CAPITAL TRANSFER TAX OF FOREIGN ENTERPRISES, REGULATIONS ON TRANSACTIONS EXECUTED OUTSIDE THE TERRITORY OF VIETNAM

In international investment practice, cross-border mergers and acquisitions often pose complex challenges regarding the tax obligations of the transferring enterprise. Notably, Vietnam’s right to collect corporate income tax may still be established even when the transfer of capital in a foreign company is executed entirely outside the territory of Vietnam, between entities that are not established and operating in Vietnam. Thus, for this specific transaction structure, how is the capital transfer tax of foreign enterprises regulated by law?

Capital transfer tax of foreign enterprises, offshore transactions may still be subject to tax in Vietnam

Income from the transfer of capital by foreign enterprises, even when the transaction is executed entirely offshore, may still be determined as corporate income tax (“CIT”) taxable income in Vietnam.

Under current tax administration principles, foreign enterprises without a permanent establishment in Vietnam are obligated to pay tax on taxable income arising in Vietnam. Specifically, pursuant to Clause 4, Article 3 of Decree 320/2025/ND-CP, income arising from the capital transfer of foreign enterprises (including both direct and indirect transfer forms) in Vietnam is classified as income sourced from Vietnam.

Regarding this income, the obligation for the capital transfer tax of foreign enterprises arises independently, irrespective of the location where the enterprise conducts its business activities or the actual location where the transfer takes place, regardless of whether the transaction is executed domestically or overseas.

How are the calculation method and tax rate of the capital transfer tax of foreign enterprises applied?

Regarding the method of determining the financial obligation, the corporate income tax payable by foreign enterprises without a permanent establishment in Vietnam is calculated as a percentage (%) of the taxable revenue.

Pursuant to Point i, Clause 3, Article 12 of Decree 320/2025/ND-CP, for the capital transfer of foreign enterprises, the applicable tax rate is fixed at 2% calculated on the total transfer revenue.

Who shall declare and pay the capital transfer tax of foreign enterprises?

As prescribed in Point d, Clause 2, Article 2 of the 2025 Law on Corporate Income Tax, the taxpayer in this instance is identified as the foreign enterprise itself, which does not have a permanent establishment in Vietnam but generates income from the capital transfer.

However, to ensure tax administration and collection capabilities, the law has established a mechanism for tax declaration and payment on behalf of another party. Specifically, according to the provisions of Item b3, Point b, Clause 1, and Clause 2, Article 2 of Decree 320/2025/ND-CP, in the event that the transferee of the foreign enterprise’s capital is also a foreign organization or individual, the enterprise established under Vietnamese law where the foreign organizations are investing capital shall bear the status of the taxpayer. This Vietnam-based enterprise is responsible for declaring and paying on behalf of the foreign enterprise the tax amount arising from the transaction subject to the capital transfer tax of foreign enterprises, in accordance with prescribed procedures.

Does the law provide an exemption mechanism for the capital transfer tax of foreign enterprises?

Current laws establish an exceptional mechanism for transactions in the nature of restructuring, whereby these transactions are determined as generating no taxable income subject to the capital transfer tax of foreign enterprises.

Specifically, this mechanism applies when a foreign enterprise transfers capital in the form of an ownership restructuring transaction among companies within a corporate group that does not alter the ultimate parent company of the participating parties possessing direct or indirect ownership of the enterprise in Vietnam post-restructuring, and does not generate income. The restructuring transaction herein is defined to encompass the following activities: division and separation of companies; consolidation of companies; merger of companies; share swaps; capital contribution via shares; profit distribution and dividend payments by shares within the group; and transactions involving the direct or indirect shift of ownership of the enterprise in Vietnam.

To qualify for the aforementioned exemption mechanism, the capital transfer transaction of the foreign enterprise must simultaneously satisfy the following 04 conditions, as stipulated in Point m, Clause 2, Article 7 of Circular 20/2026/TT-BTC:

– The transaction does not alter the ultimate beneficial owner;

– The transfer value is not recorded higher than the book value or the initial contributed capital value;

– The transaction creates no value discrepancy, wherein the value determined according to the restructuring dossier approved by the competent authority is not higher than the value recorded at the time of the capital transfer;

– The transferee must inherit the entire capital value, as well as the obligations and rights associated with the transferor’s investment.

>> VIETNAM TAX RULES FOR FOREIGNERS AND INVESTORS https://linconlaw.vn/vietnam-tax-rules-for-foreigners-and-investors/

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