In a report sent to the National Assembly Standing Committee on the implementation of policies and laws on real estate market management and social housing development from 2015 to the end of 2023, the Ministry of Finance pointed out many loopholes, shortcomings and limitations in mobilizing investment capital for the construction of commercial housing projects, the transfer of investment projects as well as the transfer of real estate.

Risks when transferring investment projects

Regarding capital mobilization for construction of commercial housing projects, the Ministry of Finance said that previously, according to the provisions of the law on housing, investors were allowed to sign contracts, capital contribution documents or investment cooperation contracts and documents with organizations and individuals to invest in housing construction and the capital contributors or investment cooperation parties were allowed to divide the housing products based on the agreed capital contribution ratio.

However, according to current regulations, investors are not allowed to apply capital mobilization to divide housing products or to prioritize registration, deposit, and enjoy the right to buy housing or to divide land use rights in the project for the capital mobilized party, except in the case of contributing capital to establish a new legal entity to be assigned by the State as the investor of a housing construction project.

After completing the construction of the house foundation according to the provisions of Decree 71, the investor is allowed to sign a contract for the sale and purchase of future houses and constructions to replace previously signed capital contribution contracts.

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According to the Ministry of Finance, there are many ways to circumvent the law, making it difficult for state agencies to verify the real value of real estate transfer transactions. Photo: Hoang Ha

After signing the contract for sale of future housing and construction works, the capital contributor is allowed to transfer the contract for sale of future housing and construction works.

However, the Ministry of Finance said that in reality, state agencies have not yet been able to control the fact that investors continue to sign contracts (in many forms) with individuals. Only when individuals have a need to transfer and submit documents to the tax authorities do they discover the incident.

In addition, there are cases where investors accept to pay personal income tax (PIT) on behalf of the buyer, collect PIT from the buyer when transferring the capital contribution contract but do not pay tax to the State budget.

Regarding the transfer of investment projects, the Ministry of Finance said that taxpayers are legal entities that transfer investment rights, exploit part or all of an investment project to other organizations or individuals in the form of separation, merger, business conversion or capital contribution transfer subject to the regulation of the law on land, investment, housing, and real estate business.

In case the transferring organization is a state-owned enterprise, it must also comply with the provisions of law on management and use of state capital invested in production and business at enterprises and the law on public asset management.

According to the Ministry of Finance, this activity is subject to many risks such as the organization declaring transfer prices that are not true to actual prices, causing losses to the State budget; transferring projects when they do not meet the transfer conditions prescribed by law; selling assets without auction, causing losses of State public assets; and using land for the wrong purpose.

Individuals who are capital contributors or founding shareholders are initially allocated land by the State with land use fees collected, the State leases land (paid annually or paid once) to carry out investment projects, after a number of transfers of capital contributions and shares, leading to the replacement of all capital contributors and founding shareholders.

In fact, the enterprise implementing the investment project has not changed (the enterprise tax code has not changed), but the capital contributors of the enterprise have changed. It can be said that in essence, the real estate project is sold through the form of capital transfer of capital contributors or founding shareholders.

The Ministry of Finance said that the activities of the above taxpayers have many tax risks, causing losses to the State budget and risks of violating the provisions of the law on land management.

Difficult to verify the real value of the transfer transaction

Regarding real estate transfer prices, the Ministry of Finance pointed out that taxpayers declared transfer prices for tax calculation that were not in accordance with the actual transfer prices. The buyer and seller used a handwritten contract signed by both parties, recording the actual transaction prices to prevent disputes in court.

“Therefore, it is very difficult for competent state agencies to verify the real value of real estate transfer transactions, especially since tax authorities currently do not have the function of investigation,” the Ministry of Finance report stated.

For contracts transferring contracts for the sale and purchase of houses and future construction works, the value of the contract for the sale and purchase of houses and future construction works from the second party to the third party is only equal to the purchase price from the investor. Or when the certificate has been issued, the taxpayer is willing to declare a lower price than the investor's price, which also leads to a loss in calculating the budget revenue.

Regarding the method of buying and selling real estate and real estate projects, the Ministry of Finance said that the investor agrees to let the buyer re-sign the contract for the future house with a new buyer to avoid personal income tax from real estate transfer.

“The investor is circumventing the Housing Law’s regulations on the limit on the number of houses that foreigners are allowed to own by signing long-term lease contracts and the tenant has full rights as the owner of the house; the actual transaction of buying and selling real estate but legalizing it by buying shares, then splitting the enterprise,” the report stated.

For the authorization of real estate transfer, the taxpayer transferring real estate does not sign a transfer contract but signs an authorization contract (in which the authorized person has the right to possess, the right to use, and the right to dispose of the real estate) to avoid personal income tax from real estate transfer.

Data from the Ministry of Finance shows that personal income tax revenue from real estate transfers in the 2017-2022 period increased compared to the revenue of the previous year.

Specifically, in 2017, revenue was 10,818 billion VND. In 2018, revenue was 12,963 billion VND, an increase of 19.82%. In 2019, revenue was 14,447 billion VND, an increase of 11.44%. In 2020, revenue was 16,213 billion VND, an increase of 12.22%. In 2021, revenue was 21,142 billion VND, an increase of 30.4%. The highest was in 2022, revenue was 34,746 billion VND, an increase of 64.34% compared to 2021.

In 2023 alone, personal income tax revenue will decrease to only VND 18,618 billion due to market difficulties and decreased transactions.