On 5 April 2011, the Vietnamese General Department of Taxation (GDT) issued Official Letter No. 1133/TCT-TNCN (Letter 1133) clarifying whether an attorney is liable for personal income tax to the extent that he performs a real property transaction on behalf of his principal.
In the GDT's view, performing a real property transfer under authorisation and without remuneration is regarded as the trading of real property and as such, a taxable event if the attorney leases out, lends, assigns, exchanges, donates, or mortgages a real property item without returning such item and related interests to the principal.
In Letter 1133, the GDP quotes the definition of "authorisation contract" in Article 581 of the Civil Code: "authorisation contract means an agreement between parties whereby an attorney has the obligation to perform an act in the name of a principal. The principal shall only be required to pay remuneration if so agreed or so provided by law". Thus, authorisation in real property transactions is a civil transaction permitted by the law.
The GDT refers to the definition of "personal income tax payer" in Article 2.1 of the Law on Personal Income Tax: "Personal income taxpayer means any resident individual with taxable income as stipulated in Article 3 of this Law arising either within or outside the territory of Vietnam, or any non-resident individual with taxable income as stipulated in Article 3 of this Law arising within the territory of Vietnam".
Based on Article 4 of the Law on Personal Income Tax, the GDT says the following types of income are tax exempt in relation to real property:
- Income from real property transfers between husband and wife; between parents and children, including foster parents and adopted children; between parents-in-law and children-in-law; between grandparents and grandchildren; and between siblings
- Income from an inheritance or gift of real property as between husband and wife; between parents and children, including foster parents and adopted children; between parents-in-law and children-in-law; between grandparents and grandchildren; and between siblings
The fact that an individual (principal) with full civil capacity authorises without remuneration another individual (attorney) who is not tax exempt in relation to real property to have the full right to possess, manage, use and dispose of the principal's real property, including the right to lease out, lend, assign, exchange, donate, or mortgage a real property item without returning such item and gained interests to the principal is an act of purchase and sale of real property.
Letter 1133 concludes that an attorney must declare and pay personal income tax in accordance with the provisions of the Law on Personal Income Tax to the extent that he is engaged in the above activity.