Withdraw Tax Filing Proposals Upon Receipt of Stock Dividends

The Ministry of Finance has recently released a consolidated summary of feedback on the draft amendment to Decree 126, which outlines specific provisions of the Tax Administration Law.

Notably, the Ministry has retained the original proposal for dividend and bonus taxation in securities, requiring payment upon transfer rather than immediate payment upon receipt, as suggested earlier this year.

Regarding this matter, the Ministry of Finance clarified that dividends are distributed to investors only when a company generates profits.

Consequently, distributing dividends in securities and deducting personal income tax (PIT) at the time of distribution aligns with the current regulations of the PIT Law.

However, the Ministry acknowledges that, in the context of the nation’s focus on mobilizing resources for private economic development under Resolution 68, and in preparation for upgrading the stock market, mandating tax deduction and declaration at the time of dividend or bonus distribution in securities would pose challenges for both individuals and businesses.

For investors, receiving “securities” without immediate cash flow makes tax payment impractical. For companies, substituting tax payment would require significant financial allocation, directly impacting cash flow and business operations.

In late June, the Ministry of Finance proposed draft amendments to Decree 126 and sought public feedback.

Statistics reveal that from 2016 to 2024, individuals receiving stock dividends and existing shareholders receiving stock bonuses collectively received 34.84 billion shares.

If all these shares were transferred at a par value of VND 10,000 per share, the estimated PIT (at a 5% rate) would be approximately VND 17,420 billion. However, actual declared tax from this source reached only VND 1,318 billion, or roughly 8% of the estimate.

During the same period (2016–2024), total declared PIT from capital investment activities amounted to VND 51,965 billion, with taxes from stock dividends and bonuses accounting for only 2.54%, or VND 1,318 billion.

Following the announcement, multiple ministries and agencies urged the drafting authority to reconsider the proposal for immediate tax payment upon receipt of stock dividends.

This is due to the unique nature of stock dividends and bonuses compared to cash payments. The timing of distribution and actual receipt of securities often differs, as additional listing procedures on the market are required.

For individuals, receiving stock dividends means acquiring securities with nominal value but no immediate cash income, making immediate tax payment unsuitable and potentially discouraging investment.

For businesses, substituting PIT payment at the time of share issuance would necessitate significant financial allocation, affecting cash flow, capital mobilization, and operational activities.