Personal Income Tax on profits from virtual currency investments
Vietnamese law does not recognize virtual currency as a type of asset or a legal means of payment. According to Article 1 of Decree 80/2016/ND-CP, virtual currency is not classified as a legal means of payment. However, virtual currency trading, exchanging, and investing remains widespread and can generate significant income for individuals. As a result, the Government and relevant authorities are researching and developing an appropriate legal framework to regulate these transactions and establish tax obligations. In the following article, TNTP will provide important information regarding personal income tax on profits from virtual currency investment, helping readers better understand current regulations and avoid potential risks.
1.Are profits from virtual currency investment subject to personal income tax?
Currently, Vietnamese law does not provide regulations on the issuance, trading or exchange of virtual currency and virtual currency is not considered an asset. Consequently, income from virtual currency is not subject to personal income tax. However, specialized authority agencies have begun developing a legal framework for this issue, including the Ministry of Information and Communications drafting the Law on Digital Technology Industry and the Ministry of Finance proposing a new Law on Personal Income Tax. Accordingly, virtual currency may be recognized as a digital asset and the Personal Income Tax Law will introduce new regulations for taxable income categories.
2.Methods for determining taxable personal income from virtual currency investments
When income from virtual currency activities becomes subject to taxation by law, applicable tax rates for individuals and investors may be determined in accordance with the following regulations or new regulations.
- Personal income tax on investment income: According to Article 23 of the 2007 Enterprise Law on Personal Income Tax, as amended in 2014, the tax rate for investment income is 5%. If virtual currency is considered an investment, profits from trading may be subject to a 5% tax rate on total income.
- Personal income tax on business income: According to Clause 3, Article 10 of the 2007 Law on Personal Income Tax, as amended in 2014, the tax rate for business activities ranges from 0.5% to 5% depending on the revenue for each sector, field of business. Therefore, if an individual frequently trades virtual currency for profit, Tax Authorities may classify it as a business activity and apply a tax rate of 0.5% – 5% based on revenue.
- Personal income tax on asset transfers: According to Article 23 of the 2007 Law on Personal Income Tax, as amended in 2014, the tax rate for asset transfers ranges from 0.1% to 20%, depending on the type of asset transferred. If virtual currency is considered a digital asset, the tax rate on transfer income ranges from 0.1% – 20%.
Thus, the tax rate on income from issuing, trading and exchanging virtual currency may range from 0.1% to 20% depending on the classification of taxable income.
3.Tax declaration and payment process
If virtual currency income becomes legally taxable, individuals must fulfill their tax declaration and payment obligations according to either the regulations as outlined in Points a and b, Clause 1, Article 7 of Decree 126/2020/ND-CP below or new directives from competent authorities, specifically:
Step 1: Determine total income from virtual currency investments, trading, exchange during the tax period.
Step 2: Apply the appropriate tax rate as per regulations.
Step 3: Declare taxes at the Tax Authority or through the electronic tax declaration system.
Step 4: Pay taxes as notified by the Tax Authority.
Thus, individuals engaging in virtual currency activities can follow the tax declaration procedures in compliance with the Law on Tax Administration.
4.Legal risks of failing to pay taxes
Failure to declare and pay taxes on personal income may result in penalties under the Law on Tax Administration, including:
- Late tax payment penalties: According to Point a, Clause 2, Article 59 of the Law on Tax Administration 2019, the late payment penalty is 0.03% per day on the unpaid tax amount.
- Administrative penalties: Fines are imposed based on the severity of the violation under Decree 125/2020/ND-CP on administrative penalties for tax and invoice violations.
- Tax collection and criminal liability: If the evaded tax amount is significant, individuals may be subject to criminal liability under Article 200 of the Criminal Code 2015.
Thus, individuals earning income from virtual currency activities may face penalties for violating tax obligations when such income becomes legally taxable. These penalties may be either explicitly defined or applied by similarity to existing tax laws, depending on the current legal framework..
Although there are currently no specific regulations on taxing income from virtual currency, individuals and investors should stay updated on new policies from Tax Authorities and other competent agencies to avoid legal risks. If there are any questions regarding tax obligations related to virtual currency income, you can seek advice from Tax Authorities or professional tax consultants to ensure compliance with legal regulations.
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