How to calculate personal income tax on dividends paid in shares with a price difference in Vietnam?

What is paying dividends in shares in Vietnam?

According to Clause 3, Article 135 of the Law on Enterprises 2020, it is stipulated as follows:

Paying Dividends

1. Dividends paid for preferred shares shall be executed according to the specific conditions applied to each type of preferred share.
2. Dividends paid for common shares are determined based on the realized net profit and the dividend payment is extracted from the company’s retained profits. Joint-stock companies are only allowed to pay dividends for common shares when the following conditions are met:a) The company has fulfilled tax obligations and other financial obligations as prescribed by law;b) The company has allocated its reserves and compensated for previous losses according to the law and the company’s charter;c) Immediately after paying off the dividend, the company still ensures full payment of debts and other due property obligations.
3. Dividends can be paid in cash, by shares of the company, or by other assets as stipulated in the company’s charter. If paid in cash, it must be executed in Vietnamese Dong and according to the payment methods prescribed by law....

Accordingly, paying dividends in shares is a form of distributing dividends to shareholders in a joint-stock company. The company will issue new shares to existing shareholders. The number of additional shares issued will be equivalent to the dividends that shareholders are entitled to.

How is personal income tax calculated when dividends paid in shares have a price difference in Vietnam? (Image from the Internet)

How to calculate personal income tax on dividends paid in shares with a price difference in Vietnam?

According to Point d, Clause 2, Article 11 of Circular 111/2013/TT-BTC, it is stipulated:

Tax calculation basis for income from capital transfer

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2. For income from securities transfer:

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d) In case of receiving dividends in shares.In the case of receiving dividends in shares, individuals are not required to pay personal income tax when receiving the shares. When transferring these shares, individuals must pay personal income tax on income from capital investments and securities transfer. Specifically:

d.1) The basis for determining the personal income tax to be paid on income from capital investment is the value of dividends recorded in the accounting books or the actual number of shares received multiplied by (×) the par value of the shares and the personal income tax rate on income from capital investment.

If the transfer price of the shares received in lieu of dividends is lower than the par value, personal income tax on capital investment activities is calculated according to the market price at the time of transfer.

After receiving dividends in shares, if individuals transfer shares of the same type, they must declare and pay personal income tax on the received dividends in shares until all these shares are transferred

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Accordingly, when receiving dividends in shares, individuals are not required to pay personal income tax at the time of receipt. If transferring these shares, individuals must pay personal income tax on income from capital investments and securities transfer.

The basis for determining the personal income tax to be paid on income from capital investments relies on the value of dividends recorded in the accounting books or the actual number of shares received multiplied by (×) the par value of the shares and the personal income tax rate on income from capital investments.

If the transfer price of the shares received in lieu of dividends is lower than the par value, personal income tax on capital investment activities is calculated according to the market price at the time of transfer.

Who declares and pays personal income tax when individuals receive dividends in shares in Vietnam?

According to Point d, Clause 5, Article 7 of Decree 126/2020/ND-CP, it is stipulated as follows:

Tax declaration dossiers...

5. Organizations, individuals making tax declarations and paying taxes on behalf of taxpayers must comply fully with the tax declaration and payment regulations as prescribed for taxpayers under this Decree, including:

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d) Organizations shall declare and pay taxes on behalf of individuals receiving dividends in securities; individuals who are existing shareholders receive bonuses in securities; individuals whose increased capital due to profit from capital is recorded; individuals contributing capital by real estate, capital shares, securities. The time for declaring and paying taxes on behalf of individuals shall arise when individuals transfer the same type of securities, transfer capital, or withdraw capital. To be specific:

d.1) For individuals receiving dividends in securities; individuals who are existing shareholders receiving bonuses in securities, the organization is responsible for declaring and paying taxes on behalf of the individual for income from capital investments when individuals transfer the same type of securities as follows:....

Accordingly, in the case of individuals receiving dividends in shares, the organization will declare and pay taxes on behalf of the individual.