Proposed tax change

Vietnamese tax law has recently introduced a proposed amendment that may affect M&A deal makers in Vietnam especially those with plan for exit/ restructuring M&A transactions.

The Vietnam Ministry of Finance has just released the Draft Law on Corporate Income Tax (CIT) for public consultation (the Draft Law). Among other things, the Draft Law has proposed a potential major change with respect to the determination of the CIT liability on capital transfer by foreign corporate shareholders/investors.

In particular, foreign corporate shareholders/investors (regardless of having permanent establishment in Vietnam or not) having income in Vietnam from capital transfer are considered as a taxpayer in Vietnam whereby the CIT liability of such taxpayers is determined at the flat tax rate of 2% on the gross sale proceeds. 

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Potential impacts on M&A transactions and recommended actions

If eventually the above change in the Draft Law is promulgated (expectedly in May 2025), foreign entities undertaking capital transfer in Vietnam would be subject to Vietnam CIT at the flat rate of 2% on the gross sale proceeds, instead of currently being subject to 20% CIT on the capital gain as per the current CIT regulations. This means that even if the foreign capital transferor/seller generates no capital gain from a capital transfer transaction, Vietnam CIT liability on capital transfer will still arise.

If share transfer transaction being part of an internal restructuring is not considered as an exception when the Draft Law is promulgated, it would also be subject to being imposed this flat rate of 2% on the gross sale proceeds, which could be a disadvantageous move compared to the current practice.

Separately on tax treatment for transfer of securities: in the Draft Law, the tax rate for this type of transaction remains unchanged, at 0.1% on the gross sale proceeds. So, unless there introduced significant changes e.g. via implementing regulations, a foreign entity transferring securities in a public company should continue enjoying the 0.1% tax rate, rather than the 2% rate mentioned above.

Of note, as a matter of practice, when amendment to the law is about to be promulgated, relevant procedures for the transactions potentially affected by the proposed law change would likely be subject to delays or higher scrutiny. Accordingly, planners for restructuring and M&A transactions should be mindful, to take necessary actions.

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Disclaimer: ThisLegal Update is intended to provide updates on the Laws for informationpurposes only, and should not be used or interpreted as our advice for businesspurposes. LNT & Partners shall not be liable for any use or application ofthe information for any business purpose. For further clarification or advicefrom the Legal Update, please consult our lawyers: Mr Bui Ngoc Hong at hong.bui@lntpartners.com.