RULES AND DIRECTIONS FOR

THE TAX ON INCOME FROM CAPITAL TRANSFER

Regarding transferring capital to new investors for project investment in Vietnam, we would like to introduce our practice services and wish to have a chance to be your local resources for local business procedures as follows:

REGULATIONS ON DECLARING TAX OF CAPITAL TRANSFER ACCORDING TO THE REGISTRATION OF CHANGES OF MEMBERS OF A MULTI-MEMBER LIMITED LIABILITY COMPANY:

1. The incomes from capital transfer may be considered as another source of income. Any company that earns incomes from capital transfer must determine and report the CIT on capital transfer in the quarterly provisional declarations and annual terminal declaration.
2. Where a company sells part of or the whole single-member limited liability company in the form of capital transfer, CIT shall be declared and paid quarterly at the tax authority where the transfer is made.
3. The transferee of capital shall determine, declare, deduct, and pay the CIT payable on behalf of the foreign organization. If the transferee is also a foreign organization that does not follow the Law on Investment and the Law on Enterprises, the company established under Vietnam’s law in which capital is invested shall declare and pay the CIT payable on behalf of the foreign organizations.
4. The tax declaration must be submitted within 10 days from the day on which the competent authority approves the capital transfer, or on the transfer date agreed by all parties in the transfer contract (if the transfer is not subject to approval).
5. A declaration dossier consists of:
   • A declaration of CIT on capital transfer.
   • A photocopy of the transfer contract. If the transfer contract is written in a foreign language, it must be translated into organization, which contains at least the information about the transferor, the transferee, time of transfer, transfer contents, rights and obligations of every party, contract value, deadline, method of payment and currency. 
   • A photocopy of the decision on approval for capital transfer made by a competent authority (if any).
   • A certificate of capital contribution.
   • Original documents of expenditures.

If additional documents must be provided, the tax authority must notify the transferee within the day when the dossier is received (if the dossier is submitted directly), or within 03 days from the day on which the dossier is received (if the dossier is sent by post or electronically).

RULES AND PRACTICES IN VIETNAM ON CAPITAL TRANSFER TAX:

1. An enterprise’s income from capital transfer is the income earned from the transfer of part or the whole of the capital amount that the enterprise has invested in one or many other organizations or individuals (including the sale of the whole enterprise). The time of capital transfer is the time of transfer of capital ownership.
2. In case an enterprise transfers capital and receives in return property or other material benefits (stocks, fund certificates, etc.) instead of cash and earns income from such transfer, such income is liable to CIT. The value of property, stocks or fund certificates shall be determined based on their selling prices on the market at the time of their receipt.
3. Tax bases: Taxable income from capital transfer shall be determined as follows: Taxable income = Transfer price – Purchase price of the transferred capital – Transfer expenses.

Of which: The transfer price is the total actual value earned by the transferor under the transfer contract.

1. If installment or deferred payment is made under the capital transfer contract, the contract’s turnover excludes installment or deferred payment interests over the contractual term.
2. If the payment price is not stated in the transfer contract, or if the tax agency has grounds to determine that the payment price does not match the market price, it may inspect and fix the transfer price. For an enterprise that transfers part of its contributed capital at a transfer price not matching the market price, the tax agency may re-valuate the whole enterprise at the time of transfer for re-determining the transfer price in proportion to the amount of contributed capital transferred.
3. The transfer price shall be determined on the basis of investigation documents of the tax agency or capital transfer prices in other cases, at the same time, of the same economic organization, or under similar transfer contracts at the time of transfer. In case the transfer price determined by the tax agency is inappropriate, it shall be based on the valuation by a professional valuation organization competent to determine transfer prices at the time of transfer.
4. The purchasing price of the transferred capital amount is determined on a case-by-case basis as follows:
   • In the case of transferring contributed capital for enterprise establishment, it is the value of the contributed capital amount recorded in accounting books, invoices and documents at the time of transfer and certified by parties investing in the enterprise or to the business cooperation contract, or it shall be based on audit results provided by an independent audit company for wholly foreign-owned enterprises.
   • In the case of capital redemption, it is the value of the capital amount at the time of redemption. The purchase price shall be determined based on the contract for redemption of the contributed capital amount and payment documents.
   • If a capital amount contributed or redeemed by an enterprise originates partially from loans, the purchase price of the transferred capital amount includes expenses for payment of loan interests.
   • If an enterprise conducts cost-accounting in a foreign currency (approved by the Ministry of Finance), and transfers the contributed capital in such foreign currency, the transfer price and purchasing price of the transferred capital amount shall be determined in such foreign currency. 
   • If an enterprise conducts cost-accounting in Vietnam Dong, and transfers the contributed capital in a foreign currency, the transfer price shall be determined in Vietnam Dong on the average exchange rate applicable on the inter-bank foreign currency market announced by the State Bank at the time of transfer.
5. Transfer expenses are actual expenses directly related to the transfer with lawful documents and invoices. If transfer expenses are incurred overseas, their original documents shall be certified by a notary office or an independent audit organization of the country where such expenses are incurred, and translated into Vietnamese (with the certification of a competent representative).
6. Transfer expenses include expenses for carrying out legal procedures necessary for the transfer, charges and fees paid for carrying out transfer procedures, expenses for transaction, negotiation and signing of the transfer contract, and other expenses with evidencing documents.
7. Incomes from capital transfer shall be regarded as other incomes and included in taxable income when calculating CIT.
8. Foreign organizations doing business in Vietnam or having incomes in Vietnam but not operating under the Investment Law or the Enterprise Law (collectively referred to as foreign contractors) and transferring capital shall declare and pay tax as follows:
   • Capital transferees shall determine, declare, withhold and pay the payable CIT amounts for these foreign organizations. If capital transferees are also foreign organizations not operating under the Investment Law or the Enterprise Law, enterprises established under Vietnamese law invested by these foreign organizations shall declare and pay the payable CIT amounts for these foreign organizations for them. 
   • The tax declaration and payment must comply with legal documents on tax administration.

VIVA is a business consulting company specializing in business compliance procedures according to local business laws and regulations since 2006. VIVA has been continuously trusted by thousands of well-known clients since 2006. We are creating added value for clients by offering one-stop business platform with exclusive and tailored-made services related to market entry and mandatory business compliances. We keep our client’s good standing in lawful and optimal manners whenever they are working and doing business in Vietnam.

VIVA is the choice of local expertise for local business by thousands of foreign investors, multinational companies from Europe, Japan, Singapore, India, Korea, USA,…regard to market entry service, required business compliance procedures by local laws and regulations

We have successfully managed the transferring capital for many FDI companies in Vietnam, including projects in thermal power plants with registered capital up to 3,4 billion USD.

Please contact our experts for any of your query.

ABOUT VIVA BUSINESS CONSULTING

VIVA is the local expertise for local business compliance procedures, has been trusted by thousands of foreign investors, multinational companies from Europe, Japan, Singapore, India, Korea, USA… for the required business compliance procedures by local laws and regulations since 2006.

Thanks for consistent of practice expertise in Business laws - Employment relations – Tax and accounting – Corporate finance – Corporate services, VIVA has been successfully providing service for thousands of leading companies in such industries: Garment, energy, pharma, advertising, agricultural…

VIVA keeps its signature by offering one-stop business platform with regard to market entry and the mandatory business compliances. We ensure for our client’s good standing, in lawful and optimal manners whenever they are working and doing business in Vietnam.

Read more:

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• FDI Enterprise in Vietnam – the Local Required Compliance Procedures – One-stop Solution