How to calculate personal income tax for capital transfer incomes (Part 1)

As you may observe from Personal Income Tax for Foreigners in Vietnam – Part 1 and Personal Income Tax for Foreigners in Vietnam (Part 8), incomes from capital transfer will be considered as a taxable income. In this article, we will discuss on how to calculate the personal income tax (PIT) on such an income.

As mentioned in Part 8 of the series of Personal Income Tax for Foreigners in Vietnam, incomes from capital investment can be in the form of:

–  Profits from capital contributions to limited liability companies (including single-member limited liability companies), partnerships, cooperatives, business cooperation contracts, people’s credit funds, economic organizations, and other organizations.

–  Income from securities transfer includes income from transfer of stocks, the right to buy stocks, bonds, treasury bills, fund certificates and other securities according to Clause 1 Article 6 of the Law on Securities. Income from transfer of stocks by individuals in a joint-stock company is specified in Clause 2 Article 6 of the Law on Securities and Article 120 of the Law on Enterprises.

–  Incomes from other forms of capital transfer.

This Article will focus on the first one, profits from transferring capital contributions in a company or organization as mentioned above.

The applicable formula will be as follows:

Personal income tax payable = Taxable income x Tax rate (20%)

In which,

–  Taxable income = Transfer price – (Purchase price + Related costs)

+   Transfer price:

• Transfer price is a sum of money an individual receives under a capital transfer contract.
• If the transfer contract does not specify the payment price or the payment price stated in the contract is incompatible with the market price, the tax agency may fix the transfer price in accordance with the law on tax administration.

+   Purchase price:

• The purchase price of a capital transfer is the value of the contributed capital amount at the time of capital transfer.
• Value of capital contribution at the time of transfer includes: value of capital contribution to establish an enterprise, value of capital contribution of additional contributions, value of capital from redemption, value of capital from recorded profits of capital increase. In particular:

For the capital contribution to establish a business is the value of the capital at the time of capital contribution. The value of capital contribution is determined on the basis of accounting books, invoices and vouchers.

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

To buy-back capital is the value of such capital at the time of purchase. The purchase price is determined based on the capital contribution redemption contract. In case the contract for repurchase of contributed capital does not have a settlement price or the payment price stated in the contract is not consistent with the market price, the tax agency may fix the purchase price in accordance with the law on tax administration.

For the capital portion from the profit recorded increase capital is the value of the profit recorded in the increase of capital.

+   Related costs:

Deductible related costs are actually reasonable expenses actually arising related to the generation of income from capital transfer, with valid invoices and vouchers as prescribed, specifically as follows:

• Expenses for the necessary legal proceedings for the assignment.
• Fees and charges the assignor pays to the budget when completing the assignment.
• Other expenses directly related to the capital transfer.

–  The personal income tax rate for income from capital transfer is subject to the Full Tax Schedule at the rate of 20%.

Tax period upon each time of income generation will apply to income from capital contribution transfer. The deadline for submitting a tax declaration dossier for each time a tax obligation arises is the 10th (ten) day from the date of the tax liability.