On July 22, 2025, Vietnam's Ministry of Finance unveiled a significant proposal within its draft amendment to the Personal Income Tax Law, aiming to overhaul how taxes are levied on real estate transfers. The proposed changes mark a departure from the current flat 2% tax on the total selling price of property, steering instead toward a system that taxes actual income earned from real estate transactions.
Under the existing framework, individuals selling property pay a 2% tax calculated on the total transfer value, regardless of whether the sale generated a profit. This method has drawn criticism for failing to reflect the true economic nature of transactions, especially in cases where sellers incur losses or the selling price is close to or even below the purchase price.
The Ministry of Finance's draft law proposes taxing the taxable income derived from real estate transfers at a rate of 20% per transaction. Taxable income, in this context, is defined as the difference between the selling price and the buying price, after deducting reasonable and legitimate expenses related to the transaction. This approach aligns taxation more closely with actual profits rather than gross sales figures.
Should the buying price or related expenses be indeterminable, the draft law suggests applying a tax based on the selling price multiplied by a sliding scale of tax rates tied to the holding period of the property. Specifically, properties held for less than two years would be taxed at 10%, those held between two and five years at 6%, between five and ten years at 4%, and properties held for ten years or more, as well as inherited properties, at 2%. This tiered system aims to discourage short-term speculation and "flipping," which have been blamed for market instability in recent years.
Lawyer Hoang Tuan Vu of the Hanoi Bar Association praised the proposal, noting that taxing based on the profit from real estate sales "accurately reflects the economic essence and is consistent with the principle of taxing actual income." He emphasized that the current 2% tax on the total transfer value unfairly burdens sellers who may actually be operating at a loss, as it does not allow for deductions of purchase costs or related expenses.
"With the profit-based tax method, those who can prove losses or related costs might avoid tax payments," Vu explained. "This makes the tax system fairer and more aligned with the real financial outcome of property transactions." Additionally, he highlighted that this method could help optimize tax revenue while curbing speculative activities that distort the real estate market.
The Ministry of Finance echoed these sentiments, stating that preliminary calculations indicate the overall tax collected under the new 20% profit-based approach would be roughly equivalent to the current method's revenue. However, in cases where the profit margin is minimal or negative, taxpayers could benefit from reduced tax liabilities.
Importantly, the Ministry underscored that implementing this new tax calculation method requires a carefully planned roadmap. It must coincide with the development and integration of comprehensive real estate databases, transaction records, and advanced IT systems to ensure tax authorities can accurately verify incomes and tax dues.
Alongside the profit-based tax, the draft law includes a comprehensive reform package addressing six key policy areas. These reforms encompass adjustments to the progressive tax schedule, increases in family tax deductions, revisions to exemptions and reductions, and refinements in defining taxable income timing. These changes collectively aim to modernize Vietnam's tax framework in line with current economic and social realities.
The Ministry also highlighted that the tiered tax rates based on holding periods draw on international experiences, where personal income tax serves as a tool to regulate short-term investment behavior and promote sustainable market transactions. While this approach is promising, officials acknowledge that further research is needed to tailor it effectively to Vietnam's unique market conditions.
As the Ministry of Finance continues to solicit feedback from ministries, local authorities, organizations, and the public, it plans to finalize and submit the draft law to higher authorities for approval. This inclusive approach aims to ensure that the new tax policies balance fairness, efficiency, and market stability.
The proposed reforms could signal a major shift in Vietnam's real estate taxation landscape, potentially reducing speculative activity and aligning tax liabilities more closely with actual economic gains. As the country navigates this transition, the success of these measures will largely depend on robust data systems and transparent implementation.
