TAX ADVICE ON SHARE TRANSFER IN VIETNAM

 

I. What is a share transfer in Vietnam?

What is a capital transfer contribution? 

For limited liability companies:

Transfer of contributed capital in a limited liability company is understood as a member of a two-member limited liability company or the owner of a one-member limited liability company transferring part or all of his contributed capital in the Company to another person.

For joint stock companies:

Share transfer means the transfer of shares by a shareholder contributing capital of a joint-stock company to another person.

II. Who has to pay personal income tax when receiving money from the share transfer?

"4. Income from the transfer of contributed capital

Income from transfer of contributed capital is income received by individuals, including:

a) Income from transfer of contributed capital in limited liability companies (including one-member limited liability companies), partnerships, business cooperation contracts, cooperatives, people's credit funds, economic organizations and other organizations.

b) Income from the transfer of securities, including: income from the transfer of shares, the right to buy shares, bonds, bills, fund certificates and other securities in accordance with the Law on Securities; income from the share transfer of individuals in joint-stock companies in accordance with the Law on Enterprises.

c) Income from the transfer of contributed capital in other forms. "

Thus, according to the above provisions, individuals with income from the transfer of contributed capital will have to pay PIT in accordance with the Law.

III. Who is exempt from paying personal income tax on the share?

Income from the transfer of contributed capital is not exempt from tax.

Please refer to the Form of Capital Transfer Agreement: Form of Capital Transfer Agreement

IV. What is the basis for calculating personal income tax on the share transfer?

According to Article 11 of Circular 11/2013/TT-BTC stipulating the basis for calculating income tax on the transfer of contributed capital is as follows:

Article 11. Bases for calculating tax on income from the transfer of contributed capital

  1. For income from the transfer of contributed capital

The basis for calculating tax on income from the transfer of contributed capital is assessable income and the tax rate.

a) Assessable income: assessable income from the transfer of contributed capital is determined by the transfer price minus the purchase price of the contributed capital and reasonable expenses related to the creation of income from the transfer of contributed capital.

In case the enterprise accounts in foreign currency, the individual transfers the contributed capital in foreign currency, the transfer price and the purchase price of the transferred capital contribution shall be determined in foreign currency. In case the accounting enterprise is in Vietnamese dong, the individual transfers contributed capital in foreign currency, the transfer price must be determined in Vietnamese dong according to the average transaction rate on the interbank foreign currency market announced by the National Bank of Vietnam at the time of the transfer.

a.1) Transfer price

The transfer price is the amount of money that an individual receives under a contract for the transfer of contributed capital.

In case the transfer contract does not stipulate the payment price or the payment price on the contract does not match the market price, the tax authority has the right to fix the transfer price in accordance with the law on tax administration.

a.2) Purchase price

The purchase price of the transferred capital contribution is the value of the contributed capital at the time of the transfer of the contributed capital.

The value of the contributed capital at the time of transfer includes: the value of the capital contribution to establish the enterprise, the value of the contributed capital of additional contributions, the value of the capital contribution due to acquisition,

the value of the contributed capital from the income recorded to increase the contributed capital. As follows:

a.2.1) For the capital contribution to establish an enterprise is the value of the contributed capital at the time of capital contribution. The value of contributed capital is determined on the basis of accounting books, invoices and vouchers.

a.2.2) For the additional contributed capital is the value of the additional contributed capital at the time of additional capital contribution. The value of additional contributed capital is determined on the basis of accounting books, invoices and vouchers.

a.2.3) For the capital contribution due to acquisition is the value of that contributed capital at the time of purchase. The purchase price is determined based on the contract for the repurchase of contributed capital. In case the contract for the repurchase of contributed capital does not have a payment price or the price paid on the contract does not match the market price, the tax authority has the right to fix the purchase price in accordance with the law on tax administration.

a.2.4) For the capital contribution from the income recorded for the increase in contributed capital is the value of the income recorded for the increase in contributed capital.

a.3) Related expenses are deducted when determining that assessable income of contributed capital transfer activities is the result of actual reasonable expenses incurred in connection with the creation of income from the transfer of contributed capital, with valid invoices and documents as prescribed, specifically as follows:

a.3.1) The cost of doing the legal procedures necessary for the transfer.

a.3.2) Fees and charges the transferor pays when carrying out transfer procedures.

a.3.3) Other expenses directly related to the transfer of contributed capital.

b) Tax rate

The personal income tax rate on income from capital transfers from contributed capital applies under the Full Tax Schedule with a tax rate of 20%.

c) Time of determination of assessable income

The time of determination of assessable income is the time when the contract for the transfer of contributed capital takes effect. Particularly in the case of capital contribution by contributed capital, the time to determine assessable income from the transfer of contributed capital is the time when individuals transfer or withdraw contributed capital.

d) How tax is calculated

Personal income tax payable

=

Assessable income

×

Tax rate 20%

 

V. How to calculate personal income tax from share transfer?

How to calculate PIT when transferring contributed capital in a limited company, a partnership

According to Point b, Clause 1, Article 11, Circular 111/2013 / TT-BTC, the PIT rate for income from capital transfer is applied according to the full tax schedule with a tax rate of 20%. The time of determination of taxable income is the time when the contract for the transfer of contributed capital takes effect. Particularly in the case of capital contribution by contributed capital, the time to determine taxable income from the transfer of contributed capital is the time when individuals transfer or withdraw contributed capital.
The formula defines the following:

PIT payable = assessable income x Tax rate of 20%

Tax rate:

The personal income tax rate on income from capital transfers is applied under the Comprehensive Tax Schedule with a tax rate of 20%.

- Assessable income: assessable income from the transfer of contributed capital is determined by the transfer price minus the purchase price of the transferred capital contribution and reasonable expenses related to the generation of income from the transfer of contributed capital.

Assessable income = Transfer price – (Purchase price + Related expenses)

+ In case the enterprise accounts in foreign currency, the individual transfers the contributed capital in foreign currency, the transfer price and the purchase price of the transferred contributed capital are determined in foreign currency.

+ In case an accounting enterprise is in Vietnamese dong, an individual transfers contributed capital in foreign currency, the transfer price must be determined in Vietnamese dong according to the average transaction rate on the interbank foreign currency market announced by the State Bank of Vietnam at the time of the transfer.

In which:

  • Transfer price:

  • Transfer price is the amount of money that an individual earns under the capital contributed transfer contract.

  • In case the contract for the repurchase of contributed capital does not have a payment price or the price paid on the contract does not match the market price, the tax authority has the right to fix the purchase price in accordance with the law on tax administration.

  • Purchase price:

The purchase price of the transferred capital contribution is the value of the contributed capital at the time of the capital contribution transfer.

The value of capital contribution at the time of transfer includes: the value of capital contributed to the establishment of the enterprise, value of capital contribution of additional contributions, value of capital contribution due to redemption, value of capital contribution from profits that increase capital contribution. As follows:

  • For a capital contribution to establish an enterprise, it is the value of the contributed capital at the time of the contribution. The value of contributed capital is determined on the basis of accounting books, invoices, and vouchers.
  • For an additional capital contribution, it is the value of the additional capital contribution at the time of the additional capital contribution. The value of additional contributed capital is determined on the basis of accounting books, invoices, and vouchers.
  • For the capital contribution due to acquisition, it is the value of that capital contribution at the time of purchase. The purchase price is determined based on the contract to buy back the contributed capital. In cases where the contract to buy back the contributed capital has no payment price or the payment price stated in the contract is not consistent with the market price, the tax authority has the right to fix the purchase price according to the law on tax administration.
  • For capital contributions from profit, an increase in contributed capital is the value of profit recorded as an increase in contributed capital.

The related expenses:

Related expenses are deducted means actual reasonable expenses incurred in connection with the creation of income from the transfer of contributed capital, with valid invoice, vouchers as prescribed, specifically as follows:

  • Expenses to do the necessary legal procedures for the transfer.
  • Fees and charges that the transferor pays to the state budget when carrying out the transfer procedures.
  • Other expenses directly related to the transfer of contributed capital.

* At joint stock company

Pursuant to Clause 2, Article 11, Circular No. 111/2013/TT-BTC:
Assessable income from securities transfers is determined by the securities transfer price each time, which is determined as follows:
- For securities of a public company traded on the stock exchange: the securities transfer price is the price made at the Stock Exchange, determined from the order-matching results or the price formed from transactions agreed at the Stock Exchange.
- For securities that do not belong to the above case, transfer price: The price stated in the transfer contract or the actual transfer price, which is the price according to the accounting books of the unit having the transferred securities at the time of making the nearest financial statements.

Tax rates and tax calculation:

- Tax rate: Individuals who transfer securities pay tax at the rate of 0.1% on the securities transfer price at each time.

- How to calculate and pay PIT on the transfer of shares:

PIT payable = Securities transfer price each time x Tax rate of 0.1%

* At a limited company, a partnership company

According to the provisions of Point b, Clause 1, Article 11, Circular 111/2013/TT-BTC, the PIT rate for income from the transfer of contributed capital is applied according to the full tax rate with a tax rate of 20%.

The time for determining taxable income is the time when the capital contribution transfer contract takes effect. Particularly in the case of capital contributions, the time to determine taxable income from the transfer of contributed capital is the time when the individual transfers or withdraws the contributed capital.

Calculation of PIT tax payable:

PIT payable= Securities transfer price each time x tax rate 20%

VI. Procedures for paying PIT from the share transfer 

Reside individuals are determined as one person in the following cases:

  • Individuals present in Vietnam for over 183 days in a calendar year, calculated by 12 consecutive months from the first day of presence in Vietnam.

  • Individuals who have a regular place of residence in Vietnam, including those with permanent residence registration and those who live in rented houses under a fixed-term contract.

In case an individual does not reside in Vietnam, as stipulated at Article 20, Circular 111/2013/TT-BTC
Article 20. For income from the transfer of contributed capital

  1. Personal income tax on the income from the transfer of contributed capital of an individual who does not reside is determined by the amount that the individual earns from the transfer of the contributed capital of organizations, individuals in Vietnam multiplied by (x) the tax rate of 0.1%, regardless of whether the transfer is implemented in Vietnam or other countries.

    • The total amount that the individual who does not reside in Vietnam earn from the transfer of contributed capital of organizations, individuals in Vietnam is the transfer price without minus any expenses including contribution capital price.

  2. The transfer price for each specific case is determined as follows:

    • In case of transfer of contributed capital, the transfer price is determined like that of a resident under the guidance at Point a.1, Clause 1, Article 11 of this Circular.
    • In case of securities transfers, the transfer price is determined for resident individuals under the guidance at Point a.1, Clause 2, and Article 11 of this Circular.
  3. Time to determine taxable income:
    • a) For incomes from capital contributions of non-residents, it is the time when the capital contribution transfer contract takes effect.
    • b) Income from securities transfer of non-resident individuals shall be determined as for resident individuals under the guidance at Point c, Clause 2, Article 11 of this Circular.
    • Time limit for filing tax return: Up to 10 days after signing the share transfer contract, the individual must submit a personal income tax return to the tax authority of the enterprise.
    • In case an enterprise pays tax on behalf of an individual, the time to submit a tax return is before carrying out the procedures for changing the list of shareholders in accordance with law.
    • The deadline for paying PIT is the deadline for submitting the PIT return. Personal income tax is paid to the State Treasury at banks

VII. How to declare personal income tax on money from the share transfer 

Declare tax on income from transfers of contributed capital (except for securities transfer) according to the provisions of Clause 4, Article 26 of Circular 111/2013/TT-BTC.

- Residents transferring contributed capital shall declare tax on each transfer regardless of whether or not income is generated.

- Non-resident individuals earning income from the transfer of contributed capital in Vietnam are not required to declare tax directly with the tax authority, but the transferee organization or individual shall deduct tax according to the guidance at Point e, Clause 1. , Article 25 of this Circular and make a tax declaration according to each time it is incurred.

- Enterprises that carry out procedures to change the list of contributed capital contributors in case of capital contribution transfer without documents proving that the individual transferring contributed capital has fulfilled tax obligations shall The contributor is responsible for declaring and paying tax on behalf of the individual.

In the event that an enterprise has an individual who transfers capital and the enterprise pays tax on behalf of the individual, the enterprise shall declare the individual's personal income tax declaration dossier. The enterprise declaring on behalf of the individual shall add "Declaration on behalf of" in front of the phrase "the taxpayer or the legal representative of the taxpayer," and at the same time, the declarant shall sign, specify the full name, and seal of the enterprise. On the tax calculation file, the tax receipt must still show that the taxpayer is either the individual transferring the contributed capital (in the case of the transfer of contributed capital by a resident) or the individual receiving the transfer of the contributed capital (in the case of the transfer of capital contribution) is the transfer of contributed capital by non-resident individuals).

2. For non-resident individuals, according to the provisions of Article 20, Circular 111/2013/TT-BTC

Article 20. For income from the transfer of contributed capital

  1. 1The personal income tax on income from the transfer of capital contributions by non-residents is determined by the total amount of money that non-residents receive from the transfer of capital contributions at organizations and individuals. Vietnam multiplied (×) by the tax rate of 0.1%, regardless of whether the transfer is made in Vietnam or abroad.
    • The total amount of money that non-resident individuals receive from the transfer of contributed capital on Vietnamese organizations and individuals is the transfer price of contributed capital, excluding any expenses, including the cost of contributed capital.
  2. The transfer price for each specific case is determined as follows:
    • a. In case of transfer of contributed capital, the transfer price is determined like that of a resident under the guidance at Point a.1, Clause 1, Article 11 of this Circular.
    • b. In cases of securities transfers, the transfer price is determined for resident individuals under the guidance at Point a.1, Clause 2, Article 11 of this Circular.
  3. Time to determine taxable income:
    • a) For incomes from capital contributions of non-residents, it is the time when the capital contribution transfer contract takes effect.
    • b) Income from securities transfers by non-resident individuals shall be determined as for resident individuals under the guidance at Point c, Clause 2, Article 11 of this Circular.

Place of filing the personal income tax declaration for the transfer of contributed capital:

Individuals and businesses declare and submit tax declaration dossiers of capital transfer to the tax authority directly managing the transferred capital enterprise.

VIII. Time limit for paying personal income tax from share transfer 

Deadline for filing tax returns:

Individuals who have income from the transfer of contributed capital shall declare personal income tax no later than the 10th (tenth) day from the effective date of the capital transfer contract.

In the event that an enterprise pays tax on behalf of an individual, the latest time to submit a tax return is before carrying out the procedures for changing the list of capital contributors.

In case an enterprise pays tax on behalf of an individual, the time to submit a tax return is before carrying out the procedures for changing the list of capital contributors as prescribed by law.

The declaration and payment of tax upon transfer of contributed capital in a limited liability company, partnership, or private enterprise:

Tax payment deadline:

Tax payment deadline is the time limit stated in the tax notice of tax authorities.

Please contact LVT Lawyers to get your tax advice!