Công văn 3929/TCT-TNCN

OFFICIAL LETTER

ON PERSONAL INCOME TAX ON REAL ESTATE TRANSFER

To: Provincial-level Tax Departments

Clause 4, Article 3 of the Ministry of Finance's Circular No. 161/2009/TT-BTC of August 12, 2009, guiding personal income tax for some cases of transfer and receipt of inheritances or gifts being real estate, guides:

“Individuals who contribute capital to house builders in order to enjoy the right to buy apartments or house grounds but later, during the performance of contracts, transfer their contributed capital portions and right to buy house grounds or apartments to other organizations or individuals shall declare and pay personal income tax on real estate transfer.”

The General Department of Taxation additionally guides the above provision as follows:

1. Subjects of application:

- Individuals that have signed capital contribution contracts with house builders to enjoy the right to buy apartment or house grounds, but later transfer their capital contribution contracts to other organizations or individuals under law.

- Individuals that have signed house or apartment purchase contracts with house builders and transfer their contracts to other organizations or individuals under law.

2. Tax declaration and payment:

Individuals specified at Point 1 (above) shall declare and pay personal income tax for incomes deriving from real estate transfer according to Form No. 11/KK-TNCN attached to the Ministry of Finance's Circular No. 62/2009/TT-BTC of March 27, 2009, guiding, amending and supplementing the Ministry of Finance's Circular No. 84/2008/TT-BTC of September 30, 2008, guiding a number of articles of the Law on Personal Income Tax and guiding the Government's Decree No. 100/2008/ND-CP of September 8, 2008, detailing a number of articles of the Law on Personal Income Tax.

For item [04] of Form No. 11/KK-TNCN regarding papers on land use rights and house ownership rights, capital contribution or house or apartment purchase contracts signed with house builders shall be indicated.

Individuals shall declare and pay personal income tax at district-level Tax Sub-Departments where the transferred real estate is based.

3. Application of tax rates and calculation of personal income tax:

3.1. The tax rate of 25% of taxable income will apply to cases where incomes liable to personal income tax can be fully determined. Taxable income shall be determined under Point 3, Section II, Part B of the Ministry of Finance's Circular No. 84/2008/TT-BTC of September 30, 2008. Personal income tax is calculated according to the following formula:

Payable personal income tax = transfer price - cost price and contract-related expenses x 25% tax rate

In which:

- Transfer price is the price under the contract to transfer the capital portion and right to buy the house ground or apartment.

- Cost price and contract-related expenses are the price under the capital contribution contract to enjoy the right to buy the house or apartment signed with the real estate dealer plus (any arising) expenses directly related to the transfer (with lawful invoices and vouchers). The cost price and transfer-related expenses are determined in some specific cases as follows:

a/ For individuals that sign borrowing contracts with credit institutions to buy apartments or house grounds, actually contribute capital or buy houses with borrowed loans and produce documents on interest payments conformable with their borrowing contracts signed with credit institutions, interest payment amounts corresponding to their actually contributed capital portions shall be accounted as reasonable expenses in determining taxable income.

b/ For cases in which only part of the capital portion has been contributed (not the full portion under contract), the cost price of the transfer contract is determined as follows:

Cost price of transfer contract = Total capital amount to be contributed under contract - Deficient capital portion (not yet contributed)

3.2. The 2% tax rate calculated based on the transfer price will apply to cases in which there are insufficient conditions for applying the 25% tax rate, specifically:

- When it is impossible to determine the actual contract transfer price, contributed capital portion, house ground price or apartment purchase contract transfer price or the price under the transfer contract is lower than the market price at the transfer time, tax agencies shall assess the transfer price.

- When an original contract has changed hands several times and contract transfer procedures were carried out with the house builder before September 26, 2009, but it is impossible to identify the cost price of the taxpayer named in the latest transfer contract, or the cost price and related expenses are determined, but the transfer price under the transfer contract is lower than the price set by the provincial-level People's Committee at the transfer time, tax agencies shall assess the transfer price.

The transfer price shall be assessed under Point 3, Section II, Part B of the Ministry of Finance's Circular No. 84/2008/TT-BTC.

4. Under the Law on Tax Administration , concerned organizations and individuals shall provide information relating to the determination of tax obligations for tax agencies and collaborate with these agencies in implementing tax collection decisions.

Pursuant to the Law on Tax Administration, provincial-level Tax Departments shall proactively request concerned organizations and individuals to provide information relating to transfers between individuals, such as lists of capital contributors, their addresses and contributed capital amounts (or contract value) and current transfer prices to facilitate tax administration.

5. Since Circular No. 161/2009/TT-BTC takes effect 45 days from the date of its signing (effective on September 26, 2009), transfer contracts which were signed and had ownership change formalities carried out with real estate dealers before September 26, 2009, are not liable to personal income tax under this Circular. Real estate dealers signing capital contribution contracts with individuals shall keep lists of individuals having transferred their capital contribution contracts before September 26, 2009, and take responsibility for their accuracy. If they legalize transfer cases for tax evasion purpose, they shall be handled under the Law on Tax Administration .

For cases in which contract transfer procedures are carried out on and after September 26, 2009, before carrying out ownership change procedures, real estate dealers shall coordinate with tax agencies in urging individuals signing transfer contracts to declare and pay personal income tax according to the above regulations.

Provincial level Tax Departments are requested to coordinate with house builders in disseminating this Official Letter to house dealers and providing guidance for transferors; and specifically discuss on coordination between tax agencies and taxpayers in regularly providing information to facilitate tax collection management and prevent loss of tax revenues and concurrently help businesses fully fulfill their obligations.