House lessors, House lessors need to note this price in order to not be taxed, the changes in taxation with the new Circular, house lessor need to pay tax, Circular 40/2021/TT-BTC, the tax of house lessors

House lessors need to note this price in order to not be taxed in Vietnam

According to the new regulations, the rent of a house with a price of more than 8,333,334 VND/month is subject to tax and the owner must pay tax for the entire actual revenue.

Recently, the Ministry of Finance has issued Circular 40/2021/TT-BTC guiding VAT and PIT for business households and individuals. After this circular was issued, there have been numerous different explanations for this new legal document in the media, raising concerns and doubtfulness for taxpayers, especially those who have houses for rent.

What are the changes in taxation with the new Circular in Vietnam?

Lawyer Le Viet Hung explained that the State’s tax policy for house lessors in particular and business person, in general, remains unchanged: “If house lessors and business person have revenue from production and business activities in the calendar year of VND 100 million or less, they are not required to pay value-added tax and personal income tax in accordance with the law on Value Added Tax and Personal Income Tax”.

Do the house lessors need to pay tax for the whole year if they only lease the house for a few months?

House lessors don’t have to pay tax for the whole year if they only lease the house for a few months. Tax is calculated on the actual revenues multiplied by the tax rate, in the case of house lessors, the tax rate is 10% (VAT 5%, PIT 5%). For example, Mr. A. leases a house for 5 months for 10 million VND/month, the tax for 5 months is 10 million/month x 5 months x 10% = 5 million VND.

New points in Circular 40/2021/TT-BTC compared to the previous regulations on the tax of house lessors

A notable new point in the new Circular is the determination of tax liability in the case of leasing a house for less than a full calendar year (January 1 to December 31). Previously, Circular 92/2015/TT-BTC calculates revenue for each year to determine tax payment, that is, in any year with revenue over 100 million VND, the tax must be paid, and in any year with revenue from 100 million VND or less, the lessors are not taxed for that year.

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The impacts of Circular 40/2021/TT-BTC for lessors

As for Circular 40/2021/TT-BTC, the taxable income is determined based on the revenue of one year (12 months). If the house is rented for only a few months in the year, the revenue to determine the taxable income is the rental price/month multiplied by 12 months.

For example, Mr. A. rents a house continuously for 24 months (from October 2018 to September 2020) for 10 million/month. Mr. A’s revenue in 2018 was VND 30 million, VND 120 million in 2019, and VND 90 million in 2020. If the regulations are as before, Mr. A. only has to pay tax for 2019 because the revenue in 2019 is over 100 million VND, and the revenue in 2018 and 2020 is less than 100 million, so Mr. A. does not have to pay tax for 2018 and 2020.

However, with the new regulations in Circular 40/2021/TT-BTC, Mr. A’s taxable revenue is calculated as 10 million/month x 12 months = 120 million, which means Mr. A. is liable to pay tax for the entire rental period (2018, 2019, 2020).

Thus, in a word, according to the new regulations, renting a house with a price of more than 8,333,334 VND/month is subject to tax and the lessors must pay tax for the entire actual revenue.

What are the impacts of this new Circular for lessors in Vietnam?

According to Lawyer Hung, regulations on how to calculate revenue to determine tax exemption in case of property rental under Circular 40/2021/TT-BTC are necessary to create fairness for taxpayers.

As before, two people, Mr. A. and Mr. B. lease a house together for 12 months for 10 million/month. For instance, Mr. A. rents out the house from January to December of the same year, he has to pay tax. On the other hand, Mr. B. leases the house from April of last year to March of next year, he is exempt from tax because each year’s turnover is under 100 million VND. Thus, having the same income, but some people pay taxes and others do not. This is not fair for taxpayers.

Circular 40/2021/TT-BTC has overcome this shortcoming, creating fairness for taxpayers when it is stipulated that with the same income, the tax liability is the same. This circular will create fairness not only for lessors but also creates fairness between lessors and other business people. 

In brief, business people in other industries must pay tax for that month if the determined revenue of each month is over VND 8,333,334.

ASL LAW is the top-tier Vietnam law firm for tax law consulting service. If you need any advice, please contact us for further information or collaboration.

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