Official Letter 93/CTLAN-TTHT on Personal Income Tax Policy

Regarding the letter No. 08/CV-24 dated December 24, 2024, from An Dat Industrial Garment Co., Ltd. (hereinafter referred to as the Company) about income tax on dividends received and the transfer of capital contributions, the Tax Department provides guidance as follows:

• Pursuant to Article 69 of the Law on Enterprises No. 59/2020/QH14 dated June 17, 2020 by the National Assembly:

  Article 69. Conditions for profit distribution
  "A company is allowed to distribute profits to its members only after fulfilling tax obligations and other financial obligations in accordance with the law, ensuring that all debts and other liabilities due are paid after profit distribution."

• Pursuant to Clause 6, Article 11 of Circular No. 92/2015/TT-BTC dated June 15, 2015 of the Ministry of Finance amending and supplementing Point c, Clause 3, Article 2 of Circular No. 111/2013/TT-BTC dated August 15, 2013:

  “6. Amendment of Point c, Clause 3, Article 2
  "c) The income received from participating in capital contribution in limited liability companies, joint-stock companies, cooperatives, joint ventures, business cooperation contracts, and other forms of business according to the Enterprise Law and the Cooperative Law; the income received from participating in the establishment of credit institutions under the Credit Institution Law; capital contributions to securities investment funds and other investment funds established and operating according to the law."
  This does not apply to income subject to tax from private enterprises, or one-member limited liability companies owned by individuals."

• Pursuant to Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance implementing the Personal Income Tax Law, amendments, and supplements to some provisions of the Personal Income Tax Law and Decree No. 65/2013/ND-CP of the Government detailing some provisions of the Personal Income Tax Law and its amendments:

  • Article 10 defines the tax base for income from capital investment for residents:

    "The tax base for income from capital investment is taxable income and tax rates.

    1. Taxable income
       Taxable income from capital investment is the income subject to tax that the individual receives as per Clause 3, Article 2 of this Circular.
    2. The tax rate for income from capital investment is a flat 5%."

  • Article 19 specifies the income tax for non-resident individuals on income from capital investment:

    "Personal income tax on income from capital investment by non-resident individuals is calculated by multiplying the taxable income they receive from capital investment in organizations or individuals in Vietnam by the 5% tax rate."

• Pursuant to Clause 6, Article 8 of Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance guiding the implementation of Decree No. 218/2013/ND-CP dated December 26, 2013 of the Government, guiding the implementation of the Corporate Income Tax Law:

  "Article 8. Exempt income
  …
  6. Income derived from capital contribution, purchasing shares, joint ventures, economic links with domestic enterprises after the recipient has paid corporate income tax in accordance with the Corporate Income Tax Law, including cases where the recipient enjoys corporate income tax incentives."

• Pursuant to Article 5 of Circular No. 186/2010/TT-BTC dated November 18, 2010 of the Ministry of Finance guiding the remittance of profits abroad by foreign investors in direct investment activities in Vietnam under the Investment Law:

  "Article 5. Notification of profit remittance abroad
  A foreign investor or an authorized enterprise in which the foreign investor participates in investment must notify the tax authority of the remittance of profits abroad using the form provided in this Circular, at least 7 working days before the remittance."

• Pursuant to Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance:

  • Clause 10, Article 2 provides income subject to tax:

    "10. Income from receiving gifts
    Income from receiving gifts is the income of an individual received from organizations or individuals, both domestic and foreign, as follows:
    …
    b) In case of receiving a gift of capital in economic organizations, business establishments, including: capital in limited liability companies, cooperatives, joint-stock companies, business cooperation contracts, private enterprises, personal business establishments, or funds established according to the law."

  • Article 16 defines the tax base for inheritance and gift income for residents:

    "The tax base for income from inheritance or gifts is taxable income and tax rates.

    1. Taxable income
       Taxable income from inheritance or gifts is the value of assets received exceeding 10 million VND per time. The value of inheritance or gifts is determined in each case as follows:
       …
       b) For inherited or gifted capital in economic organizations, business establishments: taxable income is determined based on the book value of the capital at the most recent date before the registration of the capital share ownership."
    2. Tax rate: The personal income tax rate for inheritance or gift income is 10%."

  • Article 23 defines income from prizes, inheritance, and gifts for non-residents:

    "1. The personal income tax on income from prizes, inheritance, or gifts for non-resident individuals is determined by multiplying the taxable income by the 10% tax rate.
    2. Taxable income:
    …
    b) Income subject to tax from inheritance or gifts of non-residents is the value of the inherited or gifted assets exceeding 10 million VND per occurrence in Vietnam."

Based on the above provisions, the Tax Department provides guidance on the Company’s issues as follows:

• The Company can distribute profits if it meets the conditions specified in Article 69 of the Enterprise Law No. 59/2020/QH14.

• Regarding the income received from capital contributions in a two-member limited liability company, the following applies:

  • For individual capital contributors: The Company must withhold personal income tax according to Article 10 of Circular No. 111/2013/TT-BTC for residents or Article 19 for non-residents.

  • For foreign investors: The income received from capital contributions is exempt from corporate income tax if it meets the conditions in Clause 6, Article 8 of Circular No. 78/2014/TT-BTC. When the foreign investor remits profits abroad, they must notify the tax authorities as per Circular No. 186/2010/TT-BTC.

• If a foreign investor gifts part of their capital in the Company to an individual, the income received by the individual is subject to gift tax, and the Company must withhold personal income tax according to Article 16 of Circular No. 111/2013/TT-BTC for residents or Article 23 for non-residents.

The Company is advised to refer to the actual business situation and comply with the applicable legal provisions mentioned above.

The Tax Department answers for the Company’s information and compliance with the legal provisions cited in this document.

See details here.