Calculation of corporate income tax from capital transfers

Capital transfer income is other income for the calculation of corporation tax. It is necessary to know the calculation of corporate income tax from capital transfer.

Scope of capital transfer income

Clause 1, article 14, circular n° 78/2014/TT-BTC setting the scope of capital transfer income as follows:

– Income of a business from the transfer of capital is income derived from the transfer of some or all of the amount of capital that the business has invested in one or more other organizations or persons (including the sale of whole company).

The moment of the transfer of capital is the moment of the transfer of ownership of the capital.

– In case a company sells the entire single number limited liability company it holds as a capital transfer with real estate, it must declare and pay the corporate income tax for the transfer of real estate and complete the corporate income tax return promulgated with Circular 78.

– In the event that a company transfers capital and receives in return property or other material benefits (shares, fund certificates, etc.) instead of cash and derives income from this transfer, this income is subject to corporation tax.

The value of goods, shares or fund certificates is determined according to their sale price on the market at the time of their receipt.

Calculation of corporate income tax from capital transfer (Illustration)

Calculation of corporate income tax from capital transfers

In accordance with clause 2, article 14, circular n° 78/2014/TT-BTC, the taxable income of the transfer of capital is determined as follows:

Taxable income payable = Taxable income x 20%

For the calculation of taxable income payable, taxable capital transfer income is determined as follows:

Taxable income = Sale price – Purchase price of the property sold
capital – Transfer costs

Whose :

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

If the staggered or deferred payment is made within the framework of the capital transfer contract, the turnover of the contract excludes the staggered or deferred interest over the contractual term.

If the payment price is not stated in the transfer contract or when the tax administration has reason to determine that the payment price does not correspond to the market price, it may inspect and fix the transfer price.

For a company that transfers part of its contributed capital at a transfer price that does not correspond to the market price, the tax administration may reassess the whole of the company at the time of the transfer to redetermine the price of transfer in proportion to the amount of contributed capital transferred .

The transfer price is set on the basis of the investigation documents of the tax authorities or capital transfer prices in other cases at the same time, of the same economic organization or within the framework of transfer contracts similar to the time of transfer. In the event that the transfer price set by the tax authorities is inappropriate, it will be based on the assessment by a professional assessment body competent to determine the transfer prices at the time of the transfer in accordance with the legal provisions.

If a company transfers capital to an organization or an individual, the amount of capital transferred under the transfer agreement worth VND 20 million must be accompanied by non-cash payment documents. If the capital transfer does not include any payment document other than cash, the tax authorities can set the transfer price.

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

In case of transfer of contributed capital for the establishment of a business, it is the value of the amount of contributed capital recorded in the accounting books, invoices and documents at the time of the transfer and certified by the parties investing in the enterprise or in the business cooperation contract, or will be based on the audit results provided by an independent audit company for wholly foreign-funded enterprises.

In the case of a capital repayment, it is the value of the principal amount at the time of repayment. The purchase price will be determined on the basis of the contract for repayment of the amount of capital contributed and the payment documents.

If a company keeping analytical accounts in a foreign currency (approved by the Ministry of Finance) transfers the contributed capital in this foreign currency, the transfer price and the purchase price of the amount of transferred capital are determined in this foreign currency.

If a company carrying out cost accounting in Vietnamese dong transfers the contributed capital in a foreign currency, the transfer price is determined in Vietnamese dong at the average exchange rate applicable in the interbank foreign exchange market announced by the State Bank at the time of transfer.

(3) Transfer fees are the actual expenses directly related to the transfer with lawful documents and invoices.

If transfer costs are incurred overseas, their original documents must be certified by a notary office or independent auditing organization in the country where such costs are incurred and translated into Vietnamese (with certification from a competent representative ).

The transfer costs include the costs of carrying out the legal procedures necessary for the transfer; costs and fees paid for the execution of the transfer procedures; transaction, negotiation and signing costs for the assignment contract; and other expenses with supporting documents.

For instance: Company A contributes VND 400 billion, including VND 320 billion in workshop value and VND 80 billion in cash, for the establishment of a joint venture to produce tissue paper. Then, he transfers this amount of contributed capital to company B at a price of 550 billion VND. The book value of the capital contributed by company A at the time of the transfer is VND 400 billion and the expenses related to the capital transfer are VND 70 billion.

In this case, the income used for the calculation of corporate income tax on this capital transfer is 80 billion VND (550 – 400 – 70)

To note:

– Capital transfer income is considered as other income and included in taxable income when calculating corporation tax.

– Foreign organizations doing business in Vietnam or having income in Vietnam but not operating under the Investment Law or Enterprise Law (collectively referred to as foreign entrepreneurs) and transferring capital must declare and pay the tax as follows:

– Transferees of capital must determine, declare, withhold and pay the amounts of corporate income tax payable on behalf of these foreign organizations.

In case the transferees of capital are also foreign organizations not governed by the Investment Law or the Enterprise Law, the companies established under Vietnamese law invested by these foreign organizations shall declare and pay the amounts of corporation tax payable by such foreign organizations on their behalf.

– The declaration and payment of tax must be in accordance with the legal documents on the tax administration.

Here is calculation of corporate income tax from capital transfers.

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