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In society, many must have heard about the situation where a real estate property has two prices, one official and one unofficial. This is because in order to pay less tax, the parties have agreed that the transferred price submitted to the Government will be way less than the actual price that they have agreed upon, even lesser than the price stipulated in the land price list. This leads to the question that why does the Vietnamese government not issue regulations prohibiting the recording of the transfer price lower than the land price in the land price list?
Although nowadays, most dealers in real estate have become smarter and record the transfer price of real estate property equal to or a little bit higher than the stipulated land price, however, there is still a portion of the group that decides to record the transfer price even below than the land price in the land price list.
This may be because of a variety of reasons, for instance, it may be because that land is extremely of low quality, or have a bad reputation, etc. but mostly due to the simple fact that they are too greedy.
Cases in which the transfer price of land is stipulated
Taxes and other state budget revenues managed by tax authorities such as registration fees, etc. are the main revenues of the state budget. Therefore, strict management to prevent revenue loss is essential.
Accordingly, the transfer price for calculating personal income tax and the price for calculating the registration fee when transferring land use rights is divided into 03 cases:
Case 1: The land price in the transfer contract is higher than the land price in the land price list prescribed by the provincial-level People’s Committee (the state price). In this circumstance, the price for calculating personal income tax and the registration fee is calculated according to the contract price.
Case 2: The land price in the transfer contract is equal to the state price. Accordingly, the price for calculating personal income tax and the registration fee is calculated according to the price in the contract or the price in the land price list.
Case 3: The land price in the transfer contract is lower than the state price. In this case, the price for calculating personal income tax and the registration fee is calculated according to the state price (the land price in the land price list).
No regulations on the declaration of transfer price below the price list of the State
The reason why there is no stipulation of land price besides price limit is that the transfer of land use rights is a civil transaction. Accordingly, the parties have the right to agree on the transfer price and the law simply can’t prohibit the agreed transaction by the citizens with each other.
However, that being said, there are still some regulations as we have already know – the price list of the State issued by the Provincial-level People’s Committees.
Because although the parties can agree to a price, it must not be lower than the price issued by the Provincial-level People’s Committees decide.
This is to avoid tax evasion.
Because without the stipulated price list, the parties can simply agree to a 10,000 VND transfer price and pay the Government literally less than 500 VND.
This is simply ridiculous and may create many unforeseeable consequences for society.
Therefore, on the one hand, the law still stipulates that the parties have the right to agree on the transfer price. On the other hand, it must be strictly managed, avoiding the situation of declaring 2 prices on the real estate property to prevent loss of tax and fee collection.
ASL LAW is the top tier Real Estate law firm in Vietnam. If you need any advice, please contact us for further information or collaboration.
