Capital transfers between foreign investors — tax and procedures

When a foreign investor sells its contributed capital or shares to another foreign investor — for example, a Singapore fund exiting a Vietnamese company to a Korean buyer — the transaction triggers two layers of obligations: investment procedures under the Law on Investment 2025 and capital transfer tax under the Law on Corporate Income Tax 2025. This article covers both.

1. Legal basis

• Law on Investment 2025 (143/2025/QH15), effective 1 March 2026: Article 21 (capital contribution, share/stake purchase), Article 26 (no mandatory IRC for this investment form).
• Law on Corporate Income Tax 2025 (67/2025/QH15), effective 1 October 2025: Article 3(2)(a) — income from capital transfers is taxable CIT income.
• Circular 06/2019/TT-NHNN: payment of capital transfer value through the direct investment capital account.

2. Investment procedures: when is registration required?

Under Article 26(2) of the Law on Investment 2025, investment in the form of capital contribution, share or stake purchase is not subject to mandatory Investment Registration Certificate (IRC) issuance — a major advantage of M&A deals over project-based investment.

However, under Article 21(3), a foreign investor must complete the capital-contribution/share-purchase registration before changing members/shareholders if any of the following applies:

• (a) The deal increases foreign ownership in an economic organization operating in sectors with conditional market access for foreign investors;
• (b) The deal results in foreign investors holding more than 50% of charter capital: rising from at/below 50% to above 50%, or further increasing when already above 50%;
• (c) The target holds land use rights in areas affecting national defense/security (islands, borders, coastal zones).

If none of these applies: only the member/shareholder change registration at the business registration authority is needed.

3. Capital transfer tax: the new 2% on transfer price

From 1 October 2025, a foreign organization seller transferring contributed capital in an LLC or shares in an unlisted joint-stock company is subject to CIT at 2% of the transfer price — calculated on the total transaction value, with no deduction of cost basis. The tax liability arises even on a loss-making deal.

Compare with the old rule (before 1 October 2025): 20% on the transfer gain (sale price minus purchase price minus expenses). This change materially raises the tax cost of exits, especially for long-held investments with high cost bases.

Note: Vietnamese enterprises transferring capital remain subject to 20% on transfer income.

4. Withholding obligations

In deals between two foreign investors, the obligation to withhold, declare, and pay tax on behalf of the foreign seller is typically placed on the Vietnam-paying entity (the invested enterprise or the buyer, depending on structure). Parties should clearly agree in the SPA who bears the tax and any gross-up mechanism.

5. Recommended transaction sequence

1. Review the buyer’s market access conditions by sector (Article 8, Law on Investment 2025);
2. Determine pre- and post-deal ownership ratios → whether Article 21(3) registration applies;
3. Negotiate and sign the SPA: tax clauses (tax bearer, gross-up), conditions precedent (registration approval if applicable), payment via the direct investment capital account;
4. Register the capital contribution/share purchase (if applicable) with the investment registration authority;
5. Register the member/shareholder change with the business registration authority;
6. Declare and pay capital transfer tax (2% of transfer price for foreign-organization sellers).

6. Common pitfalls

• Forgetting the contribution registration when ownership crosses 50% or increases further above 50%;
• Applying the old 20%-on-gain formula instead of 2% on price (effective 1 October 2025);
• Paying the transfer value through an ordinary payment account instead of the direct investment capital account;
• Leaving the tax bearer unaddressed in the SPA, causing post-closing disputes.

Content drafted by the FLAW AI Legal Council, pending QA Council review before approval. This article is for general information only and does not replace legal advice for any specific case.