Vietnam’s Ministry of Finance is exploring two approaches to taxing real estate transfers, including a proposed 20% tax on the profit made from the difference between the purchase and sale prices of property.

The proposal is part of a broader revision to the Personal Income Tax Law. In a report to the National Assembly on the implementation of resolutions concerning the financial sector, the Ministry outlined the two methods under review, depending on the availability of transaction data.

The first method would apply when accurate data on the purchase price and associated costs are available. In this case, the taxable income would be the profit from the transaction (sale price minus the total costs), and the tax rate would be 20% - in line with the corporate income tax rate applied to property transfers.

If data on the original purchase price or transaction-related costs are unavailable, a flat 2% tax on the total sale value would continue to apply.

The Ministry explained that taxing only the actual profit aligns with the economic nature of the transaction and the purpose of the personal income tax - namely, taxing generated income. However, this method would only be effective if two key conditions are met.

First, a comprehensive transaction history database is needed, accurately reflecting the sales history of the land or property. Second, regulations must clearly define which costs can be deducted, the required documentation, and how the property's cost basis is determined.

According to the Ministry, since 2018, Vietnam’s tax authority has maintained a system for checking property and taxpayer transaction histories. However, discrepancies between contract values and actual sale prices remain widespread. Enforcing accurate reporting and verifying market prices remains challenging and would require more time and better tools.

Additionally, collecting documentation to validate costs - such as purchase price, construction expenses, legal fees, and harder-to-prove expenses like broker fees, interest payments, or compensation - remains a difficult task. These challenges are exacerbated when taxpayers underreport values to reduce tax liabilities or when the property was inherited, gifted, or acquired long ago without formal purchase records.

Experts support 20% tax on actual profits

At a March workshop on personal income tax reform, Associate Professor Dr. Phan Huu Nghi, Deputy Director of the Institute of Banking and Finance at the National Economics University, emphasized that real estate transfer income is a key component of the personal income tax system. However, the current method of taxing this income still has major flaws.

Currently, Vietnam levies a 2% tax on the total transaction value, regardless of whether the seller earns a profit or incurs a loss. This means sellers must pay 2% of the property’s declared value as tax, without consideration of actual gains.

Dr. Nghi argued that this method oversimplifies the tax process but opens the door to tax evasion. Sellers often declare unrealistically low prices to reduce tax liability, resulting in significant state revenue loss and market opacity.

He advocated for only taxing profitable sales using a 20% rate on the price difference between purchase and sale, similar to the corporate income tax model. This would better reflect actual income and deter speculative behavior.

“Although the 2% method is simple and easy to collect, it has a serious drawback in enabling price underreporting. This undermines tax fairness and market transparency,” Dr. Nghi explained. “Conversely, the 20% tax on real profit more accurately reflects true income. But it also poses technical challenges in determining original costs, especially for older transactions that lack proper records.”

To balance fairness and feasibility, Dr. Nghi proposed applying the 20% tax on profit to discourage price manipulation and speculation, ensuring alignment with corporate tax practices and promoting a healthier real estate market.

Nguyen Le