VIETNAM Law and Practice Contributed by: Tran Thai Binh and Duong Thi Minh Han, LNT & Partners
8. Tax 8.1 VAT and Sales Tax
8.4 Income Tax Withholding for Foreign Investors Foreign investors as corporates are not permit - ted to directly obtain possession of real estate in Vietnam. Any investment in real estate must be made through an entity established under Viet - namese law. Foreign individuals are only permit - ted to purchase commercial residential houses from a real estate developer. Corporates bear the corporate income tax on the taxable income earned from the rent or sale of real estate at a rate of 22%. Individuals bear the PIT at a rate of 5% of taxable income from renting properties, and 2% of the sale or transfer price from the sale of real property. 8.5 Tax Benefits Individuals owning real estate may be entitled to tax exemption from the income earned from the transfer of residential houses, land-use rights and assets attached to land if those are the only residential houses/land, or the transactional par - ties have relative relationships provided by law. Corporates investing in certain projects may also be entitled to tax exemption or a tax rate reduc - tion for a certain time.
Goods and services used for production, trading or consumption in Vietnam are subject to VAT. In respect of the transfer of real estate, VAT is incurred by the purchaser of the property at a rate of 10% of the transfer price of the real estate (excluding the land value announced by govern - ment authorities). 8.2 Mitigation of Tax Liability For a sale or transfer of real estate by corporate seller/transferor (asset deal), VAT (10%) and cor - porate income tax (CIT) are applied. CIT is 20% of the capital gain from the property. However, if structured in selling shares of a JSC (share deal), then taxes may be 0.01% of the trans - ferred shares (even when transferring 100% of the shares of that entity). Therefore, the “share transfer deal” approach is commonly used in acquisition transactions of real estate develop - ment projects. 8.3 Municipal Taxes Business-licence tax (or licensing fee) is applied to every business based on its registered capital. The tax is a small amount (around USD135/year). However, in addition, the entity (as a property owner) has to pay land tax based on the land price and land area.
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