EY'S CASE STUDY OF TAX ADVISORY

Group 5 - Case 02

Group members
Full name Student ID
Bùi Lan Anh 1911140505
Nguyễn Đỗ Kim Anh 1911140508
Nguyễn Thị Vy Anh 1911160704
Dương Thị Hằng 1911140011
Mai Tuấn Huy 1911140535
Nguyễn Mai Linh 1911140541
Nguyễn Hoàng Mai 1911140544
Bùi Nguyệt Minh 1911140546

Question 1:

Dear Ms Kim,

This is Dale from Group 5 Company. Thank you for trusting our Tax Consulting Service. In this email, we would like to
advise you on your personal income tax (PIT) obligation in relation to the capital transfer and several ways to minimize
the tax costs.

Based on the information we were provided, you are one of the 04 owners of FTC C2 - a limited liability company
established in Vietnam on 01 February 2016 with its charter capital being VND 10 billion. The firm was owned by 04
individuals, Ms Hien, Ms Dung, Mr Tuan and you with the capital contribution of 20%, 30%, 20% and 30%,
respectively. On 30 November 2021, you decided to transfer your capital in FTC C2 to the remaining individuals in
exchange for VND 9 billion.
Tax obligations

The tax expense from your capital transfer could be calculated based on 2 occasions.
• Firstly, it may be based on your place of residence. If you are living in Vietnam, it can be understood according to
Article 11, Circular 111/2013/TT-BTC. Basis for calculating tax on incomes from capital transfer, that:

The basis for calculating tax on incomes from transferring contributed capital is assessable income and the tax rate, in
which:

11.1a. The assessable income from transferring contributed capital equals the transfer price minus the purchase price of
the transferred capital and rational expenses related to the generation of the income from transferring capital.

Assessable income = Transfer price - purchase price - rational expenses related

= 9 billion - 3 billion
= 6 billion VND

11.1b. The rate of personal income tax on the income from transferring contributed capital is 20% according to the whole
income tax table. Therefore:

Your tax expense equal Assessable income * 20% = 6 billion * 20% = 1,2 billion VND
If you are a non-resident of Vietnam, then according to Article 20, Circular 111/2013/TT-BTC. Incomes from capital
transfer

20.1 The personal income tax on the income from capital transfer earned by a non-resident equals the total amount of
money the non-resident receives from the transfer of capital invested in organizations and individuals in Vietnam
multiplied by (x) 0.1% tax, whether the transfer is made in Vietnam or overseas.
The total amount of money the non-resident receives from the transfer of capital invested in organizations and individuals
in Vietnam is the capital transfer price without any deductions, including the cost price.
→ Total income = 9 billion VND

Your tax expense equal Total income * 0,1% = 9 billion * 0,1% = 9 million VND

• Secondly, the tax expense can be calculated according to the form of business.

The FCT C2 Company was established as a limited liability company in 2010; however, by the time of your transfer of
shares, if the company had changed its form of capital ownership into a joint stock company, your transfer of contributed
capital would become a securities transferee with the price stated in the transfer contract of VND 9 billion (Section
2a.2.2, Article 11, Circular 111/2013/TT-BTC). Your initial capital contribution by then would become shares
corresponding to 30 percent of the charter capital that you contributed, which means you would own VND 3 billion
worth of shares.

Based on Section 2b, Article 11, Circular 111/2013/TT-BTC, the person that transfers securities shall provisionally pay a
0.1% tax on the securities transfer price at a time. Therefore, your personal income tax from your capital transfer would
be 0.1% of VND 9 billion, which is VND 9 million.

Opportunities to minimize tax costs

According to the aforementioned information, there are opportunities that you can minimize your tax costs by reducing
the tax rate or reducing your taxable income.

• Firstly, you will be at the most advantageous position if you do not reside in Vietnam or the company FCT C2 is a joint
stock company by the time you transfer your capital, for which you have a much lower tax rate for your case (0,1% per
transaction), leading to a much lower tax obligations.

• If you reside in Vietnam and the company FCT C2 is still a limited liability company by the time you transfer your
capital, in order to minimize your tax costs or taxable income, there are several documents you need to prepare
beforehand. They are proof of tax deductions, for example, family circumstance deductions, dependent deductions,
insurance deductions,... You can raise your nominal purchase price in this case. Once the purchase price increases, the
taxable income will decrease, so will your tax obligations. Furthermore, according to Point 1.a.3, Article 11, Circular
111/2013/TT-BTC, you should also consider the deductible expenses when calculating taxable income from capital
transfer are rational expenses that are related to the generation of income from capital transfer with valid invoices as
prescribed. In particular:

a.3.1) The expenditures on legal procedures necessary for the transfer.

a.3.2) The fees and charges paid to the government budget when following the transfer procedure.
a.3.3) Other expenditures related to the capital transfer.

Procedures of PIT declaration

As you earn income from capital transfer, it is obligatory to declare and pay personal income tax in accordance with
Article 17 of the Decree No. 83/2013/ND-CP. The procedure is as follows:
As you earn income from capital transfer, it is obligatory to declare and pay personal income tax in accordance with
Article 17 of the Decree No. 83/2013/ND-CP. The procedure is as follows:

Category Detail
Case 1: If you are a Vietnamese resident, it is required to declare tax
whenever a transfer is made whether income is earned or not.

Case 2: If you are a non-resident, you are not required to directly declare
tax at tax authorities. Instead, the transferee shall deduct and declare tax
in accordance with Clause 1 of this Article. If the transferee is an
Rules for declaring tax
individual, tax shall be declared upon incurrence. Terminal declaration of
deducted tax is not required.

Case 3: When transferring capital, if FTC C2 changes the list of

contributors without having documents proving that you have fulfilled
the tax liability, the company shall declare and pay tax on your behalf.

The dossier should contain the following documents:

- A PIT declaration for individuals earning income from capital transfer
(form 12/KK-TNCN enclosed herewith).

- A photocopy of the capital transfer contract.

Declaration dossier - Documents proving the value of capital contribution according to

accounting records or the contract to buy capital contribution (if capital
contribution is bought).

- A photocopy, which bears the individual’s signature, of the documents

proving the expenditures on determination of income from capital
transfer.

Tax declarations shall be submitted to the supervisory tax authority of

Places to submit tax declaration
FTC C2.
The tax declaration shall be submitted within 10 days from the day on
which the capital transfer contract comes into force.
Deadline for submitting tax declarations
If FTC C2 pays tax on your behalf, the tax declaration shall be submitted
before the list of contributors is changed.
The deadline for paying tax is written on the tax notice of the tax
Deadline for paying tax
authority

This is our detailed consultation on your PIT obligation. Should you have any questions or inquiries, feel free to let us
know. We will get back to you within 01 working day.

Thank you for reaching us out on this matter. We look forward to a further successful working relationship with you in
the future.

Best regards,
Dale.
Question 2:
Adjustments below are made based on general rules depriving from:
Article 2, Circular 96/2015 / TT-BTC on Income taxes
Taxable income in a tax period includes income from production and trading of goods and services and other income. Taxable income in a tax period is determined as follows:
Taxable income = Revenue - Deductible expenses + Other incomes
No Item
1 Accounting profit before tax
2 Adjustments to increase profit before tax
2c Non-deductible expenses
Expenses to issue additional common shares of
FTC C2
3 Adjustments to decrease profit before tax
Deductions of revenue which was taxed in the
3a
previous periods
Dividends from subsidiaries of VND 340
million
4 Total taxable income
5 CIT rate
6 CIT payable
Amount (VND million) Reason of adjustment and legal basis
1000
Article 6. Circular No. 78/2014/TT-BTC
Clause 2. Non-deductible expenses for determining taxable income include:
2.34. Expenses directly related to the issuance of stocks (excluding stocks being
payable debts) and payment of dividends (excluding dividends of stocks being
payable debts)
280 Case application: In this case, FTC C2 issue common shares with the expenses of
VND280 million. Since issurance of stocks is listed as one of the non-deductible
expenses, this amount of VND280 million is non-deductible expenses.
However, in calculation of accounting profit before tax, VND280 million is already
deducted as expenses but in calculation of profit before tax, this amount cannot be
deducted, thus VND280 million is added back to profit before tax.
Clause 6, Article 8, Circular No. 78/2014/TT-BTC: Tax-exempt incomes:
Incomes divided from capital contribution, share purchase, joint venture or
economic association with domestic enterprises.
Case application: Since the company received an amount of dividend of
VND340m from a Vietnamese (domestic) subsidiaries, dividend from these
340
subsidiaries is tax-exempt income.
However, in calculation of accounting profit before tax, VND340m is already
added as a part of revenue but in calculation of profit before tax, this amount are
tax-exempted, thus this amount of VND340m has to be deducted from accounting
profit before tax"
940
Clause 1, Article 12, Circular 96/2015 / TT-BTC
1. Tax exemption for 4 years and 50% tax reduction for the next 9 years are applied
to:
Incomes of enterprises from execution of projects of investment prescribed in
Clause 1 Article 19 of Circular No. 78/2014/TT-BTC (amended in Clause 1 Article
11 of this Circular), including incomes of the enterprise from execution of new
projects of investment in hi-tech zones, including concentrated IT zones
established under the Prime Minister’s Decisions.
Case application: Since FTC C2 is located in high-tech park, it is eligible for tax
exemption for 4 years and 50% tax reduction for the next 9 years
Clause 2 , Article 12, Circular 96/2015 / TT-BTC
The continuous period of tax exemption/reduction prescribed in this Article begins
0% from the first year in which the enterprise earns taxable income from the new
project of investment which is given tax incentives. In case the enterprise does not
have taxable income in the first 03 years, the period of tax exemption/reduction
begins in the 4th year from the first year revenue is generated by the new project.
Case application: Since FTC C2 established in 2016, it generated revenue from
2017 but still did not generate taxable income until 2019 (= does not have taxable
income in the first 03 years), the continuous period of tax exemption/reduction then
began at the fourth year since 2017, which is 2020.
Conclusion: FTC T2 is eligible for tax exemption for a continuous period from
2020 to 2023, meaning CIT tax rate for the year 2021 is 0%
Article 1, Circular 96/2015 / TT-BTC: The payable enterprise income tax
amount in the tax period is taxed income minus the deduction of the science and
technology fund (if any) multiplied by the corporate income tax rate:
Corporate income tax payable = (Taxable income - Appropriation to science and
technology fund (if any)) x Corporate income tax rate)
0
Case application: Assume that Appropriation to science and technology fund = 0,

6 CIT payable
Other considerations:
Depreciation amounted to VND 400million of a
1 29-seater bus for shuttling the employees from
their home to the office and vice versa
Depreciation amounted to VND 380 million of
2 a training center for the employees built in FTC
C2’s factory
Article 1, Circular 96/2015 / TT-BTC: The payable enterprise income tax
amount in the tax period is taxed income minus the deduction of the science and
technology fund (if any) multiplied by the corporate income tax rate:
Corporate income tax payable = (Taxable income - Appropriation to science and
technology fund (if any)) x Corporate income tax rate)
0
Case application: Assume that Appropriation to science and technology fund = 0,
CIT payable = Taxable income x CIT rate
Clause 2, Article 6, Circular No. 78/2014/TT-BTC: Non-deductible expenses for
determining taxable income include:
2.2. Depreciation expense for fixed assets in one of the following cases:
a. Depreciation expense for fixed assets not used for the production and trading of
goods and provision of services;
Particularly for fixed assets serving workers of enterprises commute cars, they may
be depreciated and included in deductible expenses for determining taxable
income;
Case application: In this case, depreciation expenses for the 29-seated bus are
depreciation for commute cars and can be included in deductible expenses for
determining taxable income. In calculation of accounting profit before tax, VND
400million is already deducted as expenses, thus no adjustments need to be made.
Clause 2, Article 6, Circular No. 78/2014/TT-BTC: Non-deductible expenses for
determining taxable income include:
2.2. Depreciation expense for fixed assets in one of the following cases:
a. Depreciation expense for fixed assets not used for the production and trading of
goods and provision of services;
Particularly for fixed assets serving workers of enterprises such as vocational
and training facilities, they may be depreciated and included in deductible
expenses for determining taxable income;
Case application: In this case, depreciation expenses for training center for
employees are depreciation for vocational and training facilities and can be
included in deductible expenses for determining taxable income. In calculation of
accounting profit before tax, VND 380million is already deducted as expenses,
thus no adjustments need to be made.
Question 3:
Business transaction description
Compensation for a client due to late delivery by a
service with the value being equivalent to the
contractual penalty amount.
Receipt of payment discount of VND20 million from a
supplier due to early payment.
Receipt of a subsidy from a supplier. In exchange,
FTC C2 will display that supplier’s products at FTC
C2’s stores at free of charge.
Interest receipt from a corporate bond.
Subject to VAT
Legal basis
declaration or not
Clause 1, Article 5, Circular 219/2013/TT-BTC: Cases of exemption declaring
and paying VAT
If compensation is provided in the form of goods/services, the provider of
Subject to VAT
compensation must issue an invoice, declare and pay VAT as if such
declaration
goods/services are sold.
In this case, the compensation is in the form of a service, the provider of
compensation - FTC C2 - will be the taxpayer of this compensation.
Clause 1, Article 5, Circular 219/2013/TT-BTC: Cases of exemption declaring
and paying VAT
Not subject to VAT
An organization or individual receives a monetary compensation (including
declaration
compensation for land and property on land that is withdrawn by a competent
authority), bonus, allowance, or payment for transfer of emission permit, or other
revenues.
Clause 1, Article 5, Circular 219/2013/TT-BTC: Cases of exemption declaring
and paying VAT
Any taxpayer that receives money from another entity to provide a service such as
Subject to VAT
repair, warranty, sales promotion, or advertising must declare and pay tax as
declaration
prescribed.
In this case, FTC C2 receives subsidy from a supplier to display their products (a
form of advertising), thus FTC C2 is subjected to VAT.
Clause 1, Article 5, Circular 219/2013/TT-BTC: Cases of exemption declaring
and paying VAT
An organization or individual receives a monetary compensation (including
Not subject to VAT compensation for land and property on land that is withdrawn by a competent
declaration authority), bonus, allowance, or payment for transfer of emission permit, or other
revenues.
Interest from a corporate bond can be considered as another source of revenue for
the company, therefore FTC C2 will not be subjected to VAT.
 Note: All calculations are presented with formulas in the cells

Part (a)

Annual
Annual non-
taxable
No. Income item taxable income Reason
income
(VND)
(VND)

According to Article 3 of the Law on Personal income tax and Article 3 of the Decree No. 65/2013/NĐ-CP, the incomes subject
to personal income tax (hereinafter referred to as taxable incomes) include: "Incomes from wages and remunerations (hereinafter
referred to as wages) are incomes paid to employees from employers, including: a) Wages, remunerations, and the other amounts
1 Salary 480,000,000 0
paid as wages or remunerations in cash or not in cash"

Therefore, Ms. Binh's salary would be included in taxable incomes.

According to Clause 2 Article 2 Circular No. 111/2013/TT-BTC, "The allowances and benefits that are not included in taxable
incomes as guided in Point b Clause 2 of this Article must be defined by competent authorities.
If the documents on the levels of allowances and benefits are applicable to the public sector, other economic sectors and businesses
Position shall make calculate allowances and benefits based on such documents."
2 60,000,000 0
allowance
Ms. Binh work for FTC C2 - an IT devices manufacturer, the industry whose position allowance is not defined by competent
authorities as guided in Point b Clause 2 of this Article. Therefore, the position allowance here shall be calculated as a source of
salary, being obligated to PIT.

According to Point g.5 Clause 1 Article 2 Circular No. 111/2013/TT-BTC, "If the employer pays cash for their employees’
meals instead of providing mid-shift meals or lunch, such money is not included in the taxable income if it is conformable with the
guidance of the Ministry of Labor, War Invalids and Social Affairs. If the payment is higher than the limit imposed by the Ministry
Meal of Labor, War Invalids and Social Affairs, the excess shall be included in taxable incomes.
3 allowance in 3,240,000 8,760,000 According to Clause 4 Article 22 Circular No. 26/2016/TT-BLDTBXH "The enterprises shall spend the maximum amount of
cash VND 730,000 per person per month on employees’ mid-shift meals".

Therefore, since Ms. Binh was given VND 1,000,000/month in cash for meal allowance, the extra VND 270,000/month would be
obligated to PIT.

According to Clause 2 Article 4 Circular No 96/2015/TT-BTC

"In-kind expenditure on employees’ clothing without invoices. Monetary expenditure on employees’ clothing that exceeds VND 05
million/person/year.
Uniform
4 0 4,000,000 In case the enterprise has both monetary and in-kind expenditures on employees’ clothing, the monetary expenditure must not
allowance
exceed VND 05 million/person/year and the in-kind expenditure must have invoices in order to be deductible."

Since Ms. Binh was given 4,000,000/year in cash, uniform allowance is non-taxable income.
Total 543,240,000 12,760,000

Part (b)

Deduction
Deduction
No. amount in Reason
item
2021 (VND)

Personal
1 132,000,000 According to Clause 1, Article 1, Resolution 954/2020/UBTVQH14, the deduction for taxpayers is 11 million VND/month.
exemption

According to Point d.1 Clause 1 Article 9 Circular No. 111/2013/TT-BTC, "Dependants include: Children, legitimate adopted children,
illegitimate children, stepchildren, in particular: Children under 18 years of age,...". Therefore, Ms. Binh' son is qualified as a dependant.
According to Point c.2.3 Clause 1 Article 9 Circular No. 111/2013/TT-BTC, "If the taxpayer has not made deductions for dependants in the tax
Dependant
year, the deductions for dependants shall be made from the month in which the custody is given when the taxpayer settles tax and registers
exemption
2 35,200,000 deductions for dependants.". Therefore, Ms. Binh's deduction for her son as a dependant would occur from his birth month in his birth certificate.
- Ms. Binh's
According to Article 19 of the Law on Personal income tax, Clause 4 Article 1 of the Law on the amendments to the Law on Personal income
son
tax, and Article 12 of the Decree No. 65/2013/ND-CP:
If the resident earns income from both business and wages, one deduction from the total income from business and wages shall be made. According
to Clause 2, Article 1, Resolution 954/2020/UBTVQH14, the deduction for taxpayers is 4.4 million VND/dependant/month.

According to Point dd.2 Clause 1 Article 9 Circular No. 111/2013/TT-BTC, "The people outside working age that have no income or their
Dependant
average monthly income from all sources does not exceed 1,000,000 VND" would be considered dependants. However, Ms. Binh's mother is outside
exemption
3 0 working age yet she receives a monthly deposit interest of VND 2 million, which exceeds VND 1 million.
- Ms. Binh's
mother
Therefore, Ms. Binh's mother is not qualified as a dependant, and Ms. Binh does not get PIT deduction for her mother.
Total 167,200,000

Part (c)
Income type
Annual Annual
for PIT Annual taxable PIT obligation
No. Income item deduction assessable Tax rate Reason
calculation income (VND) (VND)
amount (VND) income (VND)
purpose
 According to Article 3 of the Law on Personal income tax
and Article 3 of the Decree No. 65/2013/NĐ-CP, the
incomes subject to personal income tax (hereinafter referred
to as taxable incomes) include: "Incomes from wages and
1 Salary 480,000,000 remunerations (hereinafter referred to as wages) are incomes
paid to employees from employers, including: a) Wages,
remunerations, and the other amounts paid as wages or
remunerations in cash or not in cash" Therefore, Ms. Binh's
salary would be included in taxable incomes.

According to Clause 2 Article 2 Circular No. 111/2013/TT-

BTC, "The allowances and benefits that are not included in
taxable incomes as guided in Point b Clause 2 of this Article
must be defined by competent authorities. If the documents
on the levels of allowances and benefits are applicable to the
Partial relative
Position public sector, other economic sectors and businesses shall
2 60,000,000 progressive tax
allowance make calculate allowances and benefits based on such
rate according
documents." Ms. Binh work for FTC C2 - an IT devices
to Clause 2
167,200,000 376,040,000 55,408,000 manufacturer, the industry whose position allowance is not
Artcile 7
defined by competent authorities as guided in Point b Clause
Circular No.
2 of this Article. Therefore, the position allowance here shall
111/2013/TT-
be calculated as a source of salary, being obligated to PIT.
BTC

Employment According to Clause g.5 Article 2 Circular No.

income 111/2013/TT-BTC, "If the employer pays cash for their
employees’ meals instead of providing mid-shift meals or
lunch, such money is not included in the taxable income if it
is conformable with the guidance of the Ministry of Labor,
War Invalids and Social Affairs. If the payment is higher than
Meal the limit imposed by the Ministry of Labor, War Invalids and
3 3,240,000
allowance Social Affairs, the excess shall be included in taxable
incomes. According to Clause 4 Article 22 Circular No.
26/2016/TT-BLDTBXH "The enterprises shall spend the
maximum amount of VND 730,000 per person per month on
employees’ mid-shift meals". Therefore, since Ms. Binh was
given VND 1,000,000/month in cash for meal allowance, the
extra VND 230,000/month would be obligated to PIT.

According to Clause 2 Article 4 Circular No 96/2015/TT-

BTC "In-kind expenditure on employees’ clothing without
invoices. Monetary expenditure on employees’ clothing that
exceeds VND 05 million/person/year. In case the enterprise
Uniform has both monetary and in-kind expenditures on employees’
4 0 0 0 0 0
allowance clothing, the monetary expenditure must not exceed VND 05
million/person/year and the in-kind expenditure must have
invoices in order to be deductible." Since Ms. Binh was given
4,000,000/year in cash, uniform allowance is non-taxable
income.

According to Article 4 of the Law on Personal income tax

and Article 4 of the Decree No. 65/2013/NĐ-CP tax-free
incomes include:
Receipt an
apartment a) Incomes from real estate transfer (including future houses
valued at Income from and constructions according to regulations of law on real
5 VND 2.5 real property 0 0 0 0 0 estate trading) between husband and wife, parents and
billion transfers children; adoptive parents and adopted children; parents-in-
transferred by law and children-in-law; grandparents and grand children, and
her mother among siblings.

Therefore, the value of the apartment transferred by Ms

Binh's mother is non-taxable.

According to Point a Clause 3 Article 2 No. 111/2013/TT-

BTC, "Interest on the loans given to other organizations,
enterprises, business households, business individuals and
Interest on Income from groups of business individuals according to loan contracts or
6 deposit at a capital 0 0 0 0 0 agreements, except for the interests paid by credit institutions
bank investments and branches of foreign banks according to Point g.1 Clause
1 Article 3 of this Circular." will be taxed. Ms. Binh interest
on deposit at a bank falls into "interests paid by credit
institutions"; therefore, it would not be obligated to PIT.
 According to Article 4 Circular 92/2015/TT-BTC for Tax
accounting method applied by persons leasing property "If the
total revenue from lease contracts earned in the calendar year
is VND 100 million or lower, the lessor shall not pay VAT
and PIT. If the lessee pays a lump-sum of rent in advance for
House rental Business
7 0 0 0 0 0 many years, the taxpayer shall not pay VAT and PIT if the
income income
annual revenue, which equals lump-sum revenue divided by
the number years, is VND 100 million or lower.". Ms Binh
received 84 million VND for 12 months house rental which is
still lower than 100 million. Therefore, Ms Binh would not be
obligated to PIT.

Total 543,240,000 167,200,000 376,040,000 55,408,000