TAX ADVICE ON INHERITING A PROPERTY IN VIETNAM
I. Do you have to pay taxes when inheriting property?
Individuals whose income from inheritance is real estate must pay personal income tax, including:
Income from inheritance is defined as income received by an individual pursuant to a will or inheritance laws, specifically as follows:
-
For inheritance as securities, including: shares, the right to buy shares, bonds, bills, fund certificates and other securities as prescribed by the Law on Securities; shares of individuals in joint-stock companies in accordance with the Law on Enterprises.
-
For inheritance as capital on economic organizations, business establishments, including: contributed capital in limited liability companies, cooperatives, partnerships, business cooperation contracts; capital in private enterprises, business establishments of individuals; capital in associations and funds allowed to be established in accordance with the provisions of law or all business establishments if they are private enterprises or business establishments of individuals.
-
For inheritance as real estate, including: land use rights; land use rights with assets attached to land; home ownership, including future housing formations; infrastructure and construction works associated with the land, including construction works formed in the future; land lease rights; the right to lease the water surface; other income received from donations is real estate of any kind; except for income from donations of real estate according to the instructions at Point d, Clause 1, Article 3 of this Circular.
-
For inheritance as other assets must register ownership or use rights with State management agencies such as automobiles; motorcycles, motorcycles; ships, including barges, canoes, tugs, push boats; boats, including yachts; aero plane; hunting rifles, sports guns.
II. How much is the property inherited worth paying income tax on?
The amount of personal income tax payable upon the inheritance of real estate is equal to 10% of the value of the estate. But only real estate with a value greater than VND 10 million must pay taxes.
III. Who is exempt from paying taxes when receiving an inheritance for real estate?
Individuals in the following situations are exempt from paying income tax on real estate inheritance (including future houses or construction works formed in accordance with real estate business law):
- Spouses;
- Natural father, natural mother with biological children;
- Adoptive father, adoptive mother with adopted child;
- Father-in-law, mother-in-law with daughter-in-law;
- Father-in-law, mother-in-law with son-in-law;
- Grandfather, grandmother to grandson, grandfather to grandchild;
- Siblings to each other.
IV. What is the basis for taxes on receiving inheritance for real estate?
According to Article 16 of Circular 111/2013/TT-BTC
Article 16. Taxable basis from inheritance, gifts
The tax basis for income from inheritances or gifts is assessable income and tax rates.
c) The value of inherited assets or gifts that are real estate is determined as follows:
c.1) For real estate that is the value of land use rights, the value of land use rights shall be determined based on the land price list prescribed by the Provincial People's Committee at the time the individual carries out procedures for registration of the right to use real estate.
c.2) The real estate value of houses and architectural works on land shall be determined in accordance with regulations promulgated by competent state management agencies on house value classification; regulations on basic construction standards and norms promulgated by competent state management agencies; and residual value of houses and architectural works at the time of registration of ownership. In the event it cannot be determined according to the above provisions, it shall be based on the registration fee charged by the Provincial People's Committee.
d) For gifts or donations that are other assets that must be registered for ownership or use rights with state management agencies: the value of assets shall be determined on the basis of the price list for registration fees prescribed by provincial-level People's Committees at the time the individual carries out ownership registration procedures, the right to use inherited property, or gifts.
-
The tax rate: 10% of the value of the inherited property.
-
Time to determine assessable income
The time of determination of assessable income from gifts or inheritances is the time when individuals carry out procedures for registration of ownership and the right to use inherited or gifted assets.
V. How to calculate the amount of tax payable
Personal income tax payable = Assessable income x Tax rate 10%
For example:
Mr. A has no children; he made a will to give a land plot with an area of 1000m2 (according to the land price table of province X, the position of the land plot costs 03 million VND/m2) to Mr. B.
Mr. B’s taxable income of is calculated as follow:
Assessable income=taxable income – taxable deductions
Assessable income = 03 bill dong – 10 mill dong=2,990 bill dong
The amount of personal income tax Mr. B is obliged to pay is:
Taxable liability = Assessable income x Tax rate 10%
Taxable liability = VND 2,990 billion x Tax rate 10% = 299 million VND.
How to calculate PIT for non-resident individuals
The formula for calculating PIT for non-resident individuals from heritance is:
According to Article 23 of Circular 111/2013/TT-BTC, the calculation of PIT for non-resident individuals is calculated as follows:
PIT = Assessable income x Tax rate 10%
Of which
Assessable income
-
Taxable income from receiving heritance, gift for non-resident individuals is the value of assets inherited, given exceeding VND 10 million according to each income generated in Vietnam. If it is less than 10 million, there is no need to pay taxes.
-
Income from receiving heritance, gift for non-resident individuals is determined for resident individuals. Time to determine taxable income
-
For donated income: the time of determination of taxable income is the time when individuals carry out procedures for registration of ownership or right to use property in Vietnam.
⇒ Thus, when receiving a heritance that is subject to PIT payment, the amount of non-resident personal tax payable is equal to 10% of the value of the property received.
VI. The procedure of paying tax on receiving an inheritance of real estate
Document composition:
a. For gifts and inheritances that are real estate:
-
Personal income tax declaration according to form No. 03/REAL ESTATE-PITT issued together with Circular No. 92/2015/TT-BTC;
-
Copies of land use right certificates, documents proving home ownership, or documents proving ownership of works on land;
-
Copies of legal documents proving the right to receive inheritances or gifts;
-
Documents as a basis for determining that they are subject to tax exemption (in the transfer of real estate exempted from PIT);
-
Documents as a basis for proving capital contribution (in real estate transfer due to capital contribution to enterprises temporarily not collecting PIT).
b. For receiving gifts or an inheritance such as houses and construction works formed in the future:
-
Personal income tax declaration according to form No. 03/BDS-TNCN issued together with Circular No. 92/2015/TT-BTC;
-
Copies of legal documents proving the right to receive inheritance or gifts;
-
Documents to identify tax-exempt subjects (in the transfer of real estate exempted from PIT);
-
Documents as a basis for proving capital contribution (in real estate transfer due to capital contribution to enterprises temporarily not collecting PIT).
c. For receiving an inheritance, gifts are other assets that must be registered for ownership:
-
Personal income tax declaration for income from gifts and inheritances according to form No. 14/KK-TNCN issued together with Circular 156/2013/TT-BTC;
-
A copy of legal documents proving the right to receive gifts and inheritances.
Order of implementation:
+ Step 1: Individuals transferring or receiving an inheritance of real estate in Vietnam must prepare documents and submit tax returns no later than 10 (ten) days from the time the transfer contract takes effect as prescribed by law at the one-stop-shop department or the Tax Department where the transferred real estate is located, or the office worth signing the land use right where the transferred real estate is located (in case the locality has not yet implemented the one-stop-shop regulation).
In case a group of individuals receive gifts or inheritances of real estate and carry out co-ownership procedures, the individual tax declaration representative and other individuals sign the declaration without requiring each individual to file a tax return. Tax authorities rely on the declaration to determine individual tax obligations for each individual receiving gifts and inheritances.
+ Step 2. Tax authorities receive tax returns directly from taxpayers or from natural resources and environmental agencies. If the dossier is submitted directly to the tax office, tax officials receive and stamp the receipt of dossiers, record the time of receipt of dossiers, record the number of documents in the dossier, and record them in the clerical books of the tax authorities.
VII. Place to submit the individual income tax declaration from the inheritance of real estate?
Individual income tax returns from inheritance and gifts of real estate (including houses and future construction works) are filed at the first department of the joint/tax branch/land use right registration office where the transferred real estate is located.
Note: If an individual transfers a future-formed house or construction work, he or she must declare and pay PIT at the local tax department where the future-formed house or construction work is formed, or the organization or individual authorized by the tax authority to collect.
Individuals who receive income from inheritance, securities gifts, or contributed capital must file tax returns with the tax authorities in charge of securities issuing enterprises or contributed capital enterprises.
Note: In case an individual receives inheritances, gifts of various types of securities, and contributes capital at the same time, he or she must file a tax return with the Tax Department in the state where the individual resides (place of permanent or temporary residence registration).
Individuals receiving income from inheritance, gifts, or other assets must submit a tax return at the tax office where the registration is filed.
VIII. Failure to declare and pay taxes on time may be sanctioned
Individuals who make late declarations of personal income tax returns may be sanctioned for administrative violations under Decree 125/2020/ND-CP as follows:
Article 13. Penalties for violations of the deadline for filing tax returns
- Warning penalty for filing tax returns beyond the deadline of 01 day to 05 days and with extenuating circumstances.
- A fine of VND 2,000,000 to VND 5,000,000 shall be imposed for filing a tax return beyond 01 day to 30 days, except for the case specified in Clause 1 of this Article.
- A fine ranging from VND 5,000,000 to VND 8,000,000 shall be imposed for filing a tax return beyond the prescribed time limit from 31 days to 60 days.
- A fine of VND 8,000,000 to VND 15,000,000 shall be imposed for one of the following acts:
- a) Submit tax returns beyond the prescribed time limit from 61 days to 90 days; b) Submit tax returns beyond the prescribed time limit of 91 days or more but do not incur the amount of tax payable;
- c) Failure to submit tax returns but no amount of tax payable;
- d) Failure to submit appendices according to regulations on tax administration for enterprises with associated transactions attached to the enterprise income tax finalization dossier.
- A fine of VND 15,000,000 to VND 25,000,000 shall be imposed for the act of submitting a tax return more than 90 days from the expiration date of filing a tax return, incurring the amount of tax payable and the taxpayer has paid the full amount of tax or late payment to the state budget before the tax authority announces the tax inspection decision, tax inspectorate or before the time the tax authority makes a record of the act in late submission of tax returns as prescribed in Clause 11, Article 143 of the Law on Tax Administration.
In case the amount of penalty if applied under this clause is greater than the amount of tax incurred on the tax return, the maximum penalty amount for this case is equal to the amount of tax payable on the tax return but not lower than the average of the penalty frame specified in Clause 4 of this Article. If an individual acts of late payment of tax, Clause 2, Article 59 of the Law on Tax Administration in 2019 applies:
Article 59. Handling of late payment of taxes
-
The late payment charge and the late payment time are prescribed as follows:
a) The late payment penalty is 0.03% /day calculated on the amount of late payment tax.
b) The time for calculating late payment shall be calculated continuously from the day following the date on which the late payment specified in Clause 1 of this Article arises to the day immediately preceding the date of payment to the state budget of the amount of tax debt, tax refund, additional tax increase, fixed tax, or late transfer tax.
From the above provisions, it is possible to determine the formula for calculating the penalty for violation due to late payment of personal income tax from receiving gifts and donations that are real estate as follows:
The penalty for late payment of tax = Amount of late payment of tax x 0.03% x Number of days of late payment
Please contact LVT Lawyers to get your tax advice!
