Contract for the Benefit of a Third Party: Is the Third Party Required to Pay Taxes?
Does a Third Beneficiary in a Contract Need to Pay Taxes?
Pursuant to Clause 5, Article 402 of the Civil Code 2015, the primary types of contracts are regulated as follows:
- A contract for the benefit of a third party is a contract in which the parties entering into the contract must perform their obligations, and a third party benefits from the performance of these obligations.
** The agreement between you and A regarding the transfer of land, wherein your parents receive the payment, is considered a contract for the benefit of a third party. **
Pursuant to Clause 5, Article 3 of the Law on Personal Income Tax 2007 as amended by Clause 1, Article 1 of the Amended Law on Personal Income Tax 2012, taxable income is defined as follows:
- Income from real estate transfers, including:
a) Income from the transfer of land use rights and assets attached to the land;
b) Income from the transfer of ownership or use rights of residential housing;
c) Income from the transfer of lease rights on land and water surface;
d) Other income received from the transfer of real estate in any form.
** Since the person with the income is the one obligated to pay taxes, you are the one who must pay taxes. The amount your parents receive can be considered a gift from you to them. **
Pursuant to Clause 4, Article 4 of the Law on Personal Income Tax 2007, income exempt from tax is defined as follows:
- Income from inheritance or gifts of real estate between spouses; biological parents and biological children; adoptive parents and adopted children; parents-in-law and daughters-in-law; parents-in-law and sons-in-law; grandparents and grandchildren; siblings.
** Since this is a gift between you and your parents, your parents are exempt from personal income tax. Therefore, you are responsible for paying personal income tax, and your parents have no obligation to pay personal income tax. **
Determining Taxable Income from Real Estate Transfers
Pursuant to Article 14 of the Law on Personal Income Tax 2007 as amended by Clause 6, Article 2 of the Amended Law on Taxation 2014, taxable income from real estate transfers is defined as follows:
Taxable income from real estate transfers is determined based on the transfer price each time.
The Government of Vietnam stipulates principles and methods for determining real estate transfer prices.
The point in time for determining taxable income from real estate transfers is when the transfer contract takes effect according to the law.
Sincerely!
