Shall personal income tax apply on income from real estate transfer according to ownership duration of real estate in Vietnam?

Shall personal income tax apply on income from real estate transfer according to ownership duration of real estate in Vietnam?

Recently, the Ministry of Finance submitted a proposal to the Government of Vietnam requesting the formulation of a replacement Law on Personal Income Tax. Within this proposal, the Ministry of Finance outlines proposed amendments and supplements to the Law on Personal Income Tax, including Policy 6: Adjusting the progressive tax rate table applicable to resident individuals earning income from salaries and wages, and corresponding total tax rates with amendments related to income from capital transfers and real estate transfers.

The Ministry of Finance proposes to impose personal income tax on real estate transfers based on the duration of ownership, aiming to institutionalize guidelines and directions outlined in subsection 2 of Section 6 Resolution 18/NQ-TW year 2022 and Section 2 Resolution 62/2022/QH15, to achieve a reasonable degree of regulation, avoid speculation, and real estate bubbles. Taxation of personal income from real estate transfers could be studied for implementation based on holding duration, as experienced by some countries.

The Ministry of Finance justifies this proposal by highlighting that the current personal income tax policy in Vietnam does not differentiate based on the holding period of the real estate by the transferor, citing tax policy cases in Singapore and Taiwan, which have been implemented to curb real estate speculation.

To be specific, in Singapore, land bought and resold within the first year is taxed at 100% on the price difference; after 2 years, the tax rate is 50%; after 3 years, it is 25%. In Taiwan, real estate transactions conducted within the first 2 years after purchase are taxed at a rate of 45%; transactions conducted in 2-5 years are taxed at 35%; in 5-10 years at 20%; and transactions after 10 years at a rate of 15%.

Download the submission to the Government of Vietnam regarding the request to formulate a replacement Law on Personal Income Tax by the Ministry of Finance.

What is the basis for calculating tax on income from real estate transfer in Vietnam?

According to Article 12 Circular 111/2013/TT-BTC, amended by Article 17 Circular 92/2015/TT-BTC, the basis for calculating tax on income from real estate transfer is as follows:

The basis for calculating tax on income from real estate transfer is the transfer price per transaction and the tax rate.

(1) Transfer Price

- The transfer price for transferring land use rights without constructions on the land is the price stated in the transfer contract at the time of transfer.

If the transfer contract does not state a price or if the price in the transfer contract is lower than the land price stipulated by the Provincial People's Committee at the time of transfer, the transfer price will be determined according to the land price list stipulated by the Provincial People's Committee at the time of transfer.

- The transfer price for transferring land use rights associated with constructions on the land, including constructions to be formed in the future, is the price stated in the transfer contract at the time of transfer.

If the transfer contract does not state a land price or if the land price in the transfer contract is lower than the price stipulated by the Provincial People's Committee, the land transfer price is the price stipulated by the Provincial People's Committee at the time of transfer in accordance with land law.

In the case of transferring a house attached to land, the value of the house, infrastructure, and architectural works attached to the land are determined based on the house registration fee stipulated by the Provincial People's Committee. If the Provincial People's Committee does not stipulate a house registration fee, it will be based on the Ministry of Construction's regulations on house classification, construction standards, basic construction norms, and actual remaining value of the structure on the land.

For constructions formed in the future, if the contract does not state a transfer price or if the transfer price is lower than the capital contribution ratio multiplied by the total value of the contract times (x) the land price and construction registration fee stipulated by the Provincial People's Committee, the transfer price will be determined based on the price of the People's Committee times (x) with the capital contribution ratio on the total contract value. If the Provincial People's Committee has not stipulated a unit price, it will be applied according to the construction investment rate announced by the Ministry of Construction, applicable at the time of transfer.

- The transfer price for transferring land use rights, leasing water surfaces is the price stated in the contract at the time of transferring land lease, water surface lease rights.

If the unit rent price in the contract is lower than the price stipulated by the Provincial People's Committee at the time of leasing, the re-lease price is determined based on the price list stipulated by the Provincial People's Committee.

(2) Tax Rate

The tax rate for transferring real estate is 2% of the transfer price or re-lease price.

When is the time to calculate personal income tax from real estate transfers in Vietnam?

According to Clause 3 Article 12 Circular 111/2013/TT-BTC, amended by Article 17 Circular 92/2015/TT-BTC, the regulation regarding the point in time to calculate personal income tax from real estate transfer is as follows:

- If the transfer contract does not stipulate that the buyer is responsible for paying taxes on behalf of the seller, the point in time to calculate tax is when the transfer contract takes effect according to the law.

- If the transfer contract stipulates that the buyer is responsible for paying taxes on behalf of the seller, the point in time to calculate tax is when the procedures for registration of ownership or usage rights of the real estate are completed.