Calculation of enterprise income tax from capital transfer

Scope of application for income from capital transfer

Clause 1, Article 14, Circular No. 78/2014/TT-BTC prescribing the scope of application for incomes from the capital transfer as follows:

- An enterprise’s income from the capital transfer is income earned from the transfer of part or the whole of the capital amount 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.

- In case an enterprise sells the whole single-number limited liability company which it owns in the form of capital transfer together with real estate, it shall declare and pay enterprise income tax for the transfer of real estate and fill in the enterprise income tax return promulgated together with the Circular 78.

- 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 the such transfer, such income is liable to enterprise income tax.

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.

Calculation of enterprise income tax from capital transfer

Pursuant to Clause 2, Article 14, Circular No. 78/2014/TT-BTC, the taxed income from the capital transfer is determined as follows:

Payable taxed income = Taxed income x 20%

In order to calculate the payable taxed income, Taxed income from capital transfer shall be determined as follows:

Taxed income = Transfer price - Purchasing price of the transferred
capital - Transfer expenses

Of which:

(1) The transfer price is the total actual value earned by the transferor under the transfer contract.

If installment or deferred payment is made under the capital transfer contract, the contract’s turnover excludes installment or deferred payment interests in the contractual term.

If the payment price is not stated in the transfer contract or when 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 f transfer for re-determining the transfer price in proportion to the transferred contributed capital amount.

The transfer price shall be fixed 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 fixed 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 in accordance with law provisions.

If an enterprise transfers capital to an organization or individual, the capital amount transferred under the transfer contract valued at VND 20 million must have non-cash payment documents.  In case the capital transfer has no non-cash payment documents, the tax agency may fix the transfer price.

(2) The purchasing price of the transferred capital amount is determined on a case-by-case basis as follows:

In case of transfer of 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 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 purchasing price shall be determined based on the contract on redemption of the contributed capital amount and payment documents.

If an enterprise conducting cost-accounting in a foreign currency (approved by the Ministry of Finance) 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 conducting cost-accounting in Vietnam dong transfers the contributed capital in a foreign currency, the transfer price shall be determined in Vietnam dong at the average exchange rate applicable on the inter-bank foreign currency market announced by the State Bank at the time of transfer.

(3) 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).

Transfer expenses include expense 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.

For example: Enterprise A contributes VND 400 billion, including VND 320 billion as the value of workshops and VND 80 billion in cash, for establishing a joint-venture enterprise to produce tissue papers. Then it transfers this contributed capital amount to enterprise B at the price of VND 550 billion. The book value of enterprise A’s contributed capital at the time of transfer is VND 400 billion and the capital transfer-related expense is VND 70 billion.

In this case, income used for calculating enterprise income tax on this capital transfer is VND 80 billion (550 - 400 - 70)

Note:

- Incomes from capital transfer shall be regarded as other incomes and included in taxable income upon calculation of enterprise income tax.

- 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 payable enterprise income tax amounts on behalf of such foreign organizations.

In case 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 payable enterprise income tax amounts of such foreign organizations on their behalf.

- The tax declaration and payment must comply with legal documents on tax administration.