TAX ON CAPITAL TRANSFER, BUYING AND SELLING ENTERPRISES

Income from capital transfer is only present within Limited Liability Companies, Joint Stock Companies, and Partnerships. 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). Income from capital transfer, distinct from revenue generated through the production and trading of goods and services, and is subject to corporate income tax. The basis for calculating corporate income tax on income from capital transfer is the taxable income and tax rate.

BASIC PRINCIPLES AND PROCEDURES FOR CAPITAL TRANSFER TRANSACTIONS IN VIETNAM

1. Investors may transfer a part or all of the rights and obligations under the project contract to another investor after moving to the operation stage.
2. The transfer of a part or all of the rights and obligations under the project contract shall not affect the objectives, scope, technical standards, project implementation schedule and must comply with conditions for investment and operation in accordance with the laws on investment and other agreed requirements specified in the project contract.
3. The agreement on assignment shall be made in writing and signed between the parties to the project contract and the transferee. 
4. Mandatory requirements for the transferee:
   • Demonstrate financial and management capacity to implement project contracts and related contracts; 
   • Undertake to assume rights and obligations of the transferor as stated in the project contract and relevant contracts; 
   • Meet other requirements agreed upon in the project contract, loan agreement and other agreements between competent state agencies, investors and project enterprises.
5. Carry out procedures to change business registration content in accordance with the provisions of the law on enterprises.
6. The transferor must fulfill financial obligations in accordance with tax laws and project contracts related to income arising from transfer activities.

RULES AND PRACTICES IN VIETNAM ON CAPITAL TRANSFER TAX

1. Taxable income from capital transfer shall be determined as follows:
   • Taxable income= Transfer price – Purchase price of the transferred capital – Transfer expenses
   • The applicable tax rate is 20%.
2. 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.
3. 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.  
4. The transfer price is the total actual value earned by the transferor under the transfer contract.
5. 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.
6. 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.
7. 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.
8. 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).
9. 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.
10. Incomes from capital transfer shall be regarded as other incomes and included in taxable income when calculating CIT.
11. 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.

Read more:

• Rules and direction for the tax on incomes from capital transfer
• Small and medium enterprises (SMEs) – 08 grounds for doing business in Vietnam
• Doing business in Vietnam – manage your capital and money
• Account for payment, withdrawals capital of foreigners who invest directly in Vietnam
• Doing business in Vietnam – Direct investment capital account
• Capital contribution for establishment of a company
• Foreign loans subject to registration with the state bank
• Investment visa in Vietnam – Type and time limits
• Investment in Vietnam – Restructuring – Acquiring and selling a company
• Investment in Vietnam – How to buy or sell a company