Are incomes from trading virtual currency subject to personal income tax in Vietnam?

Hello, Lawnet would like to answer the following questions:

Specifically, in the Judgment 22/2017/HC-ST dated September 21, 2017 on the lawsuit against the decision on tax arrears, the following contents are stated:

"From mid-2008 to 2013, Mr. C participated in the exchange of virtual currency via the Internet. By September 2013, he had been invited to work by Agency A of the Ben Tre Provincial Police many times because he had participated in activities related to virtual currency. On October 19, 2015, Agency A issued Official Letter No. 87/ANDT requesting that Department T study and handle administrative violations of tax arrears for his act of buying and selling virtual currency on the Internet.

On May 13, 2016, he received Decision No. 714/QD-CCT dated May 12, 2016 from the Director of Sub-Department T. In the remedial measure, the total tax he has to pay is VND 2,649,377,069, specifically: value added tax: VND 981,527,006, personal income tax: VND 1,667,850,063. Thus, the amount of income tax that he has to pay is too high, more than the total profit before tax (1,358,393,508 VND) that he has obtained according to the investigation results of the competent authority.

On June 15, 2017, Mr. C filed a complaint against the tax arrears decision of the Director of Sub-Department T."

The People's Court of Ben Tre Province concluded: Decision No. 714/QD-CCT dated May 12, 2016 of the Director of Sub-Department T, based on Official Letter No. 4356/BTC-TCT dated April 1, 2016 of the Ministry of Finance stating: "… digital currency trading activities are goods trading activities and are classified as commercial business activities; digital currency is subject to value added tax, and individuals trading digital currency are subject to personal income tax…" is beyond the promulgation authority as prescribed in the Law on Promulgation of Legislative Documents.

Court decisions: accepting the petition of Mr. Nguyen Viet C, sentenced: to canceling Decision No. 714/QD-CCT dated May 12, 2016 of the Director of Sub-Department T on the application of remedial measures against Decision No. 1002/QD-CT dated May 18, 2017 of the Director of Department T on the settlement of the complaint of Mr. Nguyen Viet C.

Currently, trading digital currency through the internet is easy and popular. When generating income from this sale, whether it is compulsory to pay value added tax, personal income tax is a question that many people are interested in.

Thus, in order to determine whether an individual who earns income from trading virtual money is subject to VAT and PIT, it is necessary to determine "is digital money subject to tax".

The provisions of Article 3 of the Law on Value Added Tax in 2008 are as follows:

Article 3.- Taxable objects

Goods and services used for production, trading or consumption in Vietnam are subject to value-added tax, except those specified in Article 5 of this Law.

Thus, the object subject to VAT according to current law provisions are "goods and services used for production, trading or consumption in Vietnam..."

According to the provisions of Articles 2 and 3 of the Law on Personal Income Tax of 2007:

Article 2. Taxpayers

1. Personal income taxpayers include residents who earn taxable incomes specified in Article 3 of this Law inside and outside the Vietnamese territory and non-residents who earn taxable incomes specified in Article 3 of this Law inside the Vietnamese territory.

…

Article 3. Taxable incomes

Incomes liable to personal income tax include the following kinds of income, except for incomes eligible for tax exemption specified in Article 4 of this Law:

1. Incomes from business activities, including:

a/ Incomes from goods production or trading or service provision;

…

According to the above regulations, PIT payers are "residential individuals earning taxable incomes from production and business activities of goods and services".

According to the above regulations, PIT payers are "residential individuals earning taxable income from the production and business activities of goods and services".

In addition, Decree 80/2016/ND-CP amends a number of articles of Decree 101/2014/ND-CP stipulating non-cash payment means used in payment transactions include: checks, payment orders, payment orders, collection requests, collection orders, bank cards, and other payment means according to the regulations of the State Bank." According to this regulation, payment methods such as bitcoin and similar virtual currencies are illegal means of payment.

In Clause 6, Article 27 of Decree 96/2014/ND-CP also stipulates that "a fine of between VND 150 million and VND 200 million shall be imposed on acts of issuing, supplying, and using illegal means of payment."

Issuing, supplying, and using illegal means of payment such as Bitcoin virtual currency is prohibited, so Mr. C will not be able to establish a business in this industry according to the laws of Vietnam.

The legal framework for digital currency (virtual currency) as well as the act of buying and selling virtual currency over the Internet is being completed. Currently, there is no legal document defining digital currency, virtual currency as a commodity, or trading in digital currency (virtual currency) as a business of goods that is permitted by law and subject to tax.

Therefore, at a time when the law has not adjusted to this new form of business and means of payment, the purchase and sale of virtual currency via the internet are not subject to PIT and VAT.

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