Date: 14 June 2021
Writer: Tuyen Pham
Nowadays, the transfer of land use right and house attached to land is a popular transaction. However, it does not mean that everyone almost understands legal issues involved and can limit risks relating to such transaction.
The real case from BLawyers Vietnam’s customer that we have supported is an illustrating example
Mrs. A (“Seller”), elderly, lives alone in Vietnam. Her descendants are living and working abroad. Mrs. A wants to transfer the land use right and ownership of house and other land-attached assets to Mr. B (“Buyer“). The Seller and the Buyer have agreed the transfer price of the property by a non-notarized deposit contract of VND 20 billion (the “Deposit Contract”). The Buyer has proposed that the parties will declare the transfer price on the official notarized contract as of VND 10 billion. The Buyer said that the above proposal helps the parties to reduce the amount of taxes, fees, and charges. However, the Seller has sought the advice of our lawyer to mitigate potential legal risks.
Our lawyer has pointed out the risks for the Seller as follows:
1. The Buyer might not pay the amount as agreed
After conducting the notarization, the sales contract of VND 10 billion will take effect (the “Notarized Contract”). This effect will not lost or being affected even though the two parties have stated in the Deposit Contract that the Buyer will give the Seller an amount of VND 20 billion. Therefore, the Buyer may base on the Notarized Contract to not pay the amount of VND20 billion.
2. Arising dispute at the Court
If, after signing the Notarized Contract, the parties have a dispute and request the competent Court to settle it, the Court may declare the Notarized Contract as invalid because the parties falsely enter into this transaction. However, the Deposit Contract is still valid. In this case, the parties will be responsible for restoring everything to its original state and shall return to each other what they have received. Thus, the Seller will refund the entire amount to the Buyer and the Buyer will return the land use rights and other documents and certificates received. However, the civil lawsuit as above can be complex and will cost the parties time and money.
3. The Seller might take criminal liability
The Seller must pay personal income tax (“PIT”) after generating income from the transfer of the real estate. However, instead of paying PIT at the actual transfer price of VND 20 billion, the Seller only pays this tax for VND 10 billion. The Law on Tax Administration stipulates that taxpayers are obliged to declare tax accurately and completely and submit tax dossiers on time. That means, when the seller and the buyer intentionally declare the “fake” price in the transferring contract to avoid tax, that act is against the law. Depending on the severity of the violation, when detected by the authorities, it may be subject to arrears and administrative penalty decisions. In addition, paying tax that is not under the actual amount may be prosecuted for criminal liability for tax evasion.
In conclusion, signing the transfer contract with a lower value than its actual value is a violation of the law. The person performing the act will be subject to sanction based on the seriousness of the violation and bear many legal risks. Therefore, it is extremely important to carefully review the contract and anticipate legal situations in those transactions.
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