The complexity of tax obligations when transferring factories in industrial parks

The transaction of "transfer of factories in industrial parks" in most cases is considered by the tax authority as income from real estate transfer, even if the contract records "only transfer of factories" – land-attached assets without recording the transaction as the transfer of houses/works attached to land or assets attached to land. This shows that this transaction is still not understood and agreed in the way of implementation between invisible related parties, which has created risks for businesses in the transfer process.

Workers are seen working in a multi-story factory building in Tan Thuan Export Processing Zone (Ho Chi Minh City). Source: Tuoi tre

Tax obligations when transferring factories

Corporate Income Tax (CIT)

When the transaction has determined and classified the factory transfer transaction as real estate transfer, the CIT applies a tax rate of 20% and must be determined separately, not offset from income from production and business activities in accordance with the provisions of the Law on CIT 2025 and Decree 320/2025.

Value Added Tax (VAT)

Regarding VAT, the new principle under the VAT Law 2024 is the prevailing tax rate of 10%; for real estate business, taxable price = selling price before VAT – "deductible land price" (land use levy/land rent paid to the state budget). The biggest risk in the transfer of factories in industrial parks is the failure to prove the "deductible land price", especially in the land lease/sublease model when the money paid to the infrastructure investor is not the same as the state budget payment", leading to VAT being calculated on the entire transfer price.

Registration fee

Registration fee is mainly the obligation of the transferee when registering the ownership of houses and land use rights; houses and land are subject to registration fee at the standard rate of 0.5%, but there are exempt cases such as the case of land leased by the State with annual land rent payment[1]. Because the transaction structure and land records in the industrial park are very diverse, the "separation of land – factory – machinery" in contracts, land legal documents and cost records is the focus to reduce the risk of arrears. 

Application of tax incentives when transferring factories from regulations to guidance of tax authorities

On September 27, 2024, the Tax Department of Quang Nam province issued Official Letter 7843/CTQNA-TTHT to guide Pham Minh Gia Joint Stock Company on CIT incentives for factory projects for lease in industrial parks[2] with the contents: (i) Determining the scope of "income from real estate transfer", including income from land sublease of real estate businesses and excluding " excluding the case where the enterprise only leases houses/architectural works on land"; (ii) Affirming that tax incentives are not applied and preferential tax rates are not applied to incomes from capital transfer and real estate transfer; (iii) concluding that the project is adjusted from the old project, so it is not a new investment project to enjoy incentives according to current regulations. 

This official letter shows the tax authority's understanding and risk management for the model of "lease land – build factories – lease/sublease – transfer". Therefore, tax obligations when "transferring factories", it is necessary to correctly classify whether the transaction is associated with land use rights or not or in the case of subleasing factory land and works on land.

The current legal framework for transactions arising from October 1, 2025 (the time when the CIT Law 2025 takes effect) is the general CIT rate of 20%, and the preferential regulations, conditions for entitlement and exclusions are detailed in the CIT Law 2025 and Decree 320/2025/ND-CP detailing this law (Decree 320).

Regarding the classification of income from factory transfer in industrial parks, Decree 320 stipulates that "income from real estate transfer" includes (1) transfer of land use rights and land lease rights; (2) incomes from land use right lease/sublease activities of real estate enterprises; and especially (3) income from the transfer of houses, construction works attached to land... regardless of whether or not there is a transfer of land use rights/land lease rights, along with (4) income from the transfer of land-attached assets and (5) transfer of ownership of houses/architectural works on land. This regulation makes the case of "only selling factories" in terms of CIT still likely to be considered as real estate transfer.

The principle of exclusion according to current regulations is that the tax rate of 15%/17% and incentives (preferential tax rates, exemptions and reductions) do not apply to incomes from capital transfer, real estate transfer, transfer of investment projects and some other cases. Therefore, although enterprises operating in industrial parks are entitled to incentives according to the area or investment project, the income from the transfer of factories when considered as real estate transfer is still separated and is not entitled to CIT incentives.

Regarding taxable revenue and anti-undervaluation mechanism, Decree 320 stipulates real estate transfer revenue at the actual price according to the contract. Particularly for the land use right component, if the contractual price is lower than the land price set by the provincial/municipal People's Committee at the time of signing the contract, the tax authority will take the land price prescribed by the locality. At the same time, the time of determining taxable revenue is the time when the seller hands over the real estate to the buyer, regardless of whether the ownership/use rights have been registered or not.

Regarding deductible expenses, Decree 320 requires that the cost of real estate transfer activities must correspond to the revenue and meet the conditions for deductible expenses; The cost of "land cost" depends on the origin of the land. In case of receipt of transfer of land use rights/land lease rights from other organizations or individuals, the cost price shall be based on the contract and lawful payment vouchers; without legal contracts and documents, the cost price may be fixed according to the land price set by the locality. This mechanism is actually to prevent the parties involved in the transaction from raising costs/shorting costs.  Note that in case the enterprise simultaneously has preferential income and real estate transfer income, the enterprise is required to separately account expenses; if it is not possible to account separately, the general expenses shall be allocated according to the ratio of real estate transfer revenue to total revenue.

Source: KCN Vietnam

Notes for businesses

Regarding CIT accounting, the Law on CIT 2025 stipulates the principle of determining taxable income and allows the clearing of profits and losses between activities, but at the same time states important exceptions: income from real estate transfer, transfer of investment projects, transfer of the right to participate in investment projects, etc. not offset with the income of production and business activities that are enjoying incentives, and in practice, it is necessary to "separate the books/separate the targets" to make the correct settlement.

Decree 320 concretizes the obligation to account expenses separately when enterprises have both real estate transfer activities and other activities, including activities enjoying incentives as follows: if they cannot be accounted separately, general expenses shall be allocated according to the revenue ratio. Therefore, in a factory transfer transaction, enterprises should prepare an allocation plan in advance: at least separate direct costs such as factory construction costs, PR/brokerage commission costs, legal costs of transfer and clearly determine the costs/cost prices related to land according to land records.

Regarding declaration and deadlines, the Law on Tax Administration 2019 stipulates that monthly tax declaration dossiers shall be submitted no later than the 20th of the following month; quarterly no later than the last day of the first month of the following quarter; annual declaration dossiers (especially annual finalization dossiers) no later than the last day of the third month from the end of the calendar year/fiscal year; the dossier shall be declared for each time tax liability arises no later than the 10th day from the date of incurrence. In addition, annual tax returns include finalization returns, financial statements and related documents.

Enterprises should carefully check the conformity between contracts – invoices – payment documents as a basis for determining the transfer price, especially when the transfer price is lower than the local land price; evidence to deduct the "deductible land price" when calculating VAT; and the fact that the enterprise has separated and wrongly offset the income from real estate transfer with the preferential income.

According to the current tax law, when carrying out procedures for transferring factories in industrial parks, enterprises should standardize the "nature of transactions" right from the contract design to clearly determine whether or not to transfer land lease rights or transfer rights to land. At the same time, the value of land – factory – machinery is clearly separated, as well as documents supporting the transaction to avoid risks arising during and after this transaction.  Understanding the nature of the transaction and standardizing the documents from the beginning is the right strategy to make this transaction efficient, fast and low-risk.