Can individuals use their shares in a joint stock company to contribute capital to establish a new joint stock company?

Does an individual use his or her shares at a joint stock company to contribute capital to establish a new joint stock company? Will personal income tax arise? 

1. Can individuals use their shares at a joint stock company to contribute capital to establish a new joint stock company?

Pursuant to Clause 1, Article 4 of the 2019 Securities Law, it is stipulated as follows:

Securities are assets, including the following types:

a) Stocks, bonds, certificates funds;

b) Warrants, covered warrants, share purchase rights, depository certificates;

c) Derivative securities;

d) Other types of securities regulated by the Government.

Thus, stocks are a type of asset.

Accordingly in Article 34 of the Law on Enterprises 2020 has regulations on capital contribution assets as follows:

Capital contribution assets

1. Capital contributed assets are Vietnamese Dong, freely convertible foreign currencies, gold, land use rights, intellectual property rights, technology, technical know-how, and other assets that can be valued in Vietnamese Dong.

2. Only individuals and organizations that are legal owners or have legal rights to use assets specified in Clause 1 of this Article have the right to use those assets to contribute capital according to the provisions of law.

Accordingly, shares are determined to be assets that can be valued in Vietnam Dong.

Thus, individuals can use their shares to contribute capital to establish joint stock companies. part.

2. When is capital contribution by shares to establish a new joint stock company considered completed?

Pursuant to Clause 3, Article 35 of the 2020 Enterprise Law, it is stipulated as follows:

Transfer of ownership of contributed assets

1. Members of limited liability companies, partnerships and shareholders of joint stock companies must transfer ownership of assets contributed as capital to the company according to the following regulations:

a) For assets with registered ownership or land use rights, the capital contributor must carry out procedures to transfer ownership of that asset or land use rights to the company according to the provisions of law. The transfer of ownership and land use rights for assets contributed as capital is not subject to registration fees;

b) For assets whose ownership rights are not registered, capital contribution must be made by handing over the contributed assets with confirmation by a record, except in cases where it is done through an account.

2. The minutes of delivery and receipt of contributed assets must include the following main contents:

a) Name and address of the company’s headquarters;

b) Full name, contact address, legal document number of the individual, legal document number of the organization of the capital contributor;

c) Type of asset and number of units of contributed assets; total value of assets contributed as capital and the proportion of that total asset value in the company’s charter capital;

d) Delivery date; signature of the capital contributor or authorized representative of the capital contributor and the company’s legal representative.

3. Capital contribution is only considered fully paid when the legal ownership of the contributed assets has transferred to the company.

4. Assets used in business activities of private business owners do not have to go through procedures to transfer ownership to the business.

5. Payment for all activities of buying, selling, transferring shares and capital contributions, receiving dividends and transferring profits abroad of foreign investors must be made through accounts in accordance with the law on foreign exchange management, except in the case of payment by assets and other forms other than cash.

Thus, according to the above regulations, capital contribution by shares to establish a new joint stock company is only considered paid when completed. Legal ownership of contributed assets has transferred to the company.

3. Does an individual using his or her shares in a joint stock company to contribute capital to establish a new joint stock company incur personal income tax?

Pursuant to Clause 2, Article 11 of Circular 111/2013/TT-BTC, amended by Article 16 of Circular 92/2015/TT-BTC as follows:

Bases for tax calculation for income from capital transfer

…

2. For income from securities transfer

The tax basis for securities transfer activities is taxable income and tax rate.

a) Taxable income

Taxable income from securities transfer is determined as the price of each securities transfer.

a.1) Securities transfer price is determined as following:

…

a.1.2) For securities not falling into the above cases, the transfer price is the price recorded in the transfer contract or the actual transfer price or the price according to the accounting books of the unit with the transferred securities at the time of preparing the latest financial statement according to the provisions of law on accounting before the transfer time.

b) Tax rate and Tax calculation method:

Individuals transferring securities pay tax at the tax rate of 0.1% on the securities transfer price each time.

Tax calculation method:

Personal income tax payable = Securities transfer price each time x Tax rate 0.1%

c) Time to determine calculated income tax

The time to determine taxable income from securities transfer activities is determined as follows:

…

c.4) For cases of capital contribution in securities without having to pay tax when contributing capital, the time to determine income from securities transfer due to capital contribution is the time the individual transfers capital and withdraws capital. capital.

The act of contributing capital by shares to establish a company means transferring ownership of shares to the newly established company.

Accordingly, the above act is an act of transfer, so when contributing capital by shares to establish a company, personal income tax must still be paid.

However, this will be done when transferring capital contributions or withdrawing capital. capital.