| Abstract: This article raises two legal issues that warrant further discussion regarding the regulations on personal income tax (“PIT“) on income from the transfer of shares in unlisted joint stock companies (“JSC“) under Decree No. 253/2026/NĐ-CP (“Decree 253“): (i) the correlation between the term “transfer of stocks” in Article 10.2 of Decree 253 and the transaction of transferring shares under the Law on Enterprises; and (ii) the determination of the time of tax calculation for income from the transfer of shares. |
- Object of Transfer
The determination of the taxable object in respect of the transfer of shares in a JSC reflects a shift in the terminology used in tax law. In the previous period, although tax law classified an individual’s income from the transfer of shares as income from the transfer of securities, it continued to use the term “transfer of shares”. The current law, however, has moved to the term “transfer of stocks”. This change indicates a tendency to adopt the concept of securities under the Law on Securities, with a view to maintaining a basis for classifying the income arising from this transaction as income from the transfer of securities. However, this approach does not ensure consistency with the Law on Enterprises. Article 10.2 of Decree 253 provides for the transfer of stocks by individuals in JSC in accordance with the Law on Securities and the Law on Enterprises, whereas the Law on Enterprises does not regulate the transfer of stocks but only recognizes the transfer of shares. Thus, for one and the same type of transaction, tax law and enterprise law use two different terms to identify the object of transfer.
This difference is not merely a matter of nomenclature; it also reflects an incompatibility between the terminology used in tax law and the nature of the transaction. Under Article 111 and Article 4.3 of the Law on Enterprises, charter capital is divided into equal portions called shares, and the ownership of shares is the legal basis for establishing shareholder status together with the corresponding property rights and governance rights in the JSC. In other words, the legal relationship between a shareholder and a JSC is established under the Law on Enterprises on the basis of the ownership of shares, irrespective of whether such shares are represented in the form of stocks. From an economic perspective, a transfer transaction is carried out to convey the rights and interests attached to a certain number of shares, such as the right to economic benefits and the right to participate in governance in proportion to the ownership percentage. At the same time, in practice, transfer contracts typically determine the object and value of the transaction on the basis of the number of shares transferred, which is consistent with the nature of the transaction under the Law on Enterprises.
It can be seen that tax law’s use of the term “transfer of stocks” is primarily intended to classify the income as income from the transfer of securities. However, the above terminological difference is not merely formal; it gives rise to concrete difficulties in practical application. Under Article 124.5 of the Law on Enterprises, where a company does not issue stocks, the shareholder’s information shall be recorded in the shareholder register to acknowledge the ownership of shares. Accordingly, the Law on Enterprises does not impose a mandatory obligation on a JSC to issue stocks in any form; the issuance of stocks is merely one of the methods of certifying the ownership of shares. In this situation, does the law require a company to issue stocks in order to ensure that a share transfer transaction satisfies the conditions for application of Article 10.2 of Decree 253? In addition, under Article 121.1 of the Law on Enterprises, a stock is a certificate issued by a JSC to certify the ownership of one or several shares by a shareholder. It may be understood that a stock is an instrument certifying the ownership of shares, and that there does not necessarily exist one stock corresponding to each individual share. Meanwhile, the actual object of a transfer transaction may be only a portion of the shares that the shareholder owns. Therefore, where a shareholder transfers part of his or her shares, the shares transferred may not correspond to an independent stock, even though the transfer is still validly established and performed under enterprise law. Both situations demonstrate an incompatibility between the actual object of the transfer transaction and the object prescribed in Decree 253.
Based on the above approach, the use of the term “transfer of stocks” does not appear to fully reflect the characteristics of the transfer of shares in a non-public JSC. This raises the following issues that need to be clarified: Does the transfer of shares in a JSC that has not issued stocks fall within the scope of Article 10.2? If so, on what basis can such a transaction be characterized as a “transfer of stocks” when, in reality, there is no stock being transferred? If not, how will the income arising from such a transaction be determined, and which tax mechanism will apply? Where a shareholder transfers only a portion of the shares he or she owns, what is the object of transfer when there is no stock corresponding to the shares transferred? In terms of procedure, what sequence of steps shall an investor follow to transfer shares in a JSC that has not issued stocks, and should the contract established in such a case be titled a “share transfer contract” or shall it still be titled a “stock transfer contract” following the terminology used in tax regulations? More broadly, is the “transfer of stocks” under tax law identical to the “transfer of shares” under the Law on Enterprises, or does a certain gap exist between these two concepts?
- Time of Tax Calculation
Article 13.3 of the Law on PIT establishes the general principle that the time of determining taxable income is the time at which the transaction is completed in accordance with law. Under Article 127.6 of the Law on Enterprises, the transferee becomes a shareholder of the JSC only from the time his or her information is fully recorded in the shareholder register. This is an important legal milestone for determining that a transfer transaction has been completed, because once the transferee is recognized by the JSC as a shareholder, the rights and interests attached to the transferred shares are formed. However, Article 54.3 of Decree 253 takes the time at which the contract takes effect as the time of determining taxable income for income from the transfer of unlisted securities that are not those of a public company. These two milestones do not necessarily coincide, because the effectiveness of a contract merely establishes a binding relationship between the parties, whereas recording in the shareholder register is what gives rise to the transferee’s legal status in the JSC. Decree 253’s selection of the time of contract effectiveness raises an issue regarding the consistency between tax law and enterprise law in determining the completion time of one and the same transaction. If Decree 253 is applied strictly, the obligation to declare and pay tax may arise before the transaction is completed, both in practice and under enterprise law. This approach appears to aim at establishing a clear point in time and limiting reliance on the parties’ own determination of when a transaction is completed, but it may result in inconsistency between the time at which the tax obligation arises and the time at which the transaction is actually completed.
In general, Decree 253 has taken initial steps to clarify the tax mechanism for income from the transfer of shares in unlisted JSC. However, from the study of the object of transfer and the time of determining taxable income, it can be seen that certain provisions prioritize formal criteria while not yet fully reflecting the legal and economic nature of the transaction. It is therefore necessary to continue clarifying the interpretation of, and providing guidance on the application of, these provisions in order to ensure consistency, transparency and compatibility between tax law and enterprise law.
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