Capital transfer tax is a financial obligation that arises when an individual or organization transfers capital contributions in a business. In the context of increasingly flexible investment activities, capital transfers to change strategies, recover capital or restructure shares are very common. However, if the regulations are not clearly understood, the transferor is likely to encounter tax risks. So how is capital transfer tax calculated, how is it applied to LLCs and joint stock companies, and what is the declaration process? The following article will answer in detail.
What is capital transfer tax?
Capital transfer is the act of an individual or organization transferring ownership of capital contributions in an enterprise to another person, through forms such as sales contracts, donations or other civil transactions. According to the provisions of Article 2, Personal Income Tax Law No. 04/2007/QH12, income from capital transfer is subject to personal income tax (PIT).
Capital transfer tax applies to transactions involving capital contributions at:
- Company Limited
- Unlisted Joint Stock Company
- Cooperatives, other economic organizations
This activity does not apply to the transfer of shares listed on the stock exchange, which belongs to the group of "securities transfer".
Personal income tax from capital transfer: Tax rate and calculation
When an individual transfers his/her capital contribution in a business, the difference between the selling price and the purchase price will be subject to personal income tax (PIT). According to Circular 111/2013/TT-BTC, this tax is calculated at the fixed rate 20%, regardless of the holding period or the number of transfers.
Formula for determining personal income tax payable
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In there:
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The transfer price is the amount of money the transferor actually receives under the contract.
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The original purchase price is the initial capital contributed to the business.
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Valid expenses include actual expenses such as notary fees, legal service fees, administrative fees, etc., if there are legal documents.
Personal income tax on capital transfer of LLC
In the limited liability company (LLC) model, capital transfer often takes place between internal members or between acquaintances, not through the public market. Therefore, the responsibility for determining taxable income and declaring personal income tax (PIT) mainly belongs to the individual making the transfer.
According to current regulations, the capital transferor must self-declare and pay personal income tax arising from the difference between the transfer price and the original capital price, after deducting valid expenses. Documents required for tax declaration include a notarized or certified transfer contract, a record confirming the capital contribution to the enterprise, documents proving expenses related to the transaction and copies of the parties' identification documents.
In principle, the transfer price and cost price must have a clear basis and be supported by valid documents. If an individual cannot provide sufficient supporting documents, the tax authority has the right to re-determine the transaction value according to the market price at the time of transfer as the basis for tax calculation.
Although the transferee is not a taxable entity, in some cases, the enterprise can agree to deduct and pay the personal income tax on its behalf to ensure that tax obligations are fulfilled promptly, while avoiding future legal risks.
Personal income tax on capital transfer of joint stock company
For unlisted joint stock companies, when an individual transfers shares, the income arising from the difference between the selling price and the cost price will be subject to personal income tax at the rate of 20%. The transferor is obliged to self-declare and pay taxes in accordance with regulations, similar to the case of capital transfer in a limited liability company.
One point to note is the distinction between common shares and preferred shares. In some companies, these two types of shares have different values depending on the accompanying benefits such as fixed dividends or voting rights, which can affect the determination of a fair transfer price. Therefore, the declarant needs to clarify the type of shares and the corresponding price in the dossier to avoid having the tax authority re-determine the tax value.
In the case of transferring shares of a listed enterprise, this transaction is no longer within the scope of "capital transfer" but is classified as "securities transfer". In that case, instead of calculating tax according to taxable income, the tax authority will apply a fixed tax rate of 0.1% on the entire sale price of the securities, regardless of profit or loss. This is a direct tax rate method on the transaction, regardless of investment results, to simplify the tax collection process in the public securities market.
Is it necessary to pay personal income tax on capital transfer at par value?
Transfer of capital at par value is the sale of capital contribution at its original value. However, according to the tax authority, if there is no valid document proving the cost and cost price, the taxable income may be re-determined.
In case there is sufficient evidence to prove:
- Transfer price = Purchase price
- No expenses incurred => taxable income = 0 => no tax payable
Conversely, if there are no valid records, the tax authority has the right to determine taxable income and request corresponding tax payment.
Accounting for personal income tax from capital transfer
For businesses:
- If the enterprise deducts personal income tax on behalf of the individual: account for the tax in expenses or payable debts.
- If the enterprise is the transferee: the seller's personal income tax cannot be included in the eligible expenses.
For individuals:
- Simple accounting based on self-kept records.
- When finalizing personal income tax for the year, if there is capital transfer income, it needs to be included in the declaration.
Procedures for declaring and paying capital transfer tax
To fulfill tax obligations when transferring capital, individuals must fully comply with the declaration process according to the instructions of the tax authority. First of all, the transferor must prepare a complete dossier, including a capital transfer contract that has been notarized or certified according to the law. In addition, it is necessary to provide documents proving the initial capital cost and valid expenses incurred related to the transaction. Personal information of the parties involved in the transfer such as citizen identification or identity card is also a mandatory component of the dossier.
After completing the preparation, the individual shall prepare a tax declaration according to form No. 02/KK-TNCN, issued with Circular 92/2015/TT-BTC. This declaration shall be submitted directly to the Tax Department where the enterprise is headquartered. The declaration must be made accurately, completely and submitted on time to avoid administrative penalties.
According to current regulations, the deadline for submitting declarations and corresponding tax amounts is within 10 days from the effective date of the transfer contract. Late submission will not only be subject to late payment fees but may also be subject to penalties according to the provisions of Decree 125/2020/ND-CP.
Some important notes and penalties for violations
- Late declaration: Fine from 1 - 7 million VND depending on the level (according to Decree 125/2020/ND-CP)
- Tax evasion or false declaration: Tax evasion and fines up to 3 times the amount of tax evaded.
- Intra-family transfers: If it can be proven that the inheritance/gift does not generate income, it may be tax-exempt.
Conclude
Capital transfer tax is a mandatory financial obligation for individuals who earn income from transferring capital contributions in enterprises. In the context of 2025, when tax authorities are stepping up control of internal transactions and applying price fixing mechanisms to cases of non-transparent declaration, full compliance with legal regulations becomes more important than ever.
To minimize risks and avoid unnecessary costs, investors need to proactively store all documents related to the transfer contract, documents proving the original cost and valid costs. At the same time, tax declaration and payment must be done on time according to regulations to avoid administrative penalties or tax arrears.
In case you do not understand the process or want to optimize your tax obligations, individuals should proactively consult tax experts, or choose to work with reputable accounting - tax consulting units such as MAN – Master Accountant Network for specialized support and to ensure compliance with the law.
