Corporate income tax on the transfer of real estate

Under the Law on Corporate Income Tax 2008 (as amended and supplemented in 2013 and subsequent years) (“Law on Corporate Income Tax”), income derived from real estate transfer activities is defined as taxable income and must be declared and paid separately; it is not entitled to the regular corporate income tax incentives. The legal basis directly governing this matter includes the Law on Corporate Income Tax and guiding documents such as Decree No. 218/2013/ND-CP, Circular No. 78/2014/TT-BTC, and Circular No. 96/2015/TT-BTC. This article aims to analyze the current legal provisions related to corporate income tax from real estate transfer activities, including issues such as taxable entities, taxable income, and the method of calculating corporate income tax on real estate transfer activities. 

1. Legal basis

• Law on Corporate Income Tax 

• Decree No. 218/2013/ND-CP guided by Circular No. 78/2021/TT-BTC;

• Circular No. 96/2015/TT-BTC amending and supplementing Circular No. 78/2021/TT-BTC. 

2. Taxable entities

• Enterprises of all business lines that have income from real estate transfer activities;

• Real estate businesses having income from the activity of subleasing land. 

3. Income from the transfer of real estate includes

• Income from transferring land use rights, transferring land lease rights (including the transfer of projects associated with the transfer of land use rights and land lease rights as prescribed by law); 

• Income from transferring houses, construction works attached to land, including assets attached to such houses or constructions if the asset value is not separately valued upon transfer, regardless of whether the land use rights or land lease rights are also transferred; 

• Income from transferring assets attached to land; 

• Income from transferring ownership or use rights of residential properties. 

4. Method of calculating CIT on the transfer of real estate

Whereas: 

Notes and explanations on the formula:  

• Income from real estate transfers must be separately determined for tax declaration and is not eligible for CIT incentives. 

• If the enterprise incurs a loss from real estate transfer activities during the tax period, such loss may be offset against profits from production and business activities (including other income as stipulated in Article 7 of Circular No. 78/2014/TT-BTC). 

• Revenue from real estate transfer activities is determined based on the actual transfer price in the real estate transfer or purchase contract, in accordance with the law (including any additional fees or charges, if any). In cases where the land use right transfer price stated in the contract is lower than the land price listed in the land price table issued by the Provincial People’s Committee at the time of signing the real estate transfer contract, the latter price shall be used. 

• The time for determining taxable income is the time when the seller hands over the real estate to the buyer, regardless of whether the buyer has registered ownership or land use rights with the competent state authority. 

• In the case where an enterprise enjoying corporate income tax incentives opts to determine revenue for calculating taxable income based on the entire prepaid rent for multiple years, the annual exempted or reduced CIT amount shall be determined by dividing the total CIT amount of the prepaid period by the number of prepaid years.

5. Deductible expenses related to the transfer of real estate

• Deductible expenses for determining taxable income from real estate transfer activities during the tax period must correspond to revenue used to calculate taxable income and must meet the conditions for deductible expenses and not fall under non-deductible expenses as provided in Article 6 of Circular No. 78/2014/TT-BTC. 

Deductible real estate transfer expenses include: 

i. The original cost of the transferred land, determined according to the origin of land use rights, specifically:

• For land allocated by the State with land use fees or land lease payments, the cost is the amount paid to the State Budget for land use or land rent; 

• For land received from other organizations or individuals, the cost is based on the contract and lawful payment documents upon receiving the land use rights or land lease rights; if there are no contracts or lawful payment documents, the cost is calculated according to the land price issued by the Provincial People’s Committee at the time the enterprise received the transferred real estate. 

• For land contributed as capital, the cost is the value of land use rights or land lease rights according to the asset valuation record at the time of capital contribution;

• In cases where the enterprise exchanges construction works for land from the State, the cost is determined based on the value of the exchanged construction works, unless otherwise regulated by the competent authority;

• Auction winning price in cases of land use right or land lease right auctions; 

ii. Compensation costs for land damages; 

iii. Compensation costs for crop damages; 

iv. Compensation, support, resettlement costs, and expenses for organizing compensation, support, and resettlement as prescribed by law; 

v.The aforementioned compensation, support, resettlement costs, and implementation expenses, if not supported by invoices, may be documented in a record that clearly states: name; address of the recipient; amount of compensation/support; signature of the recipient; and must be certified by the commune/ward authority where the land is subject to compensation/support, in accordance with legal regulations on compensation, support, and resettlement upon State land recovery; 

vi. Fees and charges prescribed by law related to the issuance of land use rights; 

vii. Land improvement and leveling costs; 

viii. Investment costs in infrastructure construction such as roads, electricity, water supply, drainage, telecommunication, etc.; 

ix. Value of infrastructure and architectural works on the land; 

x. Other costs related to the transferred real estate; 

xi. Expenses already reimbursed by the State or paid from other capital sources shall not be included in deductible real estate transfer expenses. 

See more:

1/ Legal regulations on real estate ownership by foreign entities and individuals in Vietnam

2/ Notes on paying taxes when individuals have income arising from real estate leasing activities

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