New Rules on Taxation of Capital/Equity Transfers in Vietnamese M&A and Reorganization Transactions: Tax Risks and Responses Foreign Investors Should Know
Vietnamese Attorney
Managing Partner, NEXORA Law Firm
Attorney (Vietnam Bar)
Mediator/Conciliator, Bankruptcy Trustee, Independent Auditor
Table of Contents
01 - Clarifying the Scope of Application: Distinguishing Direct and Indirect Capital/Equity Transfers
02 - Reassessing the Concept of "Real Property Transfer" and the Risk of Misapplied Taxation
03 - Filing Timing and Tax Compliance Obligations
Based on Decree No. 320/2025/NĐ-CP and official dispatches from the tax authorities, this article explains the latest developments in the taxation of income from capital contribution and share transfers in Vietnam. It comprehensively analyzes the distinction between direct and indirect transfers, how to avoid the misapplication of real property transfer taxation, filing deadlines, and other practical points to note. NEXORA LAW FIRM is one of the few Vietnamese law firms that approaches tax matters from a "legal perspective," and has achieved a strong track record resolving the tax issues faced by Japanese companies doing business in Vietnam.
Recent Developments in Income Tax on Capital Contribution and Share Transfers in Vietnam (2025–2026)
In recent years, investment activity, corporate mergers and acquisitions (M&A), and corporate reorganization transactions in Vietnam have expanded significantly in number, scale, and complexity alike. As these transactions have increased, the tax obligations arising from transfer transactions remain an extremely important consideration for companies and investors.
Generally speaking, "taxation of transfer income" refers to the tax obligation imposed on the income or gain that a transferor realizes from transferring capital contributions, shares, or the economic rights and interests attached to them, in a company.
[Background to the 2025-2026 Tax Reforms]
The period from 2025 to 2026 marks a significant transition, as the Corporate Income Tax Law (2025), its implementing Decree No. 320/2025/NĐ-CP, and related regulations — including Official Dispatch No. 4658/CT-CS issued by the General Department of Taxation on October 29, 2025 — are rolled out in succession. These new provisions are expected to have a direct and far-reaching impact on how tax treatment is determined for capital contribution and share transfer transactions, and, against the backdrop of an increasing number of transactions involving foreign elements and M&A deals involving foreign investors, some shift in the tax authorities' interpretation and administrative approach is also anticipated.
Against this legal and regulatory background, this article analyzes the income taxation of capital contribution, share, and similar transfers, focusing on the following points:
Clarifying the scope of application under the new regime
Cases that may potentially qualify for non-taxation or exemption
Points to note regarding filing obligations and deadlines during the transition period
In addition, taking into account issues that commonly arise in practice, this article aims to provide practical guidance to help companies and investors properly assess their tax risk and build a compliance framework consistent with current legislation and the tax authorities' administrative approach.
01 - Clarifying the Scope of Application: Distinguishing Direct and Indirect Capital/Equity Transfers
1.1. Legal Background
In Vietnamese tax practice, the distinction between direct and indirect transfers of capital contributions (ownership interests) and shares has long been a subject of interpretive debate.
Generally, the two concepts are understood as follows.
A "direct transfer" refers to a transaction transferring the capital contribution or shares themselves in a company established and operating under Vietnamese law. In other words, the object of the transfer is the capital contribution/shares of a Vietnamese legal entity.
An "indirect transfer" refers to a transaction transferring capital contributions or shares in a foreign parent company, holding company, investment fund, or other foreign entity, where a substantial or significant portion of the transferred value derives from a company, economic benefit, or asset located in Vietnam.
Before the enactment of the 2025 Corporate Income Tax Law and its implementing regulations, Vietnam's tax legislation contained no clear conceptual definition or legal criteria distinguishing between these two forms of transfer.
In addition, earlier draft regulations used the expression "a 2% tax on revenue imposed on owners that do not directly manage the enterprise" — wording that was extremely abstract and gave rise to interpretive confusion of the following kind.
The possibility that different tax treatments would apply to direct and indirect transfers
Uncertainty that, in some cases, even a direct transfer could be subjected to an unfavorable tax rate
→ This legal ambiguity has posed significant tax and compliance risk for investors, particularly in cross-border M&A transactions involving
multi-tiered holding structures, foreign intermediary entities, and investment funds.
Specifically, whether a transaction is classified as a direct or indirect transfer has a direct bearing on:
The tax base (revenue-based taxation versus taxable-income-based taxation)
The applicable tax rate
Filing obligations, withholding obligations, and each party's tax liability
1.2. The New Approach Under Decree No. 320/2025/NĐ-CP
To correct the confusion that has existed in tax practice, Decree No. 320/2025/NĐ-CP introduces a unified and systematic approach to the taxation of capital transfer income connected with Vietnam.
① Unifying the Scope of Application for Capital Transfer Income
Article 3(4) of the Decree expressly provides that "income from the transfer of capital in a foreign enterprise" is subject to tax in Vietnam — regardless of whether the transfer is direct or indirect —
so long as that income derives from an enterprise or asset located in Vietnam. This provision clearly establishes the principle that taxation is based on economic substance rather than the legal form of the transaction.
→ In other words, all capital transfer transactions connected with Vietnam are now assessed under a single tax framework, no longer dependent on the technical structure or legal form of the transaction scheme.
This can be regarded as an important regulatory advance that reduces the risk of disputes arising from differing interpretations between taxpayers and the tax authorities — disputes that have frequently occurred in cross-border M&A transactions.
② Moving from a Qualitative Standard to a Specific List of Exclusions
Furthermore, Article 12(3)(i) of the Decree abolishes the previously used, vague and subjective "direct management" standard, and replaces it with an explicit list of specific cases excluded from the 2% revenue-based tax.
Specifically, the 2% revenue-based tax does not apply to intra-group reorganization transactions that satisfy all of the following conditions.
The Ultimate Parent Company remains unchanged following the transaction
Each party continues to hold a direct or indirect interest in the Vietnamese enterprise after the reorganization
The transaction does not give rise to any substantive income
→ This approach represents a shift from an abstract, qualitative standard to clearly defined exclusion criteria, and
makes it easier for taxpayers to predict the tax outcome in advance. That said, the concept of "reorganization" (restructuring) itself still lacks a fully unified definition under current Vietnamese law.
In practice, therefore, whether an intra-group reorganization transaction qualifies for tax exemption or falls within the exclusion provisions remains, to a significant degree, dependent on the tax authorities' interpretation and judgment on a case-by-case basis. This makes advance tax analysis and engagement with the authorities essential, particularly for transactions involving complex or multi-tiered holding structures.
01 - 3. Comparing the Current Rules with Decree No. 320/2025/NĐ-CP
① Direct Capital/Equity Transfers
Item
Current Rules
Decree No. 320/2025/NĐ-CP
1．Method of Taxation
The transferor is taxed at a rate of 20% on taxable income. Taxable income = transfer price − acquisition cost of the transferred capital/shares.
The transferor is taxed at a rate of 2% on the gross transfer proceeds (revenue). Acquisition cost and actual gain or loss are not taken into account.
2．Worked Example
Acquisition cost of USD 70, transfer price of USD 100:
(100 − 70) × 20% = USD 6. → On a future re-transfer of this capital, USD 100 is used as the acquisition cost.
Acquisition cost of USD 70, transfer price of USD 100: 100 × 2% = USD 2.
→ On any future re-transfer, the gross transfer proceeds are again taxed at 2%, regardless of acquisition cost.
→ Tax is due even where the transfer is made at a price below the acquisition cost (i.e., a loss-making transfer).
Assessment
Decree No. 320/2025/NĐ-CP clearly marks a shift from profit-based taxation (20%) to revenue-based taxation (2%). While this simplifies the calculation method, it also increases the tax risk for loss-making transfers and financial reorganization transactions — a point that warrants attention.
② Indirect Capital/Equity Transfers
Item
Current Rules
Decree No. 320/2025/NĐ-CP
1．Scope of Application
There was no clear rule or guidance on how to calculate taxable revenue for indirect transfers, or on how to allocate acquisition cost and transfer price.
Where the transferred value relates to an enterprise or asset located in Vietnam, an indirect transfer is now formally subject to Vietnamese tax.
2．Method of Taxation
In practice, a method modeled on direct transfers was applied on a case-by-case basis.
The transferor is taxed at a rate of 2% on the portion of the transfer price allocated to Vietnam.
3．Treatment of Acquisition Cost in Future Transactions
There was no clear rule on whether the transfer price at an intermediate level would be recognized as the acquisition cost in a subsequent transfer.
Greater weight is placed on the transfer price allocated to Vietnam than on tracing historical acquisition cost, and the role of acquisition cost is correspondingly diminished.
Assessment
Expressly codifying a 2% tax on the value allocated to Vietnam for indirect capital transfers is regarded as an important regulatory advance, filling a long-standing legal gap.
That said, in practice, the question of what basis should be used to allocate the transfer price to Vietnam may continue to generate interpretive debate in transactions involving multi-tiered holding structures or complex cross-border M&A, and this point warrants continued attention.
02 - Reassessing the Concept of "Real Property Transfer" and the Risk of Misapplied Taxation
Under earlier draft decrees, a significant legal risk existed regarding how transactions were classified where a foreign entity transferred 100% of the capital in a single-member LLC established in Vietnam. In particular, where the target company owned real property, or where a substantial part of its business value derived from real property, there was a risk that the transaction would be reclassified as a "real property transfer" rather than a "capital transfer."
If such reclassification occurred, a transaction that should properly have been taxed at 2% of revenue as a capital transfer could instead be subjected to 20% taxable-income taxation as a real property transfer — an outcome that would be extremely disadvantageous for investors.
[Background to the Risk]
This risk arose primarily because the wording of Article 12 in the earlier draft was not sufficiently clear, and its exclusion provisions were narrowly limited. Specifically, because the range of transactions falling outside the definition of "real property transfer" was relatively narrowly enumerated under Article 11(2), there remained room for the tax authorities to adopt a broad interpretation — treating the transfer of capital in a company that owns or uses real property as, in substance, a real property transfer.
Under such an interpretation, a transaction could be reassessed as a real property transfer based on economic substance, regardless of its legal form (a capital transfer).
[Clarification Under Decree No. 320/2025/NĐ-CP]
Through the amendment of Article 12(3)(i), Decree No. 320/2025/NĐ-CP now comprehensively covers all capital transfer transactions by foreign entities, substantially narrowing the scope for an overly expansive interpretation of "real property transfer." This can be seen as clearly establishing the following important principle in tax practice.
[The Principle Now Established in Practice]
A transfer of capital in a company is, in principle, treated as a "capital transfer" even where that company owns real property, or where its value depends substantially on real property.
By way of exception,
reclassification as a real property transfer will occur only where special provisions are established by law,
or where an independent tax regime is expressly specified for that particular type of transaction.
This clarification allows investors in M&A transactions involving companies that hold real property to more reliably predict the applicable tax treatment, and significantly reduces the risk of an incorrect tax method being applied.
03 - Filing Timing and Tax Compliance Obligations
[Filing Deadline Under Official Dispatch No. 4685]
Official Dispatch No. 4685, issued by the Tax Department, provides an extremely important practical guideline on when the filing and payment obligations for capital transfer income arise. Under this dispatch, taxpayers must file and pay tax within 10 days of the date on which ownership of the capital is transferred.
The "point of transfer of ownership of the capital" referred to here means the point at which valid ownership over the capital being transferred is established under the relevant legal documents, and specifically corresponds to points such as the following.
The date on which the procedure to change the members/shareholders on the Enterprise Registration Certificate (ERC) is completed
The point at which a document of equivalent legal effect is completed (under the relevant provisions of the Enterprise Law)
It is particularly important to note that the filing and payment deadline is not affected by whether the transferee has completed payment, and is not linked to the point at which the transfer proceeds are actually received.
→ This is an extremely strict deadline requirement, and can create a situation where the transferor must fulfill its tax obligations even where it has not yet collected the full transfer price, or has collected none of it at all.
In practice, because this can have a substantial impact on cash flow, it is essential for investors and companies to:
Estimate their tax obligations in advance
Carefully design the payment terms of the transfer agreement
Ensure the necessary funds are available by the time the transaction closes
[Where the Transfer Price Is Not Yet Fixed at the Time of Ownership Transfer]
In some capital transfer transactions, the final transfer price has not yet been fixed at the time ownership is transferred. Examples include:
Transactions involving a price adjustment mechanism
Transactions containing an earn-out clause
Transactions with payment terms linked to the target company's future performance
For such cases, the tax authorities' guidance allows for a more flexible filing approach. Specifically, taxpayers may:
File a provisional tax return based on a reasonable estimate of the transfer price as of the date ownership is transferred
File a supplementary or amended return for the relevant ownership-transfer period once the transfer price is finally determined
→ However, such supplementary or amended filings do not change the original date on which the tax obligation arose, nor do they extend the filing and payment deadline.
Accordingly, in practice, from the earliest stage of structuring the transaction, it is necessary to:
Fully prepare the relevant legal documentation
Prepare a reasonable price estimation method
Design an appropriate filing schedule
Secure the necessary funds in advance
Doing so minimizes the risk of a filing violation or an unexpected funding burden.
[Conclusion]
The series of amendments and guidance under Decree No. 320/2025/NĐ-CP and Official Dispatch No. 4685 shows that the Vietnamese tax authorities' administrative approach is moving ever more consistently in the following directions.
First, the scope of taxation on capital transfer income has been expanded and unified, making clear that income connected to Vietnam is comprehensively taxable regardless of whether the transfer is direct or indirect.
Second, legal ambiguity and interpretive gaps in classifying transactions and assessing economic substance have been narrowed, curbing the risk of an incorrect tax method being applied.
Third, tax compliance discipline has been further strengthened by setting a highly enforceable, practically executable timeline for filing and payment deadlines.
[Practical Steps Investors and Companies Should Take]
Against this backdrop, it is important — particularly for foreign investors — to take a proactive, forward-looking approach on the following points.
Comprehensively review the entire transfer structure for cross-border M&A transactions and transactions involving multi-tiered holding structures through intermediary entities.
Carefully assess whether an exemption or exclusion may apply, taking into account the economic substance of the transaction, well-prepared legal documentation, and the tax authorities' practical administration.
Design the filing and payment schedule in advance, based on the point at which ownership of the capital transfers, and factor in the cash flow and financial burden associated with each possible transaction scenario.
[Summary]
Obtaining advice from lawyers and tax specialists from the earliest stage of structuring a transaction is critically important — not merely to reduce legal and tax risk, but to enhance the predictability, stability, and executability of investment decisions.
Vietnam's tax and investment-related legislation is expected to continue developing and strengthening in line with international standards. In such an environment, an investment strategy grounded in sound legal and tax planning will be the key to achieving sustainable and efficient business development.