When assets are circulated when a sole proprietorship converts to an LLC in Vietnam, shall assets subject to VAT declaration and payment?

When assets are circulated when a sole proprietorship converts to an LLC in Vietnam, shall assets subject to VAT declaration and payment?

The cases where VAT declaration and payment are not required are stipulated at Point b, Clause 7, Article 5 of Circular 219/2013/TT-BTC as follows:

Cases where VAT declaration and payment are not required

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7. Other cases:

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b) Assets are circulated among dependent accounting units in an enterprise; transfer of assets upon division, separation, consolidation, merger, or conversion of the type of enterprise. Transferred assets between member units dependent on the business establishment; assets transferred upon division, separation, consolidation, merger, or conversion of the type of enterprise. The business establishment with transferred assets must issue an asset transfer order accompanied by the dossier of asset origin and no invoice is required.

In cases where assets are circulated between independent accounting units or between member units with full legal status within the same business establishment, the establishment must issue a VAT invoice and declare and pay VAT according to regulations, except as guided in Clause 6 of this Article.

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Thus, for the case of a sole proprietorship converting to an LLC, VAT declaration and payment for transferred assets are not required.

However, the sole proprietorship with transferred assets must issue an asset transfer order, accompanied by a dossier of asset origin and no invoice is needed.

When assets are circulated when a sole proprietorship converts to an LLC in Vietnam, shall assets subject to VAT declaration and payment? (Image from the Internet)

Vietnam: Does converting a sole proprietorship to an LLC require tax settlement?

The tax declaration dossier for enterprise type conversion is stipulated at Article 43 of the Law on Tax Administration 2019 as follows:

Tax declaration dossier

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6. The tax declaration dossier for cases of business cessation, contract termination, enterprise type conversion*, reorganization of an enterprise includes:*

a) Tax settlement declaration;

b) Financial statements up to the point of activity termination, contract termination, enterprise type conversion, or reorganization;

c) Other relevant documents related to tax settlement.

7. Country-by-country profit report in the case where the taxpayer is the ultimate parent company of a multinational group in Vietnam with cross-border affiliate transactions and has global consolidated revenue exceeding the prescribed level or the taxpayer has the ultimate parent company overseas which is obliged to prepare a country-by-country profit report according to the regulations of the host country.

8. The Government of Vietnam provides detailed regulations on tax declaration dossiers stipulated in this Article; specifies types of taxes declared monthly, quarterly, annually, upon each occurrence of tax liability, tax settlement declaration; declaration of fees, charges collected by Vietnamese representative offices abroad; declaration, provision, exchange, use of information on country-by-country profit reports; criteria for determining taxpayers for quarterly tax declaration.

Thus, in the case of converting a sole proprietorship to an LLC, tax settlement is still required to complete the tax declaration dossier.

What documents are included in the application for converting a sole proprietorship to an LLC in Vietnam?

Based on the provisions of Clause 1, Article 26 of Decree 01/2021/ND-CP, in the case of converting a sole proprietorship to an LLC (a multi-member LLC or a single-member LLC), the application includes the following documents:

- Enterprise application for a multi-member LLC as stipulated in Article 23 of Decree 01/2021/ND-CP, excluding the Investment Registration Certificate stipulated at Point c, Clause 4 of this Article;

- Enterprise application for a single-member LLC as stipulated in Article 24 of Decree 01/2021/ND-CP, excluding the Investment Registration Certificate stipulated at Point c, Clause 3 of this Article;

The dossier must include the following documents:

- A written commitment by the owner of the sole proprietorship to personally be liable for all unpaid debts with all their assets and a commitment to pay off all debts as they become due;

- A written agreement between the sole proprietorship owner and the parties to unliquidated contracts regarding the transferred company's acceptance and continuation of these contracts;

- A written commitment or agreement between the sole proprietorship owner and other contributing members regarding the acceptance and use of the existing workforce of the sole proprietorship;

- Transfer contracts or documents proving the completion of the capital transfer in the case of capital transfer of the sole proprietorship; gift contracts in the case of gifting capital of the sole proprietorship; a copy of the document confirming the legal inheritance rights of the heir in accordance with the law;

- A document from the Investment Registration Authority approving the contribution of capital, purchase of shares, or purchase of capital contributions by foreign investors or foreign-invested economic organizations in cases requiring registration procedures for capital contribution, share purchase, or capital contribution purchase according to the Investment Law.