In cross-border mergers and acquisitions, tax can be either a silent value driver or an unexpected deal-breaker. In Vietnam’s fast-evolving M&A landscape, tax considerations go far beyond simple compliance, they shape deal strategy, structure, and ultimately, success. While the market is ripe with opportunities across manufacturing, fintech, and real estate, the complexity of Vietnam’s tax laws means that one misstep could result in unexpected costs, liabilities, or even regulatory scrutiny.

Foreign investors navigating Vietnam’s M&A terrain must take a proactive, precision-focused approach to tax planning. From selecting the right transaction structure to navigating capital gains taxes and leveraging treaty benefits, tax should be embedded in every stage of the deal lifecycle. This article explores the most critical tax issues that can make or break an M&A transaction in Vietnam and how to handle them strategically.

Key Taxes Applicable in M&A Transactions

Several types of taxes may apply to M&A deals depending on the structure, parties involved, and the type of assets or shares being transferred.

  • Capital Gains Tax (CGT): Applicable to income derived from share or capital transfers, particularly for foreign investors. The applicable rate and calculation method depend on the investor’s residency and holding structure.
  • Corporate Income Tax (CIT): The standard CIT rate in Vietnam is 20%. In asset deals, CIT may apply on any profit derived from the transfer. Additionally, tax liabilities of the target company can be inherited in share deals.
  • Value-Added Tax (VAT): Generally applicable to the transfer of tangible or intangible assets in an asset deal, typically at 10%.
  • Foreign Contractor Tax (FCT): May be triggered if a foreign seller provides services or transfers assets deemed as business income sourced in Vietnam.
  • Personal Income Tax (PIT): Applies if the transferring party is an individual. Residents pay up to 20% on gains; non-residents are subject to 0.1% of the transfer price.

Tax Differences Between Share Deals and Asset Deals

Understanding the tax treatment between share transfers and asset acquisitions is essential for proper deal structuring.

Share Deal:

  • No VAT is imposed.
  • The seller is subject to CGT on share transfers.
  • The buyer inherits all existing tax liabilities and contingent obligations of the target company.

Asset Deal:

  • May trigger VAT at 10% on transferred goods and rights.
  • Seller is subject to CIT on capital gains from asset disposal.
  • The buyer can often step-up the asset value for depreciation purposes, offering long-term tax efficiency.

Each approach carries trade-offs. While asset deals may provide clearer liability separation, share deals often involve simpler licensing procedures.

Capital Gains Tax Treatment for Foreign Investors

Foreign investors face different CGT rules depending on whether they acquire shares in a Vietnamese entity directly or through offshore structures.

  • Direct Transfers (onshore): Capital gains from share transfers are taxed at 0.1% of the gross sale price.
  • Indirect Transfers (offshore): Vietnam may still assert taxing rights if the target company is based in Vietnam and the underlying assets are located locally. These are subject to 20% tax on the net gain unless treaty relief applies.

In both cases, the buyer is often required to act as a withholding agent, meaning they must withhold and remit tax on behalf of the foreign seller.

Tax Due Diligence and Risk Allocation in M&A

Tax due diligence is a critical component of M&A transactions, especially in Vietnam where record-keeping standards and historical tax compliance can vary.

Key issues to uncover include:

  • Unpaid taxes and tax penalties from prior years
  • Improper VAT credits or withholding tax issues
  • Transfer pricing risks or lack of documentation
  • Utilization of tax incentives or loss carryforwards

To manage these risks, buyers often include:

  • Tax indemnity clauses to shift responsibility to sellers
  • Escrow arrangements to secure potential tax liabilities
  • Post-closing price adjustments based on tax reassessments

Tax Structuring Techniques to Optimize the Deal

Effective tax planning can enhance deal value and reduce exposure to post-closing liabilities.

  • Offshore Holding Structures: Sellers often use entities in tax treaty jurisdictions (e.g., Singapore, Luxembourg) to reduce withholding tax and CGT. However, Vietnam increasingly applies substance-over-form principles.
  • Use of SPVs (Special Purpose Vehicles): Allows easier future exits and ring-fencing of risks.
  • Timing the Transaction: Aligning deal close with fiscal year-end can offer strategic advantages in accounting and tax deferral.
  • Treaty Relief Planning: Leverage double tax treaties, if available, to avoid double taxation or lower rates.

It’s important to note that Vietnam’s tax authorities scrutinize offshore structures more closely post-BEPS (Base Erosion and Profit Shifting) implementation.

Tax Filings and Post-Transaction Compliance

After closing, both parties have continuing obligations under Vietnam’s tax laws:

  • Share Transfers: Must be reported to the local tax authority. Foreign-to-foreign transfers involving a Vietnamese target may also require notification.
  • Tax Withholding: Buyers must withhold and file tax returns for capital gains or PIT obligations.
  • CIT Adjustments: Targets may need to reflect asset revaluations or termination of tax incentives.
  • Stamp Tax and Licensing: Depending on the transaction, there may be fees associated with business license updates and government approvals.

Delays or errors in post-transaction filings may result in penalties or the disallowance of favorable tax treatments.

Regulatory Trends and Developments to Watch

Vietnam’s tax environment is evolving quickly, with regulatory shifts aimed at aligning with global tax standards while increasing enforcement efficiency. These changes carry major implications for deal structuring and compliance strategies in M&A.

  • Circular No. 80/2021/TT-BTC dated September 29, 2021introduced reforms in tax administration, clarifying procedures for tax obligations, filings, and penalties—especially important for foreign parties involved in share transfers or restructurings. 
  • Decree No. 132/2020/ND-CP dated November 5, 2020 significantly tightened transfer pricing documentation and related-party transaction reporting. Buyers inheriting existing transfer pricing positions must scrutinize prior disclosures and ensure future compliance. 
  • Global Minimum Tax (BEPS Pillar 2): Though not yet implemented in Vietnam, the adoption of global minimum tax rules could limit the use of certain low-tax jurisdictions for offshore holdings or SPV structures. Investors should anticipate that preferential tax incentives may lose effectiveness.
  • Indirect Transfer Rules: Vietnam is increasingly asserting taxing rights over indirect offshore transfers involving Vietnamese assets. This brings additional complexity and reporting obligations, especially in cross-border private equity and holding company transactions.

Conclusion

Tax considerations are central to M&A execution in Vietnam. A poorly structured deal can erode returns or trigger penalties, while well-planned tax strategy can unlock long-term value.

At Corporate Counsels, we guide foreign investors through the complex tax implications of M&A transactions in Vietnam. From due diligence to deal structuring, our M&A Lawyers deliver tax-smart legal strategies to maximize value and minimize risk. Contact us at letran@corporatecounsels.vn for expert legal support tailored to your transaction.