If value of capital contribution is returned to members due to the dissolution of the enterprise, do they have to pay personal income tax in Vietnam?

If value of capital contribution is returned to members due to the dissolution of the enterprise, do they have to pay personal income tax in Vietnam?

In Clause 3, Article 2 of Circular 111/2013/TT-BTC, as amended by Clause 6, Article 11 of Circular 92/2015/TT-BTC, taxable incomes are stipulated as follows:

3. Incomes from capital investment

Incomes from capital investment are personal income in the form of:

a) Interest on the loans given to other organizations, enterprises, business households, business individuals and groups of business individuals according to loan contracts or agreements, except for the interests paid by credit institutions and branches of foreign banks according to Point g.1 Clause 1 Article 3 of this Circular.

b) The dividends earned from capital contribution to purchase of shares.

c) Profits from capital contributions to limited liability companies, partnerships, cooperatives, joint-ventures, business cooperation contracts, and other forms of business under the Law on Enterprises and the Law on Cooperatives; profits from capital contribution in establishment of credit institutions according to the Law on credit institutions, capital contributions to securities investment fund and other investment funds that are established and operated within the law.

Profits from capital investment of private companies and single-member limited liability companies under the ownership of individuals shall not be included in taxable income.

d) The added value of capital contribution received when the enterprise is dissolved, converted, divided, split, merged, amalgamation, or upon capital withdrawal.

dd) Incomes from interest on bonds, treasury bills, and other valuable papers issued by Vietnamese organizations, except for the incomes defined in Point g.1 and g.3 Clause 1 Article 3 of this Circular.

e) The incomes from capital investment in other forms, including capital contribution in kind, by reputation, rights to use land, patents.

g) Incomes from dividends paid in bonds, incomes from reinvested profit.

According to this Article, when you receive an added value of capital contribution when the enterprise is dissolved, you must pay personal income tax.

When is income from the transfer of houses and residential land use rights exempt from personal income tax in Vietnam? 

Pursuant to Point b, Clause 1, Article 3 of Circular 111/2013/TT-BTC as amended by Clause 1, Article 12 of Circular 92/2015/TT-BTC on tax-exempt incomes, according to which:

1. According to Article 4 of the Law on Personal income tax and Article 4 of the Decree No. 65/2013/ND-CP, tax-free incomes include:

b) Income from transfer of a person's only house or residential land plot and property thereon in Vietnam.

b.1) The person that transfers the house and right to use land that is tax-free as prescribed in Point b Clause 1 of this Article must meet all conditions below:

b.1.1) The transferor owns only one house or residential land plot (with or without property thereon) at the time of transfer. To be specific:

 b.1.1.1) The house ownership and right to use land shall be determined based on the certificate of rights to use land, ownership of house and other property on land.

b.1.1.2) If the house ownership or rights to use land are shared, the person that has no ownership of houses or rights to use land in other areas shall be eligible for tax exemption, the person that has ownership of houses or rights to use land in other areas is not eligible for tax exemption.

b.1.1.3) If the house or rights to use land is the marital property and only property of the husband and wife, the person that has no other private house or land is eligible for tax exemption, the person that has another private house or land is not eligible for tax exemption.

b.1.2) The house or land use right has been possessed for at least 183 days before they are transferred.

The time for determine the house ownership or land use right is the date of the certificate of land use right, ownership of house and other property on land. In case the certificate is reissued or replaced under regulations of law land, the time for determine the house ownership or land use right is the date of the certificate of land use right, ownership of house and other property on land before reissuance or replacement

b.1.3) Transferring the entire house or residential land.

If the individual has or share the ownership of the only house or land use right and transfers part of it, the transferred part is not tax-free.

b.2) The only house and residential land that is tax-free shall be declared by the person that transfers real estate himself/herself. If false declaration is discovered, the person has to pay tax arrears and incur penalties for violations against the laws on taxation.

b.3) Transfer of future houses and constructions that are not exempt from personal income tax according to Point b Clause 1 of this Article.

Thus, when there is income from the transfer of houses or the right to use residential land of an individual in case the transferor has only one house or the right to use residential land in Vietnam, the income from transfer of a person's only house or residential land plot is exempt from personal income tax.

Best Regards!