Do I have to pay value added tax when transferring capital without establishing a new company in Vietnam?

Do I have to pay value added tax when transferring capital without establishing a new company in Vietnam?

At Point d, Clause 8, Article 4, Circular 219/2013/TT-BTC stipulates goods and services that are not subject to VAT, as follows:

d) Capital transfer includes the transfer of part of or the whole capital invested in another business organization (regardless of the creation of a new legal entity), securities transfer, transfer of the right to contribute capital, and other forms of capital transfer prescribed by law, including business acquisition in which the acquirer inherits all rights and obligations of the acquired company.

Example 6: In April 2014, company A contributes capital in the form of machinery and equipment to the creation of joint-stock company B. The company A’s contribution is valued at 2.5 billion VND, which is equal to 25% of company B’s total capital. In November 2014, company A sells this capital contribution to ABB Foundation for 4 billion VND. This amount of 4 billion VND is revenue from capital transfer and not subject to VAT.

According to this Article, if you want to transfer capital but do not participate in establishing a new company, you do not need to pay value added tax in Vietnam.

Do I have to pay value added tax when transferring capital without establishing a new company in Vietnam? (Image from the Internet)

Can businesses transferring capital use cash in Vietnam?

According to Article 3 of Circular 09/2015/TT-BTC regulating modes of payment in capital contribution transactions and in the purchase, sale and transfer of capital contributions at other enterprises, accordingly:

1. Enterprises may not make cash payment (in banknotes and coins issued by the State Bank of Vietnam) in capital contribution transactions and in the purchase, sale and transfer of capital contributions at other enterprises.

2. When conducting capital contribution transactions and when purchasing, selling or transferring capital contributions at other enterprises, enterprises shall:

a/ Pay by check;

b/ Pay by payment order - money transfer; or

c/ Pay by other non-cash payment modes in accordance with current regulations.

3. Enterprises using assets (other than money) to contribute capital or purchase, sell or transfer capital contributions at other enterprises shall comply with the law on enterprises.

Thus, when transferring capital contributions in Vietnam, businesses are not allowed to use cash in transferring loan capital, buying and selling, or transferring capital contributions between businesses.

What is authority to sanction administrative violations when using cash to pay in Vietnam? 

At Point e, Point g, Clause 15, Article 1 of Decree 143/2021/ND-CP stipulates as follows:

8. A fine ranging from 150.000.000 VND to 200.000.000 VND for the following violations:

a) Violating regulations on cash payment;

b) Providing payment services when not licensed to be a provider of payment services.";

10. Remedial measures:

a) Enforced transfer of illegal profits obtained from the administrative violation prescribed in Clauses 1, 4, 5, 6, 7, and 8 of this Article to state budget;

b) Prohibition from expanding of the operating scope, scale and areas until remedial measures against the violation are completed regarding violations prescribed in Points a, c ,d Clause 6, Point c Clause 7, and Point a Clause 8 of this Article;

c) Proposed revocation of the written approval on provision of payment services that are not through customers’ checking accounts regarding violations prescribed in Point dd Clause 6 of this Article.

In addition, Clause 3, Article 3 of Decree 88/2019/ND-CP stipulates penalties, fines, power to impose penalties and remedial measures, as follows:

3. Fines and power to impose fines:

a) The maximum fine for an administrative violation in the monetary and banking sector imposed on an organization is VND 2.000.000.000 and that imposed on an individual is VND 1.000.000.000;

b) The fine for every administrative violation prescribed in Chapter II hereof is imposed on an individual. The fine imposed on an organization is twice as much as the one imposed on an individual for the same administrative violation;

c) The fine imposed for an administrative violation committed by a person working at a people’s credit fund or a microfinance institution shall be 10% of the corresponding fine prescribed in Chapter II hereof; The fine imposed on the people’s credit fund or the microfinance institution or their affiliate shall be twice as much as the fine imposed on the person working there;

d) The fines imposed by each competent person prescribed in Chapter III hereof are incurred by individuals. The fines each competent person may impose upon organizations are twice as much as the fines incurred by individuals.

According to regulations in Vietnam, when businesses transfer capital contributions in cash, they will be fined from 300,000,000 VND to 400,000,000 VND.

At the same time, they are also forced to pay into the state budget the illegal profits obtained from the violation and are not allowed to expand the scope, scale and area of ​​operation while the violation has not been corrected in Vietnam.

Best regards!