How is the tax on income from capital investments by resident individuals determined?

How is tax on investment income earned by resident individuals determined? is the key question on the minds of many investors and businesses as they prepare for the transition to the new legal framework. On December 10, 2025, the National Assembly officially enacted Law on Personal Income Tax No. 109/2025/QH15 replacing the 2007 Personal Income Tax Law. This law takes effect on July 1, 2026, and introduces significant changes to the tax calculation mechanism, the cutoff dates for determining tax liability, and the list of tax-exempt income.

In corporate financial operations, transactions involving the payment of interest on loans to individuals, the payment of cash dividends, or the issuance of bonus shares always carry the risk of back taxes due to insufficient withholding at source. If businesses are not fully aware of the new provisions of the 2025 Personal Income Tax Law, they will not only face a late payment penalty of 0.03% per day but also run the risk of having reasonable expenses disallowed when calculating corporate income tax. The article below provides a comprehensive summary of the latest legal provisions, tax calculation methods, a list of 22 tax-exempt income categories, and practical risk management solutions.

How is the key summary of taxes on capital investment income for resident individuals determined?

Key Summary: How Is Tax on Capital Investment Income for Resident Individuals Determined?

• Nature of the obligation: Tax on income from capital investments by resident individuals is determined by calculating the tax due as the taxable income multiplied by the full tax rate 5%.
• Basis for tax calculation: Taxable income is the total amount of taxable income from capital investments received by a resident individual on a transaction-by-transaction basis, without any deductions for expenses or family allowances.
• Effective Date: This is the date on which an organization or individual pays income to the taxpayer, or the date on which the taxpayer actually receives the income.
• Deduction mechanism: Businesses that pay income are responsible for withholding personal income tax (5%) at source before making payments to individuals and reporting it to the tax authorities.

How is tax on capital investment income earned by resident individuals determined under the 2025 Personal Income Tax Law?

Unlike income from wages and salaries, which is subject to a progressive tax schedule, income from capital investments by resident individuals is taxed using the full-amount method on a transaction-by-transaction basis.

Pursuant to the provisions of Article 12 of the Personal Income Tax Law No. 109/2025/QH15 (effective as of July 1, 2026), the obligation personal income tax For income from capital investments, which is specifically determined using the following formula:

Personal Income Tax Due = Taxable Income × Tax Rate 5%

In this context, taxable income from capital investments refers to the total amount of taxable income from capital investments as defined in Clause 3 of Article 3 of the 2025 Personal Income Tax Law, which the taxpayer receives on a transaction-by-transaction basis. When calculating tax on this income, taxpayers may not claim family allowances or deductions for social insurance contributions or charitable and humanitarian contributions.

Regarding the timing for determining taxable income from capital investments, the 2025 Personal Income Tax Law clearly stipulates that it is the date on which an organization or individual pays income to the taxpayer or the date on which the taxpayer receives the income. Specifically, in cases where dividends are received in the form of shares or stock bonuses, the timing for determining personal income tax liability on capital investments is deferred until the individual transfers the shares, withdraws capital, or the business is dissolved.

What types of income are considered capital investment income under the law?

Accurately identifying taxable income helps individuals and businesses avoid underreporting or misclassifying income as other types of income.

Pursuant to Paragraph 3 of Article 3 of the Personal Income Tax Law No. 109/2025/QH15, income from capital investments includes the following specific categories of income:

• Interest on loans: Includes interest received from lending to businesses, organizations, households, business households, and individuals under loan contracts or loan agreements in any legal form.
• Dividends: Dividend income received in cash or in the form of stock dividends and bonus shares distributed from after-tax profits to existing shareholders of a joint-stock company.
• Income from capital investments in other forms: Income received from capital contributions to limited liability companies, partnerships, cooperatives, joint ventures, and business cooperation contracts (BCC); the portion of the capital increase corresponding to reinvested earnings; interest from corporate bonds, commercial paper, and other negotiable instruments issued by economic organizations.

In addition, Paragraph 4 of Article 3 of the 2025 Personal Income Tax Law clearly distinguishes between income from capital investments and income from the transfer of capital. Income from the transfer of capital includes: the transfer of equity interests in economic organizations, the transfer of securities, and the transfer of capital in other forms. These are two types of income that differ entirely in their economic nature, tax calculation methods, and applicable tax rates.

Details on the 22 types of income exempt from personal income tax, effective July 1, 2026

In addition to taxable income, the 2025 Personal Income Tax Law provides a detailed list of tax-exempt income categories to protect the rights of workers, support social welfare policies, and encourage investment in key sectors.

Pursuant to Article 4 of the Personal Income Tax Law No. 109/2025/QH15, effective July 1, 2026, the following 22 types of income are exempt from personal income tax:

1. Income from the sale, inheritance, or gift of real estate: Applies to spouses; biological fathers and mothers with their biological children; adoptive fathers and mothers with their adopted children; fathers-in-law and mothers-in-law with their daughters-in-law; fathers-in-law and mothers-in-law with their sons-in-law; grandfathers and grandmothers with their grandchildren; maternal grandfathers and grandmothers with their grandchildren; and biological brothers and sisters with one another.
2. Income from the sale of a single real estate property: Transfer of a residential property, residential land use rights, and assets attached to residential land by an individual in cases where the individual owns only one residential property and one plot of residential land in Vietnam.
3. Revenue from land transfers: Income derived from the value of land use rights held by individuals to whom the State has allocated land.
4. Agricultural Income and Agricultural Linkages: Income of households and individuals directly engaged in the production of crops, plantation forests, livestock, aquaculture, and fishing—where such products have not been processed into other products or have undergone only basic processing; salt production; income from dividends received by members of agricultural cooperatives and federations of agricultural cooperatives, as well as individual farmers who have entered into contracts with enterprises participating in the “Large-Scale Farming Program,” engage in commercial forestry, or engage in aquaculture.
5. Income from the conversion of agricultural land: Income from the conversion of agricultural land allocated by the State to households and individuals for production purposes.
6. Income from interest on deposits and insurance: Income from interest on government bonds, interest on local government bonds, interest on deposits at financial institutions, and interest from life insurance policies.
7. Income from remittances: Funds transferred from abroad to Vietnam by Vietnamese nationals residing overseas or Vietnamese nationals working abroad.
8. Income from night shifts and overtime: Higher wages for night shifts and overtime, as well as wages for days worked without taking the leave required under the Labor Code.
9. Pension income: Pension benefits are paid by the Social Insurance Fund; income is paid monthly by the supplementary pension fund and the voluntary pension fund.
10. Income from scholarships: Scholarships received from the state budget; scholarships received from domestic and foreign organizations under their educational support programs.
11. Income from compensation: Income from life and non-life insurance claims, workers' compensation, government compensation, and other compensation as provided by law.
12. Income from charitable funds: Income received from charitable organizations and foundations that have been established or recognized by the competent state authority and operate for charitable and humanitarian purposes, not for profit.
13. Revenue from humanitarian aid: Income received from foreign aid for charitable and humanitarian purposes, whether from government or nongovernmental sources, must be approved by the competent state agency.
14. Seafarers' income: Income from wages and salaries earned by Vietnamese seafarers working for foreign shipping companies or Vietnamese shipping companies engaged in international transport.
15. Income from offshore fishing: Income earned by shipowners, individuals with the right to use a vessel, and individuals working on board a vessel from the provision of goods and services directly supporting offshore fisheries operations.
16. Revenue from the green economy and carbon credits: Income from the initial transfer of an individual’s verified greenhouse gas emission reduction results, for which the individual has been issued carbon credits; income from interest on green bonds; and income from the initial transfer of green bonds following their issuance.
17. Revenue from innovation: Income from salaries and wages earned from performing scientific, technological, and innovation-related tasks.
18. Income from science and technology royalties: Income from copyrights arising from science, technology, and innovation projects when the results of such projects are commercialized in accordance with the provisions of laws on science and technology and intellectual property.
19. Income from innovative startups: Income earned by individual investors and experts from innovative startup projects; founders of innovative startups; and individual investors who contribute capital to venture capital funds.
20. Income of international experts: Income from salaries and wages of foreign experts working on non-reimbursable ODA programs and projects and foreign nongovernmental organization projects; Vietnamese individuals working at representative offices of the United Nations system in Vietnam; and individuals serving in United Nations peacekeeping forces.
21. After-tax income of a sole proprietor: Income after corporate income tax has been paid by an individual who is the owner of a private enterprise or the owner of a single-member limited liability company.
22. Detailed guidelines issued by the Government: The government has issued detailed regulations on Article 4 of the 2025 Personal Income Tax Law to address situations that arise in practice.

The list of 22 categories of tax-exempt income mentioned above reflects a modern management approach, particularly the inclusion of incentive policies for the green economy, carbon credits, and innovative startup models in Vietnam.

The Role of Accurately Determining Personal Income Tax on Capital Investments in Corporate Governance

In corporate financial management, the accurate and full withholding and remittance of personal income tax on capital investments serves as a measure of a company’s ability to comply with the law and mitigate financial risks.

• From the perspective of individuals receiving income, transparent tax reporting and payment ensure that cash flows accumulated from investment activities are entirely legal. When tax authorities review bank cash flows, income on which personal income tax has been fully paid in accordance with the 5% regulations will not be subject to a late payment penalty of 0.03% per day or administrative penalties for tax violations.
• As for the paying entity, Article 98 of the Tax Administration Law stipulates that organizations paying income are responsible for withholding tax at source. If a business inadvertently fails to withhold 5% personal income tax when paying interest on loans or dividends to an individual, the business will be liable to pay the outstanding tax amount on behalf of the individual, along with a late payment penalty.

The team of experts at MAN, with 30 years of experience, notes that the greatest risk goes beyond the amount of back personal income tax owed. During many tax audits, if a business cannot prove its obligation to withhold personal income tax from interest on personal loans, the tax authority may exclude the entire corresponding interest expense from deductible expenses when calculating corporate income tax, causing serious damage to the business’s cash flow.

In what cases is taxation on income from capital investments mandatory?

In business operations and investment activities in Vietnam, the obligation to withhold and remit personal income tax (5%) on capital investments arises in the following four common scenarios:

• When an individual lends funds to a business or organization, interest accrues: When an individual enters into a contract to lend money to a business to supplement working capital or invest in a project, the interest received periodically is taxable income from capital investments. The borrowing business is responsible for withholding 5% from the total interest payable at each payment date.

• A joint-stock company pays cash dividends: When the General Shareholders’ Meeting approves a plan to pay cash dividends from accumulated after-tax profits, the joint-stock company is required to withhold 5% personal income tax on the total dividend amount payable to each individual shareholder before making the transfer.

• Limited liability companies and limited partnerships distribute profits to their members: When a limited liability company with two or more members or a partnership distributes after-tax profits to individual members, the accounting department must calculate and withhold personal income tax (5%) at the time the profits are paid out.

• Transfer of shares received as dividends or bonus shares: When a business pays dividends in the form of stock or grants stock awards to individual shareholders, the individual is not required to pay tax at the time the stock is received. However, when the individual transfers these shares, withdraws capital, or when the company is dissolved, the individual must file Form 5% to report and pay personal income tax on the par value of the dividends received in the form of shares.

Compilation of Legal Documents, Circulars, and Official Letters Governing Capital Investment Taxes

The body of regulations governing personal income tax on capital investments has been developed in a coordinated manner over several phases. The summary table below makes it easy for accounting staff and managers to look up information:

Summary Table of Legal Documents, Circulars, and Official Letters Governing Capital Investment Taxes

Document number	Text type	Date of issuance / Effective date	Main content summary
Law No. 109/2025/QH15	Laws passed by the National Assembly	Issued on December 10, 2025; Effective July 1, 2026	Replaces the 2007 Law. Article 12 stipulates a tax rate of 5% on capital investment income. Articles 3 and 4 specify the list of taxable items and 22 tax exemptions.
Law No. 04/2007/QH12	Laws passed by the National Assembly	Issued on November 21, 2007; Effective January 1, 2009	Framework Law on Personal Income Tax (amended by Law No. 26/2012/QH13 and Law No. 71/2014/QH13).
Decree 65/2013/ND-CP	Government Decree	Issued on June 27, 2013; Effective July 1, 2013	Detailed Regulations on the Implementation of the Personal Income Tax Law Regarding the Basis for Tax Calculation and Withholding at Source.
Circular 111/2013/TT-BTC	Circular of the Ministry of Finance	Issued on August 15, 2013; Effective October 1, 2013	Guidelines for Implementing the Personal Income Tax Law. Article 10 provides detailed instructions on the method for calculating capital investment tax.
Circular 92/2015/TT-BTC	Circular of the Ministry of Finance	Issued on June 15, 2015; Effective July 30, 2015	Amend and supplement regulations on personal income tax and value-added tax, and standardize documents for tax withholding at source.
Official Letter No. 2862/TCT-CS	Official Letter from the General Department of Taxation	Issued on August 2, 2021	Guidance on the obligation to withhold personal income tax (Form 5%) when a business pays interest on a loan to an individual.
Official Letter No. 4084/TCT-CS	Official Letter from the General Department of Taxation	Issued on September 20, 2023	Guidelines on the timing of personal income tax withholding when paying dividends and the principles for handling stock dividends.

The aforementioned documents establish a robust legal framework. The implementation of the 2025 Personal Income Tax Law, effective July 1, 2026, will continue to maintain the 5% tax rate while providing greater transparency regarding the timing of tax calculations and expanding the list of tax exemptions.

Real-World Case Study: Analysis of Tax Obligations on Interest and Dividends at X Joint Stock Company

To clarify the method for determining taxes on income from capital investments, let’s analyze a real-life scenario at Company X, JSC (headquartered in Ho Chi Minh City).

Real life situation

During the fiscal year, Company X conducted two financial transactions with Mr. Nguyen Van A (a resident individual who holds 20% shares in Company X):

• Transaction 1 (Loan Agreement): On January 15, Company X borrowed 4,000,000,000 VND from Mr. A at an interest rate of 8% per year, for a term of 12 months, with interest paid quarterly.
• Transaction 2 (Dividend Payment): On May 20, Company X paid cash dividends in accordance with the resolution of the General Shareholders’ Meeting. The total cash dividend Mr. A received was 500,000,000 VND.

Calculating the Personal Income Tax to Be Withheld

For Transaction 1: Interest on Loans

The interest on the loan for the first quarter that Company X is obligated to pay to Mr. A:

Interest expense for Q1 = 4,000,000,000 × 8% / 4 = 80,000,000 VND

The amount of personal income tax that Company X must withhold at source before paying interest:

Personal income tax withheld = 80,000,000 × 5% = 4,000,000 VND

The actual amount of interest on the loan that Company X paid to Mr. A = 80,000,000 – 4,000,000 = 76,000,000 VND.

For Transaction 2: Cash dividends

The total amount of dividends paid to Mr. A was 500,000,000 VND. At the time of payment, Company X withheld 5% personal income tax:

Personal income tax withheld = 500,000,000 × 5% = 25,000,000 VND

The actual dividend amount Mr. A received = 500,000,000 – 25,000,000 = 475,000,000 VND.

Reporting Processes and Management Lessons

Company X filed Form 06/TNCN (Personal Income Tax Return) (pursuant to Circular 80/2021/TT-BTC) to report the total tax withheld of 29,000,000 VND. The deadline for submitting the tax return and paying the tax is no later than the 20th day of the month following the month in which the tax liability arose.

From MAN’s perspective, many accounting departments often make the mistake of transferring the entire 80,000,000 VND in interest to an individual while forgetting to withhold 4,000,000 VND in taxes. During the tax settlement, Company X was required to pay the tax it had withheld on behalf of others, incurred a late payment penalty, and faced the risk that the 80,000,000 VND interest expense would be disallowed as a deductible expense when calculating corporate income tax.

Comparison of Taxes on Capital Investments and Taxes on Capital Transfers Effective July 1, 2026

Confusion between income from capital investments and income from the transfer of capital is quite common among small and medium-sized enterprises. The comparison table below clarifies the distinguishing criteria under the 2025 Personal Income Tax Law:

Comparison Table of Taxes on Capital Investments and Taxes on Capital Transfers Effective July 1, 2026

Comparison criteria	Income from Capital Investments	Income from the sale of equity
Legal basis	Paragraph 3 of Article 3 and Article 12 of the 2025 Personal Income Tax Law	Section 4 of Article 3 and Article 13 of the 2025 Personal Income Tax Law
Economic Nature	Income generated from existing capital (interest, dividends, and distributed earnings).	Proceeds from the sale or transfer of equity interests or securities.
Tax basis	Total taxable income received for each occurrence.	Transfer Price or Gain (Sale Price minus Purchase Price and expenses).
Applicable tax rate	5% (Fixed as a percentage of total taxable income).	0,1% at the trading price (of securities) or 20% on net income (LLC capital contribution).
Deductions	No related expenses may be deducted.	The cost of goods sold and other reasonable expenses directly related to the transaction may be deducted.
Tax calculation time	The time when the employer pays income or the individual receives income.	The date the transfer agreement takes effect or the ownership registration is completed.

Accurately distinguishing between these two types of income helps accountants record transactions under the correct sub-item codes in the state budget classification, thereby avoiding mistaken payments to the wrong sub-item, which could result in unnecessary late-payment penalties.

Insights from MAN Experts: 3 Major Tax Risks in Capital Investment and Solutions for Addressing Them

With more than 30 years of experience providing tax and audit consulting services to thousands of businesses in Vietnam, the experts at MAN identify the top three categories of tax risks related to capital investment income:

The nature of a business cooperation contract (BCC) was reclassified as a loan agreement

Many businesses enter into business partnership agreements with individuals, but the terms of these agreements commit to paying a fixed monthly profit regardless of actual business performance. Upon audit, the tax authorities will determine that these agreements are, in essence, loan agreements.

If a business fails to withhold personal income tax (Form 5%) on capital investments, it will be subject to back taxes, administrative penalties, and all business partnership expenses will be excluded from deductible expenses when calculating corporate income tax.

Failure to withhold 5% personal income tax when a shareholder sells shares in lieu of dividends

When a company pays dividends in the form of stock, the accounting department only processes the increase in authorized capital. Many years later, when an individual shareholder transfers these shares, the accountant only reports the 0.1% personal income tax on the securities transfer, while overlooking the 5% personal income tax on capital gains for the par value portion of the stock dividends received. This is a major source of back taxes during audits.

Post the accrued dividend liability to account 3388

The company has issued a resolution from the General Shareholders' Meeting to pay dividends, has recorded a reduction in retained earnings (Account 421) and recognized an amount payable to shareholders (Account 3388), but has not yet disbursed the funds due to a lack of cash flow.

Some local tax authorities maintain that the obligation to withhold personal income tax arises at the very moment funds are debited from the retained earnings account to record the payable. A delay in reporting the tax withholding at this time results in the risk of being charged a late payment penalty of 0.03% per day.

Solutions from MAN – Master Accountant Network

Experts at MAN, with 30 years of experience, recommend a comprehensive risk management solution:

• Review all loan agreements and business cooperation agreements to amend the terms to reflect the actual economic reality.
• Maintain a detailed ledger of shareholders eligible to receive stock dividends to accurately withhold personal income tax under Form 5% as soon as a capital transfer transaction occurs.
• Develop a profit distribution plan and a reasonable cash flow plan for dividend payments, ensuring compliance with legal regulations and optimizing tax expenses in Vietnam.

Conclude

Accurately determining the tax on capital investment income earned by resident individuals is a mandatory requirement that helps businesses comply with the legal framework and protect their cash flow. The fixed tax rate of 5%, applied to the total income generated on a per-occurrence basis, requires managers and accountants to thoroughly understand when tax obligations arise, the list of tax-exempt items, and the withholding procedures to eliminate the risk of late-payment penalties.

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Service contact information at MAN – Master Accountant Network

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Responsible for production and professional content review by: Mr. Le Hoang Tuyen – Founder & CEO of MAN – Master Accountant Network, CPA Vietnam with over 30 years of experience in accounting, auditing, taxation, and corporate financial consulting.

FAQ: 5 Frequently Asked Questions About Taxes on Income from Capital Investments

Do individuals who lend money to businesses have to file their own personal income tax returns?

No. The business receiving the loan is responsible for withholding 5% personal income tax before paying interest and for filing a tax return on behalf of the individual using Form 06/TNCN. Individuals are only required to file their own tax returns when lending money to other individuals.

When receiving dividends in the form of stock, do I have to pay the 5% personal income tax as soon as the shares are credited to my account?

No. At the time of receiving the shares, the individual is not required to pay tax. The obligation to file Form 5% for personal income tax on capital investments arises only when the individual transfers those shares, withdraws capital, or when the company is dissolved.

Is interest income from bank savings accounts subject to personal income tax under Form 5%?

No. Interest earned on savings deposits at financial institutions is classified as income exempt from personal income tax under Clause 6 of Article 4 of the 2025 Personal Income Tax Law.

Is the owner of a single-member limited liability company, who is an individual, required to pay personal income tax (Form 5%) when withdrawing profits?

No. According to Paragraph 21 of Article 4 of the 2025 Personal Income Tax Law, the income of an individual who is the owner of a single-member limited liability company or a sole proprietorship, after corporate income tax has been paid, is exempt from personal income tax.

When is the deadline for filing personal income tax returns for withholding tax on capital investments?

Businesses must file their monthly personal income tax withholding returns by the 20th of the month following the month in which the tax liability arose. In the case of quarterly filings, the deadline is the last day of the first month of the following quarter.