Taxes applied to share acquisition transaction in a joint-stock company in Vietnam

Acquiring shares in a Vietnam-owned company is one of the most-chosen forms of investment in Vietnam. In general, tax implications of the share acquisition are different from the one of newly set up a foreign-invested enterprise in Vietnam.

Typically, a foreign investor (the “Investor”) may acquire shares in a joint-stock company in Vietnam (the “Target Company”) by either (i) purchasing shares from the existing shareholders (the “Seller”) of the Target Company or (ii) subscribing new shares that are privately issued and allotted by the Target Company to the Investor or (iii) the combination of the said methods. Subject to the type of the share acquisition transaction, the taxes applied may be diverse.

Share transfer

If the share acquisition transaction is conducted in the manner of transferring shares from the Seller to the Investor, the Investor is not required to pay any tax to Vietnamese authorities. Transferring shares in a joint-stock company is considered as a transfer of securities in which the Seller shall be liable for tax in compliance with the respective tax regulation. The capital gain tax regulations have different implications on the Seller based on the tax residency status of the Seller, i.e. individual or corporate. The individual Seller, whoever is a tax resident or a non-tax resident in Vietnam is subject to personal income tax at a rate of 0.1 percent on the sales proceeds. For the corporate Seller who is a resident taxpayer, the gain from a sale of shares in a non-public company in Vietnam is considered as one of the revenues of such Seller which is applied a rate of 20% under the Law on Corporate Income Tax (CIT).

The Seller or the Target Company, as the case may be, take responsibility for tax declaration upon the share transfer transaction. The individual Seller who is a tax resident shall declare and pay the payable PIT by him/herself within 10 days from the date on which the share transfer agreement comes into force (usually the same as the signing date). In case the Seller is a foreigner who is a non-tax resident, the Target Company shall withhold tax before making payment for the Seller as well as to pay tax to the authority. The corporate Seller is required to declare and pay tax in its year-end CIT Finalization.

One problem raised by the Seller that we experienced before is that if the Seller’s obligation of tax declaration and payment is a condition precedent provided in the SPA, it means the Seller has to pay the PIT from his own pocket when he/she has not received proceeds from the Investor, then what happens to the paid tax if the share transfer transaction is cancelled. If it is the case, the Seller is recommended to take procedures of tax refund, although it is a very complicated procedure in Vietnam.

Private issuance of shares

The share acquisition by means of private issuance of shares is not subject to any tax under the laws of Vietnam. Therefore, depending on the expectations of the Investor and the Seller, the parties may design a transaction structure to achieve tax efficiency.

If the Target Company is initially formed as a limited liability company, the Investor is usually consulted to request the conversion of the Target Company into a joint-stock company, then take the share transfer of private issuance of shares to get more convenience of tax calculation.

In conclusion, tax implication is always a vital concern of the Investor when making investment decisions in Vietnam. While the tax regulations of Vietnam are fast-moving, the Investor should consult with a professional consultant in various respects of share acquisition transactions for effective investment.

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