GUIDELINES FOR CALCULATING PERSONAL INCOME TAX ON CAPITAL CONTRIBUTION TRANSFERS IN LIMITED LIABILITY COMPANIES

1. Pursuant to Point a, Clause 4, Article 2 of Circular No.111/2013/TT-BTC dated August 15, 2013 income derived from the transfer of capital contribution in a limited liability company (including single-member limited liability companies) is subject to personal income tax.
2. Tax basis for Income Derived from the Transfer of Capital Contributions in a Limited Liability Company (Pursuant to Article 11 of Circular No. 111/2013/TT-BTC)

The tax basis for income from the transfer of capital contributions consists of taxable income and the applicable tax rate.

Where:

1. a) Taxable income: Taxable income from the transfer of capital contributions is determined as the transfer price minus (-) the original purchase price of the transferred capital portion and any reasonable expenses directly related to the generation of income from the capital transfer.

In cases where the enterprise maintains its accounting records in a foreign currency and the individual transfers capital contributions in a foreign currency, the transfer price and the purchase price of the transferred capital shall be determined in that foreign currency. In cases where the enterprise maintains its accounting records in Vietnamese dong but the individual transfers capital contributions in a foreign currency, the transfer price must be converted into Vietnamese dong based on the average exchange rate on the interbank foreign currency market announced by the State Bank of Vietnam at the time of the transfer.

a.1) Transfer price

The transfer price is the amount received by an individual under the capital transfer agreement.

In case where the agreement does not specify the payment price or where the payment price stated in the agreement is not consistent with the market value, the tax authority shall have the right to determine the transfer price in accordance with the provision of the law on tax administration

a.2) Purchase price

The purchase price of the transferred capital portion is the value of the contributed capital at the time of the capital transfer.

The value of the contributed capital at the time of transfer includes: the value of the initial capital contribution upon the establishment of the enterprise; the value of additional capital contributions; the value of capital acquired through repurchase; and the value of capital derived from retained earnings recorded as an increase in capital. Specific details are as follows:

a.2.1) For capital contributed to the establishment of the enterprise, it is the value of capital when the contribution is made. The value of contributed capital is determined based on accounting books and invoices.

a.2.2) For additional capital contribution, it is the value of the additional capital contribution when the additional contribution is made. The value of additional capital contribution is determined based on accounting books and invoices.

For purchased capital, it is its value when the purchase is made. The purchase price is determined based on the contract to buy capital contribution. If the contract to buy capital contribution does not specify the price or the price stated in the contract is not conformable with the market price, the tax authority may impose a purchase price in accordance with regulations of law on tax administration.

For the capital from reinvested profit, it is the value of the reinvested profit.

a.3) Deductible expenses when calculating taxable income from capital transfer are rational expenses that are related to the generation of income from capital transfer with valid invoices as prescribed. In particular:

a.3.1) The expenditures on legal procedures necessary for the transfer.

a.3.2) The fees and charges paid to the government budget when following the transfer procedure.

a.3.3) Other expenditures related to the capital transfer.

1. b) Tax rate

The rate of personal income tax on the income from transferring contributed capital is 20% according to the whole income tax table.

1. c)  Time to calculate the assessable income

Assessable income shall be calculated when the capital transfer contract takes effect. When making a contribution from another capital contribution, the assessable income from transferring capital shall be calculated when the person transfers or withdraws capital.

Example: Mr. A contributes capital to Company C Limited Liability Company (LLC), holding 40% of the charter capital (equivalent to VND 4 billion). Mr. A subsequently transfers the entire capital contribution to Mr. B for a transfer price of VND 6 billion. It is known that the value of the capital contribution previously acquired by Mr. A was VND 3.5 billion, and deductible related expenses amount to VND 100 million. Calculate the personal income tax (PIT) payable by Mr. A arising from the capital transfer transaction.

Taxable income= 6.000.000.000 VND – (3.500.000.000 VND + 100.000.000 VND) = 2.400.000.000 VND

Personal income tax payable = 2.400.000.000 VND x 20% = 480.000.000 VND

Accordingly, the personal income tax payable by Mr. A is 480.000.000 VND

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