Proposed Changes to Personal Income Tax for Real Estate in Vietnam

The Ministry of Finance recently submitted a draft proposal aimed at revamping the personal income tax system related to real estate sales. This initiative ties the tax rates to how long a property is owned, with the goal of reducing speculative buying and fostering stability in the housing market.

At present, Vietnam does not have a personal income tax policy that adjusts rates based on the ownership period of a property before sale. In comparison, various countries have adopted tax strategies that elevate transaction expenses for quick resellers, thereby curbing speculative behavior in the real estate sector.

In some regions, tax rates vary according to how frequently a property is sold and the time elapsed between purchase and resale. Quick resales are usually subjected to higher tax rates.

For instance, in Singapore, properties sold within a year are taxed at a staggering 100% on capital gains. This rate decreases to 50% after two years and further drops to 25% after three years.

In Taiwan, the taxation structure is similarly tiered; properties resold within the initial two years incur a 45% tax. This rate lowers to 35% for sales made between two and five years, then to 20% for five to ten years, and finally to 15% for properties sold after ten years.

Resolution No. 06/NQ-TW from the Politburo, released on January 24, 2022, sets forth plans for urban management and real estate development in Vietnam until 2030, envisaging a framework for 2045. It emphasizes the need for tax policies that promote effective land and housing utilization.

Likewise, Resolution No. 18/NQ-TW issued on June 16, 2022, advocates for increased taxes on individuals who possess multiple properties, extensive land assets, or engage in speculative real estate activities.

Furthermore, the National Assembly’s Resolution No. 62/2022/QH15 recommends reassessing tax regulations concerning real estate deals. It stresses the importance of robust tax management to prevent revenue lapses while ensuring business operations are not curtailed and property rights are preserved.

In response to these directives, the Ministry of Finance is considering a tiered taxation approach for personal income taxes on real estate transactions, which would depend on how long the property has been held. The ministry proposes that the specific tax rates be meticulously examined to reflect market realities and deter speculative transactions.

Nonetheless, the Ministry highlights that any tax modifications should be cohesive with broader land and housing reforms and the technological advancements necessary for land registration and real estate data administration. Establishing a thorough digital framework is critical for tax officials to accurately monitor property ownership periods.

The updated Land Law of 2024 will also amend the Personal Income Tax Law, particularly Article 247, clarifying what constitutes taxable income from real estate sales. It asserts that the taxable income will be assessed on a per-transaction basis, and land-use rights transfers will be taxed according to the official land pricing metrics.

The Ministry of Finance advocates for these revisions to be integrated into the revised Personal Income Tax Law to uphold legal harmony.

Currently, under the existing Personal Income Tax Law, taxable real estate transactions encompass:

• The transfer of land-use rights and associated assets
• The transfer of ownership or user rights for residential properties
• The transfer of land lease or water surface lease rights

Presently, the personal income tax imposed on real estate transactions is a flat 2% of the transfer value. The proposed changes intend to establish a progressive tax structure that modifies rates based on the length of ownership prior to the sale.