From January 1, 2015, the shared profit of the individual owner of a one-member limited company after paying corporate income tax is not subject to pay personal income tax.

Through the receiving and responding system to businesses’ recommendations, Vietnam Consult Law Company (in Hanoi) requests the authorities to answer this following case:

Company A, one-member limited liability company (Limited Company) owned by an individual, newly established in 2011, operating in the field of software production, is entitled to enjoy corporate income tax incentivespursuant to Article 15 and Article 16 of Decree 124/2008 / ND-CP for software production activities, specifically: Enjoy the incentive tax rate of 10% for15 years; tax exemption for 4 years and 50% reduction of payable tax amounts for 9 subsequent years.

Company A has made a tax finalization until the end of 2015. During its operation from 2011 up to now, company A has a profit of about 1 billion dong. The company plans to split profits for individual owners.

Vietnam Consultation Law Firm awould like to ask, “ Shall the remaining profit of the company during the time of exemption and reduction of corporate income tax be determined as "income after paying corporate income tax of one member limited liability company owned by the individual? Shall personal income tax (PIT) be exempted when shared with the owner?”

Regarding this issue, The General Department of Taxation gives following opinions:

Basis of determining the income after payment of enterprise income tax:

Clause 1 and 2 of Article 63 of Law on enterprises dated 29th November 2005 stipulate:

Article 63.- One-member limited liability companies

1. A one-member limited liability company is an enterprise which is owned by one organization or individual (hereinafter referred to as the company owner); the company owner is liable for debts and other property liabilities of the company within the charter capital of the company.

2. Acne-member limited liability company shall have the legal person status as from the date of being granted the business registration certificate.

Article 2 and Clause 1 of Article 18 of Law on Enterprise Income Tax No.14/2008/QH12 stipulate:

Article 2.- Taxpayers

1. Taxpayers are goods and service production and business organizations which have taxable incomes under the provisions of this Law (below referred to as enterprises), including:

a/ Enterprises established under Vietnamese law; “

Article 18.- Conditions for application of tax incentives

1.   Enterprise income tax incentives specified in Articles 13, 14, 15, 16 and 17 of this Law apply only to enterprises which implement regulations on accounting, invoices and documents and pay tax according to declaration.

Clause 1, Article 2 of Decree No.124/2008/NĐ-CP  dated  11th December, 2008 detailing and guiding the implementation of a number of articles of the law on enterprise income tax:

1. Taxpayers defined in Clause 1, Article 2 of the Law on Enterprise Income Tax include:

a/ Enterprises established and operating under the Law on Enterprises, the Law on State Enterprises, the Law on Foreign Investment in Vietnam, the Investment Law, the Law on Credit Institutions, the Law on Insurance Business, the Securities Law, the Petroleum Law, and the Commercial Law, and enterprises defined in other legal documents in the form of joint-stock company; limited liability company; partnership; private enterprise; state company; party to business cooperation contract; party to oil and gas production sharing contract, oil and gas joint-venture enterprise or jointly managed company;

Part H, section V of Circular No. 130/2008/TT-BTC dated 26th December 2008 issued by the Ministry of Finance guiding the procedures for application of enterprise income tax incentives:

“Enterprises shall determine by themselves conditions for enjoyment of tax incentives, incentive tax rates, the tax exemption or reduction duration, and losses allowed to be subtracted (-) from taxed incomes in order to declare and finalize tax with tax agencies.

When conducting examination and inspection at enterprises, tax agencies shall examine conditions for enjoyment of tax incentives, enterprise income tax amounts eligible for exemption or reduction, and losses allowed to be subtracted from their taxable incomes which enterprises actually satisfy. If enterprises fail to satisfy conditions for enjoyment of incentive tax rates and tax exemption or reduction duration, tax agencies shall retrospectively collect tax and sanction tax-related administrative violation under regulations”

Application of personal income tax policy

Article 6 of the Law No.71/2014/QH13amending and supplementing a number of articles of the laws on taxes stipulates the effect of implementation“1. This Law takes effect on January 1, 2015”

Clause 4, Article 2 of Decree No.12/2015/NĐ-CP  dated 12th February, 2015 detailing the implementation of the law on amendments to tax laws and amendments to some articles of decrees on taxations

“3. Incomes from capital investment, including:

c) Incomes from other forms of capital investment, including capital contribution in the form of commodities, reputation, land use rights, inventions; except for incomes from Government bond profits, incomes after payment of corporate income tax of private companies and single-member limited liability companies under the ownership of individuals.”

Clause 1, Article 6 of Decree No. 12/2015/NĐ-CP datedFebruary 12, 2015 stipulates the effect and responsibility for implementation: “This Decree takes effect from the effective date of the Law on Amendments to tax laws dated November 26, 2014”

Pursuant to the above provisions, from January 1, 2015, the shared profit of an individual owner of a limited liability company after paying corporate income tax is not subject to PIT.