated in Vietnam.

To avoid tax losses, what matters is how we will manage and collect tax from Airbnb.

HOW TO COLLECT TAX FROM AIRBNB?

Currently, the management and collection of tax from some online room booking websites such as Agoda, Traveloka, Expedia etc. is being governed by Official Letter No. 848/BTC-TCT dated 18/01/2017 of the Ministry of Finance providing guidelines on the policy and management of tax with respect to the business activities of these organizations (“Official Letter 848”). Airbnb operates in the same manner as Agoda, Traveloka etc. so it may have to implement its tax obligations in accordance with this Official Letter.

Circular 103/2104/TT-BCT as well as Official Letter 848 prescribes that permanent establishments signing contracts with foreign contractors must deduct and pay tax on behalf of foreign contractors when tenants pay rent directly to the establishments in Vietnam, or notify foreign contractors of the tax obligations and pay tax for them if tenants pay rent directly to foreign contractors, then the foreign contractors will remit the rent to the permanent establishments in Vietnam[2].

Pursuant to this regulation, regardless of whether tenants pay rent to the permanent establishment or the foreign contractor, the obligation of declaring and paying tax still lies with the establishment in Vietnam, which can be controlled by the Vietnamese taxation authority.

IS IT EASY TO COLLECT TAX FROM AIRBNB?

However, considering the operating model of Airbnb, tax loss is, for many reasons, an evident consequence of the tax collection regime based on the above regulations and guidelines.

When landlords agree to tenants’ booking schedules, the rent paid by the tenants will be remitted to the payment centre of Airbnb though Airbnb, which is just an intermediary and is not present in Vietnam[3]. Airbnb will pay the rent amount to the landlords 24 hours after the tenants have received their rooms excluding the tax amount that Airbnb should pay.

Pursuant to the Vietnamese law, the permanent establishments must declare and pay tax on behalf of Airbnb while the contract between the parties (terms and conditions exactly) does not contain any provision on the tax obligation of Airbnb in Vietnam. Therefore, to avoid the risk that Airbnb does not reimburse the tax amounts, permanent establishments in Vietnam tend to reject or seek to avoid paying tax on behalf of Airbnb.

Besides, the permanent establishments doing business on www.airbnb.com in Vietnam are mostly households and individuals; all transactions are made via the internet, not recorded by invoices or in accounting books, and Airbnb makes payments through international payment accounts, so it is hard for taxation authorities to control all of their revenues if there is not a consistent cooperation between the taxation authorities and the banks.

HOW DO OTHER COUNTRIES COLLECT TAX FROM AIRBNB?

In France, though Airbnb has only one branch in Paris, the French taxation authority finds it hard to determine the exact taxable revenues of Airbnb since this tiny branch with only 40 employees involved mainly in marketing. France is the second most important market of Airbnb, but Airbnb paid only EUR100,000 to the French taxation authority in 2016 – equivalent to the tax amount that a small enterprise with a revenue of EUR300,000 must pay[4]. With the French economic minister appearing angry about this issue, right after that, the tax management authorities of France and Germany submitted a tax proposal for digital platforms to the European Council on 15/9/2017.

Being unable to curb the growth of Airbnb as an obvious tendency in the age of industry 4.0, competent authorities of countries around the world have simply tightened the regulations on the obligations of the landlords joining Airbnb, and present a new method of calculating tax for those who provide this service.

In Berlin, for example, people who lease out half of their houses for a short term without the permission of the city council may be fined EUR100,000. In London, the “rule of 90 days” was presented in 2015 prohibiting the lease of real estate for over three months per year on Airbnb, or any other similar services. On 28/04/2017, France enacted Decree No. 2017-678 also called Decree “Airbnb” which sets forth the registration information for leasing houses on a short-term basis. This regulation, from 01/12/2017, forces the landlords on the websites providing the service of leasing apartments for short terms like Airbnb to register with the City Hall before posting ads. People who do not register with the City Hall will be fined up to EUR50,000.

The “threat” that Airbnb now poses to relevant service industries is not as prominent and worrisome as Uber or Grab, but in the long term, the State needs to have tighter regulations to manage the tax issue of Airbnb as well as similar services which have been growing or will come into existence in the near future.

[1] Article 1 Circular 103/2014/TT-BTC

[2] Section 2 of Official Letter 848

[3] https://www.airbnb.com/help/article/209/why-should-i-pay-and-communicate-through-airbnb-directly

[4] https://www.lesechos.fr/11/08/2016/lesechos.fr/0211198480838_airbnb-n-a-paye-que-69-168-euros-d-impots-en-france.htm