How to declare personal income tax in the transfer of contributed capital?

Transfer of contributed capital is often applied when the owner wants to recover capital or invest in other areas. However, besides the benefits, transferring capital contribution also comes with many legal procedures, including personal income tax declaration. This article by Long Phan will provide customers with the necessary information to complete tax declaration procedures accurately.

Overview of transfer of contributed capital

Transfer of contributed capital is a common legal activity in businesses in Vietnam. This transfer usually takes place when a member of the company wants to withdraw capital or change the ownership structure of the business. This is a process that requires strict compliance with the law, to ensure legality and transparency in transactions. The current Enterprise Law regulates the right to transfer of contributed capital for each type of enterprise, specifically:

For a single-member limited liability company (LLC), the owner has the right to transfer part or all of the capital contribution to another person. Note that in case of transferring a portion of capital contribution, the business owner must carry out procedures to change the business type into a two-member limited liability company or joint stock company.

For two-member LLCs, except for special cases prescribed by law, company members have the right to transfer part or all of their capital contributions to others according to the following provisions:

• Offer to sell to the remaining members in proportion to their capital contribution in the company with the same offering conditions;
• Transfer to non-members with the same offering conditions as in the above case if the remaining members of the company do not buy or do not buy all within 30 days from the date of offering.

For a partnership company, partners are not allowed to arbitrarily transfer their capital contributions but must have the consent of all remaining partners. In contrast, capital contributing members have the right to freely transfer their capital contributions, demonstrating flexibility in changing the company’s ownership structure.

For joint stock companies, according to point d, clause 1, Article 111 of the Law on Enterprises 2020, shareholders have the right to freely transfer their shares to others. However, this right is not absolute and can be limited according to the provisions of Clause 3, Article 120 and Clause 1, Article 127 of the same law. Specifically, Clause 1, Article 127 stipulates that shares are freely transferable, unless the company charter has other provisions on restrictions on transfer of shares, or according to the restrictions in Clause 3, Article 120.

Legal basis: Article 52, Article 76, Article 111, Article 127, Article 180 and Article 187 of the Law on Enterprises 2020.

Principles for declaring personal income tax

Personal income tax declaration when transferring contributed capital follows basic principles. Taxpayers are responsible for fully and accurately declaring information about transfer transactions and generated income. The tax authority will base on the tax declaration to determine the tax liability of the transferring individual.

According to the provisions of Clause 4, Article 26, Circular 111/2013/TT-BTC dated August 15, 2013 regulating tax declaration principles for income from capital transfer activities, specifically:

• For resident individuals transferring capital contributions, tax declaration must be made for each transfer, regardless of whether or not income is generated;
• Non-resident individuals with income from capital transfer in Vietnam do not have to declare tax directly to the tax authority, but the transferee organization or individual shall deduct tax according to the instructions at Point e, Clause 1, Article 25 of Circular 111/2013/TT-BTC and declare tax each time it arises;
• In case of capital transfer without documents proving that the individual transferring capital has fulfilled tax obligations, the enterprise where the individual transferred capital is responsible for declaring and paying taxes on behalf of the individual.

Personal income tax declaration process in transfer of contributed capital

Tax declaration documents

Personal income tax declaration dossier when transferring residential capital contribution includes the following necessary documents:

• Personal income tax declaration (applicable to individuals with income from capital transfer, individuals transferring securities who declare directly to tax authorities and organizations and individuals who declare and pay taxes on their behalf) individual);
• Appendix detailed list of individuals transferring capital (applicable to organizations that declare taxes on behalf of and pay taxes on behalf of many individuals);
• Copy of Capital Transfer Contract;
• Copy of documents determining the value of contributed capital according to accounting books. In case of contributed capital due to acquisition, there must be a transfer contract upon purchase;
• Copies of documents proving expenses related to determining income from capital transfer activities;
• Power of attorney in case the taxpayer authorizes a tax agent or another organization or individual to declare tax on his/her behalf;
• Copy of the taxpayer’s identity card or citizen identification card.

Legal basis: Section 9.4 of Appendix I issued with Decree 126/2020/ND-CP.

>>> Download personal income tax declaration form: Here

>>> Download the appendix form for the detailed statement of individuals transferring capital: Here

Application deadline

The deadline for submitting personal income tax declarations when transferring contributed capital is specifically regulated. According to Article 44 of the Law on Tax Administration 2019, taxpayers must declare tax no later than the 10th day from the date of income from capital transfer. The time of income generation is determined to be the date the transfer contract takes effect.

In the case of authorizing another organization or individual to declare tax on your behalf, the tax declaration submission deadline is still calculated from the date of income generation. Taxpayers should pay attention to handing over records and documents to the authorized party early enough to ensure tax declaration is done on time.

If the last day of the tax declaration submission deadline falls on a prescribed holiday, the filing deadline is calculated on the next working day. In case of submitting tax declaration documents by post, the filing date is determined by the postmark on the envelope.

Filing tax returns on time helps taxpayers avoid being fined for administrative tax violations. In case the tax return cannot be submitted on time due to force majeure, the taxpayer can request an extension to submit the tax return for no more than 30 days as prescribed in Article 46 of the Law on Tax Administration 2019.

Where to submit tax returns

The place to submit personal income tax declaration documents when transferring contributed capital is determined according to the provisions of Article 11 of Decree 126/2020/ND-CP. Specifically, individuals with income from capital transfer who are required to directly declare tax to the tax authority submit tax declaration dossiers to the tax authority managing the issuing unit. Taxpayers need to pay attention to submit documents at the right place to avoid having documents returned and slowing down the processing progress.

In case another organization or individual is authorized to declare tax on their behalf, the place to submit tax declaration documents is still determined according to regulations for taxpayers. The authorized party is responsible for submitting tax declaration documents to the competent tax authority in accordance with regulations. Determining the correct place to submit tax declaration documents helps facilitate the processing of documents.

Consulting services and support for personal income tax declaration

With a huge tax legal system, customers encounter many difficulties in the process of declaring personal income tax. To ensure compliance with tax laws and minimize risks, you can choose to use Long Phan’s professional personal income tax declaration consulting service. With a team of experts with extensive experience in the field of tax law, we will help you clearly understand the regulations and follow the correct tax declaration and payment procedures. Tax consulting services include many contents such as:

• Consulting on tax obligations when transferring capital contributions;
• Consulting on personal income tax declaration procedures;
• Instructions for preparing tax declaration documents and calculating tax payable;
• Instructions for filling in information on tax returns, checking the accuracy and completeness of tax returns;
• Representing the customer to submit documents to the tax authority.

Using tax consulting services helps taxpayers save time, effort and avoid errors that can lead to penalties.

Transfer of contributed capital is a complicated transaction, especially regarding tax-related issues. Understanding tax laws and properly following declaration procedures is extremely important to ensure the rights of the transferor and avoid legal risks. To ensure all procedures are carried out accurately and effectively, customers can choose to use Long Phan’s professional consulting services. Please contact hotline 090.673.5386 immediately to receive detailed advice from experts.