How is Personal Income Tax Calculated on Dividend Receipts?

What is Dividend?

According to Clause 5, Article 4 of the 2020 Law on Enterprises, dividends are the net profit paid per share in cash or other assets.

Dividends can be understood as a portion of the profit that a company distributes to its shareholders after deducting all expenses and financial obligations, corresponding to the number of shares they own.

How to calculate personal income tax when receiving dividends? (Image from the Internet)

Are Dividends Subject to Personal Income Tax?

Clause 3, Article 2 of Circular 111/2013/TT-BTC (Amended by Clause 6, Article 11 of Circular 92/2015/TT-BTC) states:

Taxable Income

According to the provisions of Article 3 of the Personal Income Tax Law and Article 3 of Decree No. 65/2013/ND-CP, taxable personal income includes:

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3. Income from capital investment

Income from capital investment is the income an individual receives in forms such as:

b) Dividends received from capital contribution to purchase shares.

c) Profit received from participating in capital contribution into limited liability companies, partnerships, cooperatives, joint ventures, business cooperation contracts, and other business formats as stipulated by the Law on Enterprises and the Law on Cooperatives; profit received from participating in the capital contribution to establish credit institutions according to the Law on Credit Institutions; contributing capital to securities investment funds and other investment funds established and operating in accordance with the law.

Profit of a private enterprise or a single-member limited liability company owned by an individual is not included in taxable income from capital investment.

d) The increased portion of contributed capital value received upon dissolution of the enterprise, restructuring business models, division, split, merger, consolidation of enterprises, or when withdrawing capital.

đ) Income received from interest on bonds, treasury bills, and other valuable papers issued by domestic organizations, except for the income as instructed at sub-point g.1 and g.3, point g, clause 1, Article 3 of this Circular.

e) Other income received from capital investment in other forms including capital contribution by assets, by reputation, by land use rights, by inventions, patents.

g) Income from dividends paid in shares, income from profit increased to capital.

Dividends are considered a form of income from capital investment. As per the above regulations, income from dividends received from capital contribution to purchase shares is subject to personal income tax.

How to Calculate Personal Income Tax when Receiving Dividends?

(1) For resident individuals, as stipulated in Article 10 of Circular 111/2013/TT-BTC:

Basis for Calculating Tax on Income from Capital Investment

The basis for calculating tax on income from capital investment is taxable income and tax rate.

1. Taxable Income

Taxable income from capital investment is the taxable income that an individual receives as guided in clause 3, Article 2 of this Circular.

2. Tax rate on income from capital investment applies a flat tax rate of 5%.

3. Timing for Determining Taxable Income

The timing for determining taxable income from capital investment is when the organization or individual pays the income to the taxpayer.

Specifically, the timing for determining taxable income for certain cases is as follows:

a) For increased contributed capital value income as guided at point d, clause 3, Article 2 of this Circular, the timing of determining income from capital investment is when the individual realizes income upon enterprise dissolution, restructuring business models, division, split, merger, consolidation or capital withdrawal.

b) For income from profit increased to capital as guided at point g, clause 3, Article 2 of this Circular, the timing for determining income from capital investment is when the individual transfers or withdraws capital.

c) For income from dividends paid in shares as guided at point g, clause 3, Article 2 of this Circular, the timing for determining income from capital investment is when the individual transfers shares.

d) In cases where individuals receive income from overseas capital investments in any form, the timing for determining taxable income is when the individual receives the income.

4. Tax Calculation

Personal income tax payable = Taxable income × Tax rate 5%

Thus, the basis for calculating tax on income from capital investment (receiving dividends) is taxable income and tax rate. The tax rate on income from capital investment applies a flat tax rate of 5%.

The formula for calculating personal income tax when receiving dividends is as follows:

* Regarding the timing for determining taxable income:

- Cash dividends: Tax is calculated at the time the company pays the income.

- Share dividends: Tax is calculated when the individual transfers the shares.

In this case, the individual does not have to pay tax immediately. Tax arises only when transferring those shares.

- For overseas capital investments, tax is calculated when individuals actually receive income from these sources.

(2) For non-resident individuals, Article 19 of Circular 111/2013/TT-BTC provides:

For Income from Capital Investment

Personal income tax on income from capital investment of non-resident individuals is determined by the total taxable income non-residents receive from capital investment into organizations or individuals in Vietnam multiplied by (×) the tax rate of 5%.

Taxable income, timing for determining taxable personal income from capital investment for non-resident individuals is determined similarly to that for resident individuals according to the guidance in clause 1, clause 3, Article 10 of this Circular.

Thus, the calculation of personal income tax when receiving dividends for non-resident individuals is carried out similarly to that for resident individuals. The tax calculation will be based on total taxable income non-residents receive from capital investment into organizations or individuals in Vietnam.