SITUATION DESCRIPTION

During their direct investment operations in Vietnam, some foreign investors, as owners of wholly foreign-owned limited liability companies, generate profits and wish to transfer these profits back to their home countries. However, the issue arises as these investors need to fully comply with Vietnamese tax laws, including corporate income tax (CIT) and personal income tax (PIT).

The Tax Department of Dong Thap Province sent Official Letter No. 526/CTDTH-TTHT to seek clarification on this matter, and the General Department of Taxation responded through Official Letter No. 2043/TCT-DNNCN dated May 14, 2024.

REGULATIONS ON THE TRANSFER OF PROFITS ABROAD

According to Clause 1, Article 4 of Circular No. 186/2010/TT-BTC dated November 18, 2010, issued by the Ministry of Finance, the guidelines for transferring profits abroad by foreign organizations and individuals with profits from direct investments in Vietnam under the Investment Law state:

“1. Annual profit transfer abroad. Foreign investors are allowed to transfer the distributed or obtained profits from their direct investment activities in Vietnam abroad at the end of the fiscal year, after the enterprise in which the foreign investor has invested has fulfilled its financial obligations to the State of Vietnam as required by law, submitted audited financial statements, and the corporate income tax finalization form to the directly managing tax authority…”

According to Circular No. 186/2010/TT-BTC, foreign investors have the right to transfer profits abroad after fulfilling their financial obligations to the State of Vietnam. These obligations include paying corporate income tax and submitting audited financial statements. The transfer of profits can only be carried out at the end of the fiscal year when the necessary legal conditions have been met.

EXEMPTION OF INCOME FROM CAPITAL INVESTMENT FROM PERSONAL INCOME TAX

According to Point c, Clause 3, Article 2 of Circular No. 111/2013/TT-BTC dated August 15, 2013, issued by the Ministry of Finance (amended and supplemented in Clause 6, Article 11 of Circular No. 92/2015/TT-BTC dated June 15, 2015), it states:

“3. Income from capital investment Income from capital investment refers to the personal income received in various forms: … c) Returns received from participating in capital contributions to limited liability companies, partnerships, cooperatives, joint ventures, business cooperation contracts, and other business forms according to the provisions of the Enterprise Law and Cooperative Law; returns received from capital contributions to the establishment of credit institutions as per the regulations of the Law on Credit Institutions; contributions to securities investment funds and other investment funds established and operating under the law. Income from the investment capital of individual enterprises and wholly foreign-owned limited liability companies is not subject to personal income tax.”

According to Circular No. 111/2013/TT-BTC, income from capital investment is understood as the return received by individuals from participating in capital contributions to various types of enterprises. Particularly for wholly foreign-owned limited liability companies, the returns after corporate income tax will not be subject to personal income tax, creating favorable conditions for investment and business development in Vietnam.

In summary, Official Letter No. 2043/TCT-DNNCN has clarified the process and necessary conditions for foreign investors to transfer profits abroad without facing tax obstacles. These regulations not only facilitate investors but also ensure compliance with Vietnamese tax laws.

References

• Official Letter No. 2043/TCT-DNNCN dated May 14, 2024, from the General Department of Taxation.
• Circular No. 186/2010/TT-BTC dated November 18, 2010, from the Ministry of Finance.
• Circular No. 111/2013/TT-BTC dated August 15, 2013, from the Ministry of Finance.

Ngân Hồ