Circular No. 161/2009/TT-BTC guiding personal income tax for certain cases of transferring, inheriting, and receiving gifts of real estate.

CIRCULAR

Guidelines on personal income tax for certain cases of transferring, inheriting, and receiving gifts as real estate

 real estate

 __________________

Pursuant to the Personal Income Tax Law No. 04/2007/QH12 dated November 21, 2007;

Pursuant to the Government Decree No. 100/2008/NĐ-CP dated September 8, 2008 detailing some provisions of the Personal Income Tax Law;

Pursuant to the Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to the guidance of the Prime Minister in Circular No. 657/VPCP-KTTH dated February 3, 2009 of the Government Office regarding the implementation of the Personal Income Tax Law, Circular No. 3199/VPCP-KTTH dated May 19, 2009 of the Government Office on personal income tax for the transfer of real estate, and Circular No. 3945/VPCP-KTTH dated June 11, 2009 of the Government Office on the implementation of the Personal Income Tax Law;

The Ministry of Finance provides additional guidelines on the handling of taxes for certain cases of transferring, inheriting, and receiving gifts as real estate as follows:

Article 1. Determination of taxpayers:

The determination of taxpayers for personal income tax in cases of transferring, inheriting, and receiving gifts as real estate is specifically as follows:

1. The taxpayer for personal income tax in the activity of transferring real estate is the individual transferring the property. In the case where the transfer contract stipulates that the transferee shall fulfill the tax obligations on behalf of the taxpayer, the transferee shall declare and pay the tax on behalf of the taxpayer.

2. The taxpayer for personal income tax in the case of inheriting or receiving gifts as real estate is the individual inheriting or receiving the gift.

3. In the case where real estate is transferred, inherited, or given as a gift and is owned by multiple individuals, the taxpayer for personal income tax is each individual co-owner of the real estate.

For real estate received through inheritance or gifts, the taxpayer is each individual inheriting or receiving the gift as recorded in the inheritance document or gift letter.

The taxpayer for the transfer of real estate is specifically determined according to the name of the individual recorded on the Land Use Right Certificate or House Ownership Certificate. In the case where real estate is jointly owned by a group of people or a family but registered under the name of one representative on the Land Use Right Certificate or House Ownership Certificate, the taxpayer is the representative individual whose name is recorded and each individual with a written agreement allowing the representative to register (certified by the People's Committee of the locality where they reside or notarized), or those individuals listed in the accompanying list of the Land Use Right Certificate or House Ownership Certificate registered by the representative according to the law (if applicable). If there is no written agreement or list of individuals jointly registered under one person's name, the individual whose name is recorded on the Land Use Right Certificate or House Ownership Certificate is the taxpayer.

The taxable income for each co-owner of real estate is determined based on the inheritance document, gift letter, or agreement at the time of forming the real estate among co-owners according to the law; if none of these bases exist, it will be equally divided among each co-owner.

4. In the case where real estate has not been issued a certificate of land use right or house ownership but has been transferred and approved by the competent state management agency, the taxpayer will be determined based on other valid documents recognized by the competent state agency.

Article 2. Cases exempted from tax and temporarily not subject to tax collection:

In addition to the subjects exempted from tax on income from the transfer, inheritance, and gifts of real estate as guided in Clauses 1, Clause 2, Clause 3, Clause 4, Clause 5, Section III, Part A, Circular No. 84/2008/TT-BTC dated September 30, 2008 of the Ministry of Finance, the following cases are exempted from personal income tax or temporarily not subject to personal income tax collection, specifically:

1. Temporarily not collecting personal income tax for individuals or households with land use rights or ownership of houses when contributing real estate to establish a business or increase production and business capital of a business in accordance with the provisions of the law.

The determination of the value of real estate contributed to a business shall be carried out in accordance with the provisions of the Enterprise Law. Individuals contributing real estate must submit along with their tax declaration the documents proving the contribution of real estate in accordance with the provisions of the Enterprise Law and guiding documents.

If individuals contributing real estate to a business receive profits, they must pay personal income tax on investment activities; if transferring the contributed capital to other organizations or individuals, they must pay personal income tax on income from the transfer of capital, while also having to make up for the personal income tax on the activity of transferring real estate when contributing to a business.

2. Income from receiving compensation payments due to the State's recovery of land, including income from compensation and support provided by economic organizations when implementing the recovery of land as stipulated in Decree No. 197/2004/NĐ-CP dated December 3, 2004 and Decree No. 17/2006/NĐ-CP dated January 27, 2006 of the Government on compensation, support, and resettlement when the State recovers land.

3. For income from the transfer of housing, land use rights, and assets attached to residential land of individuals in cases where the transferrer only has a single house and a single land use right in Vietnam, personal income tax exemption is granted according to Point 2, Section III, Part A, Circular No. 84/2008/TT-BTC dated September 30, 2008 guiding the implementation of certain provisions of the Personal Income Tax Law and guiding the implementation of Decree No. 100/2008/NĐ-CP of the Government detailing certain provisions of the Personal Income Tax Law. Transferring individuals must declare and clearly state that they are exempted from personal income tax according to Clause 2, Article 4 of the Personal Income Tax Law and bear responsibility under the law for declaring a single house and a single land use right in Vietnam.

Any case discovered to have declared incorrectly is considered tax fraud. If the transferring individual violates, they will be subject to tax collection and penalized for tax fraud according to the law on tax management.

Article 3. Obligation to declare and pay taxes for some cases of transferring real estate as follows:

1. In cases where individuals have land use rights or ownership of houses but mortgage, guarantee loans, or settle debts at banks or credit institutions; upon expiration of the debt repayment period, if the individual is unable to repay the debt, the bank or credit institution shall handle the sale of the real estate and simultaneously declare and pay personal income tax on behalf of the individual before settling the individual’s debts.

In cases where individuals have land use rights or ownership of houses but mortgage to borrow funds or settle debts with other organizations or individuals, now transferring the entire (or part) of the real estate to settle debts, the individual with land use rights or ownership of houses must declare and pay personal income tax or the organization or individual handling the transfer on behalf of the individual must declare and pay personal income tax on behalf of the individual before settling the debts.

Individuals named on the land use certificate are exempted from personal income tax when the bank auctions the sole residence and land of the individual according to Article 4 of the Personal Income Tax Law.

2. In cases where real estate is transferred by individuals to other organizations or individuals according to the court's enforcement decision, the transferring individual must declare and pay tax or the organization or individual conducting the auction must declare and pay personal income tax on behalf of the transferring party. Specifically, for real estate of individuals confiscated and auctioned by competent state agencies and paid into the state budget according to the law, there is no need to declare and pay personal income tax.

3. In cases of mutual exchange of land between individuals (excluding cases of exchanging agricultural land for production purposes exempted from personal income tax according to Clause 6, Article 4 of the Personal Income Tax Law), each individual exchanging land must declare and pay personal income tax.

4. In cases where individuals contribute capital with organizations or individuals to build houses to enjoy the right to purchase apartments or land plots but during the contract execution process, transfer the capital and the right to purchase land plots or apartments to other organizations or individuals, they must declare and pay personal income tax on the activity of transferring real estate.

5. In cases of declaring on behalf of the tax declaration for personal income tax on the activity of transferring real estate, the organization or individual declaring on behalf must record the declaration on behalf at the end of the declaration form, specifically before the phrase "Individuals with income," add the two characters "On Behalf" and simultaneously the declarer signs and writes their full name, if it is an organization declaring on behalf, after signing, the organization's seal must be affixed. On the tax calculation documents and tax receipt, the taxpayer must still be correctly reflected as the individual with income from the transfer of real estate.

Article 4. Determination of tax liabilities for income from the transfer of real estate arising before 2009 but not yet fulfilled financial obligations to the State:

1. In cases where individuals have contracts for the transfer of real estate as prescribed by law and have submitted valid applications to competent state management agencies before January 1, 2009, they shall be handled as follows:

1.1. Where individuals have contracts for the transfer of real estate as prescribed by law and have submitted valid applications to competent state management agencies before January 1, 2009, if the amount of tax payable calculated under the Land Transfer Tax Law is lower than the amount of tax payable calculated under the Personal Income Tax Law, the transferring individual shall pay tax according to the provisions of the Land Transfer Tax Law. If the amount of tax payable calculated under the Land Transfer Tax Law is higher than that calculated under the Personal Income Tax Law, the individual shall pay tax according to the provisions of the Personal Income Tax Law. In cases where taxpayers have paid taxes into the State budget before this Circular takes effect, and the amount paid exceeds the amount of tax payable, the tax authority shall handle the refund of excess tax according to the regulations.

Cases where valid applications are submitted to competent state agencies after January 1, 2009 shall be governed by the Personal Income Tax Law.

1.2. In cases where individuals transfer residential units in apartment buildings and have submitted valid applications to competent state agencies before January 1, 2009, personal income tax shall not be levied on the value of the house; for the land value (if any), personal income tax or land transfer tax shall be paid according to the guidance provided in point 1.1 above.

2. In cases where individuals have been issued Land Use Right Certificates but have outstanding tax liabilities recorded, the applicable tax policy at the time of issuance of the Land Use Right Certificate shall apply.

3. In cases where individuals are using land with one of the types of documents specified in Clause 1, Article 50 of the Land Law (provisions on valid types of documents and those considered valid regarding land use rights) and such documents bear the name of another person along with documents concerning the transfer of land use rights signed by the parties involved but the transfer of land use rights has not been carried out according to the law, and have submitted valid applications to competent state agencies before January 1, 2009, they shall pay tax as follows:

3.1. If the competent state management agency has issued a land use right certificate before January 1, 2009 and recorded a debt for land transfer tax, the individual shall pay the land transfer tax.

3.2. If the application was submitted to the competent state agency before January 1, 2009 but the tax authority has not yet calculated and notified the tax amount, the individual shall pay either land transfer tax or personal income tax according to the guidance provided in Clause 1 above.

Article 5. The transfer price of real estate as the basis for calculating personal income tax:

The transfer price of real estate as the basis for calculating personal income tax is the price stated in the transfer contract. However, in cases where the land price in the transfer contract is lower than the land price stipulated by the provincial People's Committee at the time of submitting the valid application to the competent state agency, the land price stipulated by the provincial People's Committee shall be used to calculate the tax; if the land price in the contract is higher than the land price stipulated by the provincial People's Committee, the price stated in the contract shall be used.

For cases involving inheritance or gifts of real estate, the tax base shall be the value of the real estate at the time of submitting the valid application to the competent state management agency. For land use rights, the value shall be determined based on the land price stipulated by the provincial People's Committee; for houses and other structures on the land, the value shall be determined based on the valuation for stamp duty stipulated by the provincial People's Committee.

Article 6. Application of tax rates:

In accordance with the Law on Personal Income Tax and Decree No. 100/2008/ND-CP of the Government detailing certain provisions of the Law on Personal Income Tax, the personal income tax rate applicable to the transfer of real estate shall be applied at one of the following two tax rates:

1. Apply a tax rate of 25% on taxable income.

2. In cases where the cost price and related expenses cannot be determined as the basis for determining taxable income, apply a tax rate of 2% on the transfer price.

The application of a 25% tax rate on taxable income shall only apply to cases where individuals transferring real estate have complete and valid documents serving as the basis for determining the transfer price, cost price, and related expenses associated with the transfer activity; if the cost price and related expenses cannot be determined, then apply a tax rate of 2% on the transfer price.

Where the transfer price of land is lower than the land price stipulated by the provincial People's Committee at the time of taxation, a tax rate of 2% shall be applied on the land price stipulated by the provincial People's Committee.

Regarding the selection of tax rates when declaring and paying taxes: the tax authority shall cooperate with the housing and land management agency to publicly post guidance documents on the basis for calculating tax, methods for determining taxable income, tax calculation methods, and this Circular, while providing specific guidance to taxpayers to declare and pay personal income tax at a tax rate of 25% on taxable income or 2% on the transfer price.

Article 7. Implementation Organization

1. This Circular shall take effect 45 days from the date of signature. Abolish the guidance contents in Circular No. 16181/BTC-TCT dated December 31, 2008, and Circular No. 762/BTC-TCT dated January 16, 2009, issued by the Ministry of Finance regarding personal income tax on the transfer of real estate activities.

2. Other contents not guided in this Circular shall be implemented in accordance with the provisions of Circular No. 84/2008/TT-BTC dated September 30, 2008, issued by the Ministry of Finance guiding the implementation of certain provisions of the Law on Personal Income Tax and guiding the implementation of Decree No. 100/2008/ND-CP dated September 8, 2008, of the Government detailing certain provisions of the Law on Personal Income Tax; Circular No. 62/2009/TT-BTC dated March 27, 2009, issued by the Ministry of Finance amending and supplementing Circular No. 84/2008/TT-BTC (mentioned above).

During the implementation process, if there are any difficulties, organizations and individuals are requested to promptly report them to the Ministry of Finance (General Department of Taxation) for research and resolution./.