– Pursuant to Clause 4, Article 27 of Circular No. 205/2013/TT-BTC dated December 24, 2013 of the Ministry of Finance guiding the implementation of Agreements on double taxation avoidance and prevention of tax evasion with respect to taxes on income and property between Vietnam and other countries and territories and in force in Vietnam, regulations on determination of tax liability for income from property transfer:
“4. Tax liability on capital gains by foreign investors in foreign-invested enterprises, in a trust or partnership where the value of immovable property constitutes a major proportion of the total capital of the enterprise.
In most of the Agreements between Vietnam and other countries, there are provisions under which Vietnam has the right to collect income tax in case the foreign party transfers capital in enterprises, trusts or partnerships that are the resident of Vietnam whose real estate value accounts for a major proportion of the total assets of the enterprise.”
– Pursuant to Item d, Clause 8, Article 4 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance guiding the implementation of the Law on VAT and Decree No. 209/2013/ND-CP dated December 18, 2013 of the Government detailing and guiding the implementation of a number of articles of the Law on VAT on subjects not subject to VAT:
“8. The following financial, banking and securities trading services:
…
d) Capital transfer includes the transfer of part or all of the capital invested in another economic organization (regardless of whether or not a new legal entity is established), securities transfer, transfer of the right to contribute capital and other forms of capital transfer as prescribed by law, including the case of selling to another enterprise for production and business and the buying enterprise inherits all rights and obligations of the selling enterprise as prescribed by law.”
– Pursuant to the Government’s Decree No. 218/2013/ND-CP dated December 26, 2016 detailing and guiding the implementation of the Law on Corporate Income Tax.
+ Clause 2, Article 2 provides for taxpayers.
+ Item a, Clause 3, Article 6 provides for determination of taxable income from capital transfer.
– Pursuant to Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance guiding the implementation of Decree 218/2013/ND-CP dated December 26, 2013 of the Government stipulating and guiding the implementation of the Law on CIT, stipulates:
+ In Clause 2, Article 2, Chapter I provides for taxpayers:
“2. Foreign organizations doing business in Vietnam not under the Investment Law, the Enterprise Law or earning income in Vietnam shall pay corporate income tax under separate guidance of the Ministry of Finance. If these organizations have capital transfer activities, they shall pay corporate income tax under the guidance in Article 14, Chapter IV of this Circular.”
+ In Clause 1, Article 11 of Chapter II provides for CIT rates:
“ 1. From January 1, 2014, the corporate income tax rate is 22%, except for the cases specified in Clauses 2 and 3 of this Article and cases where preferential tax rates are applicable.
…
From January 1, 2016, cases subject to the tax rate of 22% will change to apply the tax rate of 20%.”
+ At Item a, Clause 2, Article 14, Chapter IV provides for taxable income from capital transfer:
“a) Taxable income from capital transfer is determined:
| Taxable income | = | Transfer price | – | Purchase price of the transferred capital | – | Transfer cost |
In which:
– The transfer price is determined as the total actual value received by the transferor, according to the transfer contract.
…
In case the transfer contract does not specify the payment price or the tax authority has a basis for determining the payment price is not suitable according to the market price, the tax authority has the right to inspect and fix the transfer price. If an enterprise transfers a part of its capital contribution but the transfer price for this capital contribution is not suitable according to the market price, the tax authority may re-assess the entire value of the enterprise at the time of transfer in order to re-determine the transfer price in proportion to the percentage of the transferred capital contribution.
The basis for fixing the transfer price is based on the investigation documents of the tax authority or the capital transfer price of other cases at the same time, the same economic organization or similar transfer contracts at the time of transfer. In case the tax authority’s determination of the transfer price is not appropriate, it shall be based on the appraisal price of the competent professional valuation organizations to determine the transfer price at the time of transfer in accordance with regulations.
If an enterprise transfers capital to an organization or individual, the value of capital transferred under the transfer contract valued at twenty million dong or more must have a non-cash payment voucher. In case the capital transfer does not have non-cash payment documents, the tax authority has the right to fix the transfer price.
– The purchase price of the transferred capital is determined for each case as follows:
….
– Transfer costs are the actual expenses directly related to the transfer, with legal documents and invoices.
…
Transfer costs include: expenses for carrying out necessary legal procedures for the transfer; fees and charges payable when carrying out transfer procedures; costs of transactions, negotiations, signing of transfer contracts and other expenses with supporting documents.”
+ At Item c, Clause 2, Article 14 of Chapter IV provides for capital transfer tax declaration and payment:
“c) For foreign organizations doing business in Vietnam or earning income in Vietnam, which do not operate under the Law on Investment, Law on Enterprises (collectively referred to as foreign contractors) that have capital transfer activities, the tax declaration and payment shall be made as follows:
Organizations and individuals that receive capital transfer are responsible for determining, declaring, withholding and remitting on behalf of foreign organizations the payable corporate income tax amount. In case the capital transferee is also a foreign organization that does not operate under the Law on Investment; Law on Enterprises, enterprises established under the law of Vietnam where foreign organizations invest capital shall declare and pay on behalf of corporate income tax payable from capital transfer activities of foreign organizations.
Tax declaration and payment shall comply with the provision of legal documents on tax administration.
– Pursuant to Article 8 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance guiding corporate income tax in Decree No. 12/2015/ND-CP dated February 12, 2015 of the Government detailing the implementation of the Law amending and supplementing a number of articles of the Law on Taxation and amending and supplementing a number of articles of the Tax Decrees and amending and supplementing a number of articles of the Circular No. No. 78/2014/TT-BTC dated June 18, 2014, Circular No. 119/2014/TT-BTC dated 25/08/2014, Circular No. 151/2014/TT-BTC dated October 10, 2014 of the Ministry of Finance amending and supplementing the second bullet point, point a, Clause 2, Article 14 of Circular No. 78/2014/TT-BTC as follows:
“+ If the capital is acquired, the purchase price is the capital value at the time of purchase. The purchase price is determined on the basis of the capital contribution redemption contract and payment documents.
In case the enterprise satisfies all conditions for accounting in foreign currencies and complies with the provisions of law on accounting regimes with the transfer of contributed capital in foreign currency, the transfer price and purchase price of the transferred capital are determined in foreign currency; In case the enterprise that accounts in Vietnam dong transfers its contributed capital in a foreign currency, the transfer price must be determined in Vietnam dong according to the buying exchange rate of the commercial bank where the enterprise opens its account at the time of transfer”.
– Pursuant to Article 7, Section 1, Chapter II of Circular No. 95/2016/TT-BTC dated June 28, 2016 of the Ministry of Finance (effective from August 12, 2016) guiding tax registration, providing for tax registration dossiers:
“For taxpayers being organizations and individuals withholding tax payments on behalf of the provisions of Point g, Clause 1, Article 2 of this Circular, a tax registration dossier includes:
Tax registration declaration form No. 04.1-DK-TCT issued together with this Circular;
– List of foreign contractors and sub-contractors paying tax through the Vietnamese party, form No. 04.1-DK-TCT-BK (in case the Vietnamese party pays tax on behalf of foreign contractors and sub-contractors).
– A copy of the business cooperation contract (in case the organization submits the business cooperation contract on behalf of an individual).”
– Pursuant to Clause 2, Item b, Clause 7, Article 16 amending Article 12 of Circular No. 151/2014/TT-BTC dated October 10, 2014 of the Ministry of Finance guiding the implementation of Decree No. 91/2014/ND-CP dated October 1, 2014 of the Government on amending and supplementing a number of articles in Decrees amending Article 12 of Circular No. 156/2013/TT-BTC on CIT declaration as follows:
“2. Corporate income tax declaration means declaration according to each time of arising, annual finalization or tax finalization up to the time of decision on enterprise division; unify; merger; business transformation; dissolution; terminate operation.
…..
– Corporate income tax declaration according to each time it is incurred, applicable to foreign organizations doing business in Vietnam or earning income in Vietnam (collectively referred to as foreign contractors) that do not operate under the Law on Investment, Law on Enterprises with income from capital transfer activities.
…
7. Declare corporate income tax for capital transfer activities
…
b) Foreign organizations doing business in Vietnam or earning income in Vietnam (collectively referred to as foreign contractors) but these organizations do not operate under the Law on Investment, the Law on Enterprises shall declare corporate income tax each time it is incurred.
Organizations and individuals that receive capital transfer are responsible for determining, declaring, withholding and remitting on behalf of foreign organizations the payable corporate income tax amount. In case the capital transferee is also a foreign organization that does not operate under the Law on Investment; Law on Enterprises, enterprises established under the law of Vietnam where foreign organizations invest capital shall declare and pay on behalf of corporate income tax payable from capital transfer activities of foreign organizations.
The deadline for submitting tax declaration dossiers is the 10th (tenth) day from the date the competent authority approves the capital transfer, or the 10th (tenth) day from the date on which the parties agree to transfer the capital in the capital transfer contract, in case the capital transfer is not approved.
Tax declaration dossiers for income from capital transfer:
– Corporate income tax declaration on capital transfer (under Form No. 05/TNDN issued together with Circular No. 156/2013/TT-BTC);
– Photocopy of the transfer contract. In case the transfer contract is in a foreign language, the following main contents must be translated into Vietnamese: The transferor; the transferee; transfer time; transferable content; rights and obligations of each party; value of contract; payment term, method and currency.
– Photocopy of the competent agency’s decision approving the capital transfer (if any);
– Photocopy of the certificate of capital contribution ;
– Original documents of expenses.
In case additional documents are required; the tax authority must notify the organization or individual receiving the capital transfer on the day of receipt of the dossier, for the case of direct receipt of the dossier; within 03 (three) working days from the date of receipt of the dossier in case of receipt by post or through electronic transactions.
2. Location of submitting tax declaration dossiers: at the tax office where the enterprise of the foreign organization or individual transferring capital registers to pay tax.”
Pursuant to the above provisions, for example, in case Company A is a resident of the Czech Republic (Foreign company – transferor) signs a contract to transfer capital contribution to Company B (the party with the capital is transferred – is a company based in Vietnam) with Company C (the transferee – is a company based in Vietnam), the declaration and payment of VAT and CIT from the capital transfer of Company A is carried out as follows:
- Taxable entities for income from capital transfer:
Company A’s income from the above capital transfer is subject to tax as agreed in Clause 4, Article 13 of the Agreement between the Government of the Socialist Republic of Vietnam and the Government of the Czech Republic; and guidelines in Clause 4, Article 27, Section 8 of Circular No. 205/2013/TT-BTC dated December 24, 2013 of the Ministry of Finance.
- Responsibility for tax declaration and payment:
Company C (the party receiving capital transfer) must register, declare and pay tax on behalf of Company A on income from capital transfer as prescribed in Item c, Clause 2, Article 14, Chapter IV of Circular No. 78/2014/TT-BTC, the registration of tax identification numbers on behalf of the taxpayers shall comply with the guidelines in Article 7 Section 1 Chapter II of Circular No. 95/2016/TT-BTC; The contractor’s CIT declaration dossiers shall comply with the guidelines in Clause 2, Item b, Clause 7, Article 16 of Circular No. 151/2014/TT-BTC mentioned above.
- Determination of payable VAT and CIT amounts:
– VAT: Capital transfer activities are not subject to VAT according to the provisions of Item d, Clause 8, Article 4 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance .
– CIT: Company C shall determine the payable CIT of Company A according to the guidelines in Clause 1, Article 11 Chapter II and Item a, Clause 2, Article 14, Chapter IV of Circular No. 78/2014/TT-BTC , Article 8 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance.