CAPITAL ASSIGNMENT TAX WON’T AFFECT FDI AND M&A: EXPERTS

The Ministry of Finance (MOF) has proposed adjusting the rate of the capital assignment profit tax imposed on foreign enterprises in Vietnam in an effort to simplify the process of collection and treatment of corporate income taxes.

The ministry plans to tax one percent on gross sales instead of 20 percent on capital gains as currently applied in accordance with Decree 12. The taxation will be applied to all capital assignment deals of foreign enterprises, regardless of resident status in Vietnam.

Ta Hong Thai from KPMG Vietnam commented that with the new taxation method, MOF would be relieved of the burden of examining the profits enterprises make in capital assignment deals.

“The market prices fluctuate all the time, therefore, it is difficult to determine the profits the parties of the deals gain,” he explained.

A senior official of the HCMC Taxation Agency admitted that enterprises tend to declare wrong prices and it is very difficult to inspect the taxable amount of capital gains because of various reasons, including the lack of information.

Bao Viet Securities said that taxation based on revenue will make it easier to implement the tax law and MOF will be able to collect tax from all capital assignment deals.

In principle, the new taxation method will make it unfair for those who cannot make profits with their capital assignments, because they will have to pay tax, regardless of whether they make a profit or take a loss.

However, this is not a matter of complaining for foreign investors. Dau Tu quoted Oliver Massmann, general director of Duane Morris LLP, as praising the new scheme as a great effort by the government to unify different tax schemes applied in the world.

Bao Viet Securities also said that the new taxation method would have certain impact on the Vietnamese M&A market, but the impact will be ‘inconsiderable’.

The securities company’s analysts believe that the capital assignment tax isn’t the decisive factor that will affects investor decisions on whether to invest in Vietnam. The investor climate in Vietnam and the health and prospects of the businesses they plan to invest in are most important

“Regarding the taxation policy, what foreign investors want is a transparent, stable and predictable policy. This is a key point the government needs to pay attention to if it wants to attract foreign capital into the M&A market,” said the report of Bao Viet Securities.

M&A deals with the participation of foreign investors account for 77 percent of total M&A value.

Source: VIR