Circular No. 96/TC-TCT guides the collection of taxes for cases involving the transfer of capital by investors in enterprises established under the Companies Law, the Law on Private Enterprises, and the Law on Foreign Investment in Vietnam, within the scope of the Law on Encouraging Domestic Investment.

CIRCULAR

Circular No. 96 TC/TCT dated December 30, 1995 of the Ministry of Finance guiding the collection of taxes on the transfer of capital by investors in enterprises established under the Company Law, the Law on Private Enterprises, the Law on Foreign Investment in Vietnam, the Law on Encouragement of Domestic Investment, and investors in joint venture banks, foreign bank branches in Vietnam, and parties to joint ventures under foreign investment contracts in Vietnam.

Pursuant to the Income Tax Law adopted by the National Assembly of the Socialist Republic of Vietnam on June 30, 1990; the Law Amending and Supplementing Certain Provisions of the Income Tax Law on July 6, 1993;
Pursuant to the Law on Foreign Investment in Vietnam adopted by the National Assembly of the Socialist Republic of Vietnam on December 29, 1987; the Law Amending and Supplementing Certain Provisions of the Law on Foreign Investment in Vietnam on June 30, 1990; the Law Amending and Supplementing Certain Provisions of the Law on Foreign Investment in Vietnam on December 23, 1992;
Pursuant to the Law on Encouragement of Domestic Investment adopted by the National Assembly of the Socialist Republic of Vietnam on June 22, 1994;
Pursuant to Decree No. 57/CP dated August 28, 1993 of the Government detailing the implementation of the Income Tax Law and the Law Amending and Supplementing Certain Provisions of the Income Tax Law;
Pursuant to Decree No. 18/CP dated April 16, 1993 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam;
Pursuant to Decree No. 29/CP dated May 12, 1995 of the Government detailing the implementation of the Law on Encouragement of Domestic Investment;
The Ministry of Finance guides the collection of taxes on the transfer of capital by investors in enterprises established under the Company Law, the Law on Private Enterprises, the Law on Foreign Investment in Vietnam, the Law on Encouragement of Domestic Investment, and investors in joint venture banks, foreign bank branches in Vietnam, and parties to joint ventures under foreign investment contracts in Vietnam as follows:

Chapter I. SCOPE OF APPLICATION

1. Investors in enterprises established under the Company Law, the Law on Private Enterprises, the Law on Foreign Investment in Vietnam, the Law on Encouragement of Domestic Investment, and investors in joint venture banks, foreign bank branches in Vietnam, and parties to joint ventures under foreign investment contracts in Vietnam who transfer part or all of their capital to another party or parties to a joint venture or a joint stock company, or to a third party, including the transfer of the right to contribute capital from one investor to another investor, the transfer of contributed capital or the right to contribute capital between companies within a corporate group or multinational corporation, approved in writing by the competent authority, are subject to taxation according to the guidance provided in this Circular.

2. Types of taxes applicable:

2a. Income tax: Income from the above transfer of capital is subject to income tax under the Income Tax Law and the Law on Foreign Investment in Vietnam.

2b. Tax on repatriation of profits: The remaining income of foreign investors (including overseas Vietnamese), after payment of income tax, when transferred out of Vietnam (in cases where the transfer transaction occurs in Vietnam) or retained outside Vietnam (in cases where the transfer transaction occurs outside Vietnam), must be subject to tax on repatriation of profits.

Chapter II. BASIS FOR TAX CALCULATION AND WITHHOLDING TAX

1. Income tax;

1.1- The taxable income from the transfer of capital shall be determined as follows:

Taxable Income = Transfer Value - Initial Capital Value - Transfer Costs

Where:

+ The transfer value is determined as the actual total value that the transferring party receives according to the transfer agreement. In cases where the transfer agreement does not specify the payment value or the payment value is not determined based on the principle of fair market transaction between the transferring and receiving parties, the tax authority has the right to inspect and set the payment value of the agreement based on reference to market prices and similar transfer contracts in Vietnamese enterprises.

+ The initial value of the transferred capital is determined based on accounting books and documents regarding the capital contribution of the investor, which have been recognized as appropriate by the Enterprise Management Board or the parties involved in the joint venture in accordance with current Vietnamese laws.

In cases where subsequent investors continue to transfer the capital contribution of previous investors, the initial value of the capital to be transferred each time thereafter shall be determined by adding the transfer value of the immediately preceding transfer agreement to the actual additional capital contribution value (if any), in accordance with the principles stated herein.

+ Transfer costs include actual expenses directly related to the transfer, as evidenced by original documents recognized by the tax authority. In cases where transfer costs arise abroad, such original documents must be certified by a notary or independent auditor in the country where the costs occurred.

Transfer costs include, but are not limited to, the following expenses: costs for necessary legal procedures for the transfer; fees and charges payable when processing the transfer procedures; transaction, negotiation, and contract signing costs associated with the transfer agreement... all supported by evidence.

1.2- Income tax rate:

Foreign investors establishing businesses under the Law on Foreign Investment (including foreign-invested enterprises, joint venture banks, foreign bank branches in Vietnam, and joint venture parties in cooperation contracts) must pay income tax at a rate of 25% on income from the transfer of capital.

Income from the transfer of capital by Vietnamese investors, including Vietnamese individuals residing abroad and foreigners residing in Vietnam operating under the Law on Encouragement of Domestic Investment, shall be included in the income of the investor's economic base and subject to income tax according to the Law on Income Tax.

1.3- Procedures for declaration and payment of income tax on the transfer of capital:

1.3.a: For investors who are organizations or foreign individuals conducting the transfer of capital:

- Not later than five working days from the date the competent authority approves the capital transfer, the capital transferring party or the person authorized by the transferring party must prepare and submit the income tax declaration form for the transfer of capital to the local tax authority directly managing the tax collection of the business where the capital was invested (according to the attached annex).

The transferring party may authorize the receiving party to pay the income tax on behalf of the transferring party by deducting the amount of tax due from the payment made to the transferring party before transferring it to them and depositing the tax amount into the State Treasury. - Within five working days from the date of receipt of the tax declaration form from the capital transferring party, the tax authority must officially notify the taxpayer of the tax payable.

- Not later than five working days from the date of receipt of the tax notification from the tax authority, the taxpayer must pay the full amount of tax as notified by the tax authority into the State Treasury designated by the tax authority.

Based on the tax payment receipts provided by the State Treasury, the tax authority issues a written confirmation notice to the competent authority approving the capital transfer regarding the full payment of tax by the transferring party.

1.3.b. For investors who are organizations or Vietnamese individuals (including Vietnamese individuals residing abroad investing in Vietnam under the Law on Encouragement of Domestic Investment); income derived from the transfer of capital by Vietnamese organizations and individuals is included in the income of the investor's economic base and declared and paid according to the provisions of the Law on Income Tax.

2. Tax on Repatriation of Profits:

Foreign investors establishing businesses under the Law on Foreign Investment (including foreign-invested enterprises, joint venture banks, foreign bank branches in Vietnam, and joint venture parties in cooperation contracts) pay withholding tax on repatriation of profits at the rate specified in their business license issued by the competent authorities. For joint venture banks and foreign bank branches operating in Vietnam, the withholding tax rate on repatriation of profits is stipulated in Article 70 of Decree No. 18/CP dated April 16, 1993 of the Government.

Vietnamese individuals residing abroad operating under the Law on Encouragement of Domestic Investment pay withholding tax on repatriation of profits at a rate of 5%.

Procedures for declaration and payment of withholding tax on repatriation of profits are carried out in accordance with the current guidelines of the Ministry of Finance.

Chapter III. IMPLEMENTATION

1- Foreign investors, investors in foreign-invested enterprises, joint venture banks, and foreign bank branches in Vietnam, investors in Vietnamese joint-stock companies and limited liability companies as legal entities, are responsible for strictly complying with tax obligations under current tax laws and the guidelines set forth in this Circular.

Violations such as late declaration, late payment of taxes, false declaration, and tax evasion will be dealt with according to current laws.

2- The provincial tax bureaus have the responsibility to guide and supervise the investors to strictly fulfill their tax obligations in accordance with the guidelines set forth in this Circular.

3- This Circular takes effect from January 1, 1996. All previous directives issued by the Ministry of Finance that contradict the guidelines in this Circular are hereby abolished.