Ministry of Finance clarify cases where capital gains tax is not applicable
On 12 March 2026, the Ministry of Finance issued Circular 20/2026/TT-BTC (“Circular 20”) providing in detail some articles of Decree 320/2025 dated 15 December 2025 and the 2025 Corporate Income Tax Law. Circular 20 takes effect on 12 March 2026 and shall apply from the 2025 tax period onward.
One of the main contents of Circular 20 is specifying cases where corporate income tax (CIT) is not applicable to foreign entity’s earnings in Vietnam, including earnings from goods sale, provision of services and divestment of capital.
In particular for divestment of capital by a foreign investor in a local company either directly or indirectly, Circular 20 clarifies the two conditions provided in Decree 320/2025 that a capital transfer must be met to be exempted from CIT obligations in Vietnam, i.e. the transaction is qualified as an internal restructuring and the transaction does not generate any income.
Definition of “internal restructuring”
Circular 20 clarifies the concept of “internal restructuring” where CIT is not applicable, covering:
- Division and demerger;
- Consolidation;
- Merger;
- Share swap;
- Capital contribution using shares;
- Distribution of profits or dividends in shares within the group; and
- Direct or indirect transfer of companies in Vietnam.
In these cases, there must be no change in the ultimate parent company of the group companies having direct or indirect ownership of the Vietnamese company after the internal restructuring.
For example, if a transferor transfers its shares or capital interest in a Vietnamese company or in a foreign company owning a Vietnamese company directly or indirectly, the transfer will be considered as an internal restructuring if both the transferor and the transferree remains under the same control of an ultimate parent company.
No generation of income condition
Circular 20 clarifies Decree 320/2025 as to what amounts to capital transfer without generating income. In particular, Circular 20 requires that all the following conditions are satisfied:
- The capital transfer results in no change in the ultimate beneficial owner;
- The transfer price must not be higher than the book value or the initial contribution value;
- The value stated in the restructuring documentation approved by the competent body must not exceed the value recorded at the time of capital transfer; and
- The transferee succeeds to all capital value, obligations, and rights of the transferor.
Condition (2) may present practical complications due to foreign exchange differences. While the book value is typically recorded in the transferor’s accounts in foreign currency, the initial contribution value may be interpreted as the VND value recorded in the Vietnamese company’s accounts. A mismatch where the transfer price follows book value but exceeds the initial contribution value could lead to the condition being viewed as not satisfied.
Filing considerations
Circular 20 does not specify whether a filing is required where the parties conclude that the exemption applies. In practice, it may be prudent to proceed with a filing on a nil capital gains tax basis, allowing the parties to substantiate their position and mitigate potential exposure should the tax authority subsequently challenge the treatment.
Conclusion
Circular 20 has completed the legal framework for foreign entities to identify their tax obligations when divesting their shares or capital interest in Vietnam, especially in the context that Vietnam moves from taxing capital transfer based on capital gains to taxing capital transfer based on the transfer price (i.e. 2% flat rate).
For more detailed analysis of the impact of the new legal framework on your business, please contact us or your local tax advisor.
Disclaimer: This newsletter and its content are for informational purposes only and do not constitute legal advice. Readers should seek legal or professional advice before taking or refraining from any action.
