Vietnam Proposes 20% Annual Capital Gains Tax on Stock Sales

Vietnam’s Ministry of Finance has proposed a 20% annual capital gains tax on individual residents who earn income from securities trading, marking a potential shift in how capital market profits are taxed in the country.

Key Changes Proposed in the Draft Personal Income Tax Law

Under the draft of a revised Personal Income Tax Law, the Ministry of Finance is seeking to reform how taxes are calculated on the transfer of securities and capital. Specifically, it proposes that resident individuals who sell securities would be subject to a 20% tax on their annual taxable income from capital gains. This taxable income would be calculated as the selling price minus the purchase price and any related, reasonable costs incurred during the taxable year.

In cases where the purchase price and associated costs cannot be determined, a flat tax of 0.1% on the gross sale value would apply on a per-transaction basis.

For capital transfers (non-securities), the ministry also proposes a 20% tax on each transaction’s capital gain. If the original cost and expenses are unverifiable, a flat 2% tax on the transaction value would apply.

Current Tax Structure and the Need for Reform

Under the existing Personal Income Tax Law No. 04/2007, effective since 2009, Vietnam has allowed two methods of taxing securities transactions. The primary method requires individuals to pay a provisional tax of 0.1% on each transaction’s sale price during the year. At year-end, they may reconcile their annual income and claim a refund or make additional payments based on actual gains, subtracting provisional tax already paid.

If the cost basis and related expenses are unverifiable, the flat 0.1% tax on each sale applies without the need for end-of-year reconciliation.

However, since 2013, Law No. 71/2014 introduced a unified system that levies a 0.1% tax on the transfer value of each transaction, regardless of whether the trade results in a gain or loss. This blanket approach has drawn criticism from investors and tax experts, many of whom argue it unfairly taxes loss-making transactions. Industry stakeholders have repeatedly called for a more equitable system that taxes only realized profits.

Global Tax Practices Inform Proposed Reforms

According to the Ministry of Finance, the proposed revisions are informed by international practices and lessons learned from Vietnam’s tax administration over the years. The ministry notes that most countries tax capital gains from securities and equity transfers, though the methods vary widely.

Some jurisdictions tax a percentage of the transfer value, while others apply tax only to net gains. Some countries also distinguish between listed and unlisted securities when applying tax rates.

For example, Indonesia applies a 0.1% withholding tax on revenue from listed share transactions. The Philippines imposes a 0.6% tax on the total value of securities transactions. Japan levies a fixed 20.3% capital gains tax on certain securities such as stocks, bonds, and warrants. China applies a 20% tax on income from unlisted securities, while Thailand treats capital gains as part of general taxable income and applies the personal income tax rate accordingly.

The proposed changes signal a shift in Vietnam’s approach to taxing capital market activity, potentially making the system more aligned with international norms. If adopted, the move could have significant implications for both retail investors and institutional market participants.

The Ministry of Finance is expected to continue collecting feedback before finalizing the revised tax law for submission to the National Assembly.

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Source: Vietnam Insider