What is Sub-entry 1053? How to calculate corporate income tax from real estate transfers in Vietnam?

What is Sub-entry 1053?

According to Point b, Clause 1, Article 4 of Circular 324/2016/TT-BTC, a sub-entry (also known as an economic content code - NDKT) is a detailed classification of an Entry, used to categorize state budget revenue and expenditure in detail according to management objects within each Entry.

Based on Annex 3 of the List, sub-entrys issued together with Circular 324/2016/TT-BTC, it is stipulated that the corporate income tax sub-entry includes sub-entry 1053 as follows:

Sub-entry 1053 refers to corporate income tax from real estate transfers.

What is Sub-entry 1053? How to calculate corporate income tax from real estate transfers in Vietnam? (Image from the Internet)

How to calculate corporate income tax from real estate transfers in Vietnam?

Based on Clause 3, Article 17 of Circular 78/2014/TT-BTC as amended by Article 9 of Circular 96/2015/TT-BTC as follows:

Basis for Tax Calculation

The basis for calculating income tax from real estate transfers is taxable income and the tax rate.

Taxable income is calculated by taking the taxable income and subtracting (-) the losses from real estate transfer activities from previous years (if any).

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2. The corporate income tax rate for real estate transfer activities is 22% (from January 1, 2016, it is 20%).

3. Determination of corporate income tax payable:

Corporate income tax in the tax period for real estate transfer activities is taxable income from real estate transfer activities multiplied (x) by the tax rate of 22%.

Income from real estate transfers must be determined separately to declare and pay taxes and does not apply corporate income tax incentives.

Tax declaration dossiers, tax payments, and tax payment receipts for income from real estate transfers arising in the locality where the transferred real estate is located serve as a basis for tax finalization procedures at the head office.

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Thus, the corporate income tax in the tax period for real estate transfer activities is the taxable income from real estate transfer activities multiplied (x) by the tax rate of 20%.

Income from real estate transfers must be determined separately for tax declaration and payment without applying corporate income tax incentives.

Tax declaration dossiers, tax payments, and tax receipts for income from real estate transfers arising in the locality where the real estate is transferred serve as the basis for tax finalization procedures at the headquarters.

How to determine the taxable corporate income from real estate transfers in Vietnam?

Based on Clause 1, Article 17 of Circular 78/2014/TT-BTC, the guide to determining taxable corporate income from real estate transfers is as follows:

In which, taxable corporate income from real estate transfers is determined by the revenue from real estate transfer activities minus the cost of the real estate and other deductible expenses related to real estate transfer activities. Accordingly:

(1) Revenue from Real Estate Transfer Activities

- Revenue from real estate transfer activities is determined according to the actual transfer price of real estate based on the transfer contract, in accordance with the law (including additional charges and fees if any).

If the land use right transfer price stated in the real estate transfer or sale contract is lower than the land price in the land price table issued by the Provincial People's Committee at the time of signing the real estate transfer contract, it shall be calculated according to the land price set by the Provincial People's Committee at the time of signing the real estate transfer contract.

+ The time to determine taxable revenue is when the seller delivers the real estate to the buyer, regardless of whether the buyer has registered asset ownership, land use rights, or established land use rights with competent state authorities.

+ In cases where the enterprise implements infrastructure investment projects or housing for transfer or lease and collects advance payments from customers according to a schedule in any form, the time to determine temporary taxable corporate income tax revenue is the time when money is collected from customers, specifically:

++ If the enterprise collects payments from customers and can determine the corresponding costs with the recognized revenue (including estimated costs of unfinished construction sections corresponding to the recognized revenue), the enterprise must declare and pay corporate income tax based on the revenue minus costs.

++ In cases where the enterprise collects money from customers but cannot determine the corresponding costs with the revenue, the enterprise declares temporary corporate income tax payment at a rate of 1% on the collected revenue, and this revenue is not included in the corporate income tax revenue for the year.

When handing over real estate, the enterprise must finalize corporate income tax and adjust the corporate income tax payable accordingly. If the temporary corporate income tax paid is lower than the payable corporate income tax, the enterprise must pay the shortfall to the State Budget. If the temporary corporate income tax paid is higher than the payable corporate tax, the enterprise may offset the excess tax paid against the corporate tax payable in the next period or request a refund of the overpaid tax.

For enterprises engaged in real estate business, receiving advance payments from customers according to a schedule, and declaring temporary tax at a% rate on collected revenue, this revenue is not included in the corporate income tax revenue for the year while expenses such as advertising, marketing, promotion, and brokerage commission arising at the beginning of the sale during the revenue year collected according to the progress are not considered as costs in the year of expense. These advertising, marketing, promotion, and brokerage commission expenses are calculated as deductible expenses within the controlled level according to regulations in the first year of real estate handover, where taxable corporate income arises.

- Revenue to calculate taxable income in certain cases is determined as follows:

+ In the case where the enterprise re-rents land, the revenue to calculate taxable income is the periodic payment made by the lessee as specified in the lease agreement. If the lessee makes an advance payment for multiple years, the taxable income revenue is allocated over the years for which payment is made or determined according to the one-time revenue payment. The option for a one-time revenue payment is only determined when the enterprise ensures the fulfillment of financial obligations to the State and meets obligations to sub-lessees for the entire lease term.

In cases where the enterprise is enjoying corporate income tax incentives and chooses the method of revenue recognition for calculating taxable income as the total amount of rental payment made by the lessee for multiple years, the determination of annually exempted or reduced corporate income tax relies on the total corporate income tax of the entire upfront payment period divided (:) by the number of years the lessee made the payment.

+ In cases where a credit institution receives the value of land use rights to secure loan repayment instead of enforcing the secured obligation, if there is a transfer of land use rights as secured collateral for loans, the revenue to calculate taxable income is the land use rights transfer price as agreed upon by the parties.

+ In cases of real estate transactions involving land use rights that have been legally executed to ensure enforcement, the revenue to calculate taxable income is the agreed upon transfer price of land use rights as negotiated by the litigants or determined by the court's assessment board.

(2) Real Estate Transfer Costs:

- Principles for determining costs:

+ Deductible costs for determining taxable income from real estate transfer activities in the tax period must correlate with the revenue used to calculate taxable income and must meet the criteria for deductible costs while not falling into non-deductible cost categories as prescribed.

+ In cases where investment projects are completed in parts and transferred gradually according to the completion progress, general costs used for the project and direct costs used for the completed part of the project are allocated according to the square meters of transferred land to determine taxable income for the transferred land area; this includes:

++ Costs for internal roads; green campus; investment costs for water supply and sewage systems; electric transformer station; compensation for property on the land;

++ Compensation, support, resettlement costs, and organizing costs approved by competent authorities not yet deducted from the land levy, land rent as prescribed by the policy for collecting land levy, land rent to be paid into the State Budget, other investment costs related to land use rights transfers.

The allocation of these costs is performed according to the following formula:

Allocated Costs for Transferred Land Area = [(Total Infrastructure Investment Costs) : (Total Assigned Project Land Area (excluding land used for public purposes as prescribed)] x Transferred Land Area

In cases where part of the project's area not transferred is used in other business activities, the above-mentioned common costs are also allocated to both areas for monitoring, accounting, and corporate income tax declaration for other business activities.

In cases where an enterprise engages in long-term infrastructure construction spanning several years and finalizes the infrastructure value only when the entire work is complete, when consolidating real estate transfer costs for the transferred land area, the enterprise is allowed to temporarily allocate actual infrastructure investment costs incurred according to the transferred land area ratio using the above-mentioned formula and preemptively create infrastructure investment costs corresponding to the recognized revenue when determining taxable income.

After completing the construction investment process, the enterprise calculates and adjusts the already temporarily allocated and preemptively accounted infrastructure investment costs for the transferred area to fit the total infrastructure value accurately.

If the adjustment results in excess tax paid compared to the required real estate transfer tax, the enterprise may deduct the overpaid tax from the tax payable in the subsequent tax period or be refunded according to current regulations; if the tax paid is insufficient, the enterprise must pay the full shortfall according to regulations.

- Deductible real estate transfer costs include:

+ The capital price of transferred land is determined according to the origin of land use rights. Specifically:

++ For land allocated by the State with land levy, or rental fee payment then the capital price is the actual land levy, or rental fee paid to the State Budget;

++ For land use rights obtained from other organizations or individuals, based on the contract and legitimate payment documents when acquiring the land or lease rights; if no contract and legitimate payment documents are available, the capital price is calculated based on the land price set by the Provincial People's Committee at the time of business acquisition.

++ For land acquired through capital contribution, the capital price is the value of land use rights or leasehold rights based on the valuation report during capital contribution;

++ In cases where the enterprise exchanges construction for land from the State, the capital value is determined based on the exchanged construction value, except for cases with special regulations from competent authorities.

++ Auction prices in cases of land use rights auction, lease rights auction;

++ For land originally acquired through inheritance following civil law; gifted or donated without ascertainable capital costs, valuation is based on the land prices determined by the Provincial People's Committee at the time of inheritance, gifting, or donation.

If the land is inherited, gifted, or donated before 1994, the capital price is determined according to the prices for various land types set by the Provincial People's Committee in 1994 based on the pricing framework outlined in Decree 87/CP of 1994.

++ For lands serving as loan security, real estate foreclosed to ensure judicial execution, the land capital cost is determined according to each specific case as guided at the mentioned points.

+ Costs associated with compensating land damages.

+ Costs for compensating crop damages.

+ Compensation costs, support, resettlement, and organizational costs for executing compensation, support, and resettlement per legal regulations.

The compensation, support, resettlement costs, and organizational expenses mentioned above, when lacking invoices, must include a ledger noting: name; address of the recipient; compensation or support amount; recipient's signature, and be confirmed by ward or commune authorities where compensation, support land is located according to legal standards for compensation, support, and resettlement when the State revokes land.

+ Various fees, charges per legal standards related to land use right recognition.

+ Costs for land improvement, site leveling.

+ Investment costs for constructing infrastructure such as roads, electricity, water supply, sewage, telecommunications...

+ The value of existing infrastructures, architectural works on land.

+ Other related expenses to the transferrable property.

If an enterprise operates in multiple business sectors, cost accounting must be performed separately for each business activity. If cost separation per activity is not feasible, shared costs are allocated based on the ratio of real estate transfer revenue compared to the enterprise's total revenue.

Costs already covered by the State or settled through other funding sources are not to be calculated into real estate transfer costs.