“The impact of the COVID-19 pandemic and new economic policies in many countries, led many businesses to consider re-structuring their businesses, including transferring capital and shares (“capital transfer”). This is considered the most used method for such re-structuring. This made Vietnam a destination for many investors wishing to do business in Vietnam by receiving the transfer of contributed capital. Since this involves tax obligations, the following article will provide information about tax obligations arising in the process of transferring capital.”
The ‘law on personal income tax’ has clearly stated that income from capital transfer is one of the taxable incomes and it is mandatory to declare and pay personal income tax for such transfer of capital or shares. Here, the income from the transfer of contributed capital/shares is subject to personal income tax (if the transferor is an individual) or corporate income tax (if the transferor is an enterprise). Note that when there is a capital transfer at a limited liability company, or a partnership, or a private enterprise, whether or not a taxable income is generated, the taxpayer must submit the declaration to the tax authority to declare personal income tax.
The time for determining taxable income is the time when the capital contribution transfer contract takes effect. In case the amount of capital transfer is equal to the capital contribution, the time of determining taxable income from such capital transfer is the time when the individual transfers the capital or withdraws the capital. Tax submission will be counted each time such transfer takes place.
The deadline for the declaration tax return: Individuals who declare tax on income from the transfer of contributed capital shall do so no later than the 10th (Tenth) day from the effective date of the capital transfer contract. If the enterprise pays tax on behalf of an individual, the tax declaration dossier must be submitted before carrying out procedures for changing the list of capital contributors as prescribed by law.
Formula for calculating personal income tax when transferring capital:
Payable PIT = (PIT taxable income) x (PIT rate), where PIT stands for ‘Personal income tax’
Here, taxable income is determined based on the nature of the economic operations. To explain:
For resident individuals, it is determined by the transfer price minus the purchase price of the transferred capital and reasonable expenses related to generating income from capital transfer.
In case an enterprise makes accounting records in a foreign currency or an individual transfers capital contribution in a foreign currency, the transfer price and purchase price of the transferred capital portion shall be determined in foreign currency. In case an enterprise does accounting in Vietnamese dong or an individual transfers capital contribution in foreign currency, the transfer price must be determined in Vietnamese dong by the average exchange rate announced by The State Bank of Vietnam at the time of such transfer. The transfer price is the amount that an individual receives under the capital transfer contract. In case the contract does not specify the payment price or if the payment price in the contract is not consistent with the market price, the tax authority has the right to fix the transfer price in accordance with the law on tax administration.
The purchase price (cost of gold sold) is the value of the contributed capital at the time of capital transfer. It includes (i) value of capital contributed to the establishment of the enterprise, (ii) value of additional contributions to capital, (iii) value of capital acquired by redemption, and (iv) value of capital from profits recorded.
Related expenses are deductible when determining taxable income on capital transfer activities. Reasonable expenses incurred in connection with income from capital transfer, must be shown with invoices and documents according to the regulations.
For non-resident individuals, the taxable income is the total amount of money that they receive from the transfer of capital from Vietnamese organizations and individuals.
The total amount of money that non-resident individuals receive from the transfer of capital from Vietnamese organizations and individuals is the capital transfer price, excluding expenses, and including the cost price.
Thus, the personal income tax rate from such capital transfer is determined by:
Individuals transferring securities shall pay tax at a tax rate of 0.1% on the securities transfer price each time. Therefore, shareholders shall declare and pay personal income tax for each share transfer .
The information above is what we would like to mention to enterprises which are in the process of transfer of shares and capital in accordance with the laws of Vietnam. However, enterprises need to conduct an inspection before implementing the capital transfer conditions to ensure meeting certain factors like (i) the provisions of the Enterprise Law and other relevant laws, (ii) the ratio and conditions are consistent with provisions in international treaties to which Vietnam is a party, (iii) the transfer of capital in the form of land use rights must be in accordance with the provisions of the law of the land and other relevant laws.
This article is based on the current laws at the above recorded time and may no longer be relevant at the time readers access this article due to changes in applicable law and specific cases which the readers want to apply. Therefore, this article is for reference only.