Ministry wants personal income tax withheld at source on share‑based dividends

Ministry wants personal income tax withheld at source on share‑based dividends

The draft clarifies that an individual becomes liable for PIT when a dividend is received, regardless of whether it is paid in cash or shares, meaning taxpayers should not wait until they sell the securities to declare income.

A bank teller sorts notes. — VNA/VNS Photo

The Ministry of Finance is circulating a draft decree amending several articles of Decree No. 126/2020/NĐ‑CP, which guides the Law on Tax Management, with a key focus on tightening personal income tax (PIT) when dividends or bonus shares are paid in securities rather than cash.

According to the ministry, between 2016 and 2024, individual investors received 34.84 billion shares in the form of dividends or bonus issues. If all those shares were eventually sold at par value of VNĐ10,000 each, the 5 per cent PIT payable would come to roughly VNĐ17.42 trillion (US$683 million). Yet only about VNĐ1.318 trillion, equivalent to nearly 8 per cent of that notional liability, has been declared and paid.

Over the same period, total PIT declared from all investment activities reached VNĐ51.965 trillion, of which tax on dividends and bonus shares accounted for just VNĐ1.318 trillion, or 2.54 per cent, highlighting what the ministry sees as a significant compliance gap.

The draft clarifies that an individual becomes liable for PIT when a dividend is received, regardless of whether it is paid in cash or shares, meaning taxpayers should not wait until they sell the securities to declare income. Consequently, dividend‑paying organisations would have to withhold PIT when the dividend or bonus shares are distributed.

For listed companies and other dividend‑paying entities, withholding would be based on the payment date stated in the corporate announcement. Where a firm capitalises retained earnings and credits additional shares to a member’s contributed capital, withholding would occur when the capital increase is recorded.

The ministry argues that defining a clear withholding point will prevent shareholders from deferring tax for years by holding bonus shares until sale.

To reinforce timely collections, the draft also requires dividend‑paying organisations to file PIT returns monthly instead of waiting until securities are transferred. That change, the ministry notes, will align Decree 126 with the Personal Income Tax Law and reduce opportunities to exploit timing differences.

Stakeholders have until later this month to comment on the proposed amendments before the decree is finalised and submitted to the Government for approval. 

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