Inheritance rights related to enterprise-ownership rights is an important factor in the family business model to ensure the company’s operation within the family for generations. What are Vietnamese regulations regarding inheritance rights related to enterprise-ownership rights in Vietnam?
In this article, BLawyers Vietnam summarizes the main regulation about Inheritance rights related to enterprise-ownership rights in Vietnam:
How are inheritance rights related to enterprise ownership rights under the law of Vietnam?
According to the Law on Enterprises 2020 (“LOEs 2020”), there are five forms of enterprises: one-member limited liability company (LLC), multiple-member LLC, joint-stock company, partnership, and business households. The Law has separate regulations on inheritance rights related to enterprise ownership rights for each of the forms of enterprise mentioned above.
For example, for a one-member LLC, if the company owner is an individual, and that person dies, then the testamentary heir or at-law heir shall become an owner or a member of the company. The company shall organize its management in the corresponding form of enterprise and register a change in enterprise registration contents within 10 days after the inheritance settlement is completed.
For a joint-stock company, if an individual shareholder dies, his/her heir(s) by testament or by law becomes a shareholder of the company.
However, the heirs must not fall into the case in which they do not have the right to establish and manage the enterprise according to LOEs 2020.
Does nationality affect inheritance rights related to enterprise ownership rights?
In some cases, the estate leaver is a Vietnamese citizen and the first rank of inheritance is a foreign citizen. For inheritance rights related to enterprise ownership rights, nationality does not affect the inheritance rights of heirs, and foreign citizens are still entitled to inherit enterprise ownership rights. However, the establishment of enterprise ownership by foreign citizens after claiming the inheritance may be restricted under Vietnamese law.
If the enterprise owns real estate, what is the answer to question No. 2 above?
In cases in which the enterprise owns real estate, inheritance rights related to enterprise ownership rights will not be affected. However, the procedures and conditions for a foreign citizen to inherit an enterprise that owns real estate must also comply with other Vietnam laws such as the Civil Code, the Law on Land, and the Law on Investment.
In particular, if the enterprise owns real estate located on islands; communes, wards and towns near the border; or communes, wards and towns at the seaside, the competent authorities of Vietnam will consider issues affecting national defense and security when evaluating the registration of establishment of enterprise ownership for heirs having foreign citizens.
Is an estate management right considered an enterprise ownership right?
Currently, the Civil Code 2015 does not have separate regulations for the case of estate management as enterprise ownership. In general, the enterprise-ownership right is the estate of the deceased, so the estate manager as enterprise ownership will still comply with the regulations of the Civil Code 2015. Therefore, if the estate is an undivided enterprise-ownership right, the property obligations left by the estate leaver will be managed by the estate manager according to the agreement of the heirs within the scope of the estate left by the deceased.
Another issue that should be considered carefully is whether or not the estate manager has the right to attend meetings of the member council/general meeting of shareholders and the right to vote on business matters on behalf of the heirs. This is set out when the estate leaver dies and the heirs carry out procedures to declare the inheritance and establish the enterprise ownership.
Can documents such as the shareholder agreement/charter of the enterprise affect the inheritance of enterprise-ownership rights?
Possibly. The Law on Enterprises 2020 does not clearly stipulate this issue nor does the content of documents related to enterprises such as the shareholder agreement, enterprise charter on inheritance rights of enterprise-ownership rights. However, at the time of making such documents, if the owner/member of the company/shareholder agrees to terminate, transfer or continue to perform the rights/obligations of the heir to the rights and obligations to which the deceased shareholder/member is bound to perform, then such agreement will be performed.
How can inheritance of enterprise-ownership rights be disclaimed?
The heirs who disclaim the inheritance of enterprise-ownership rights are classified into the following cases:
For a one-member limited liability company: if his/her testamentary heir or at-law heir disclaims the inheritance, the estate left after the performance of property obligations shall belong to the State.
For a two-member limited liability company: If the heir does not want to become a member of the company, the contributed capital amount of a member shall be redeemed by the company or transferred in accordance with the law.
For a joint stock company:
In cases in which a shareholder holding ordinary shares dies or a founding shareholder after three years dies, and his/her testamentary heir or at-law heir disclaims the inheritance, the estate could be transferred to another person. If the shares are not transferred or there is no heir, shares are considered an unclaimed estate and shall belong to the State.
If the founding shareholder dies, and the heir disclaims the inheritance from the founding shareholder, the joint-stock company must pay attention to the regulations on the time limit for transferring shares. Accordingly, to transfer shares to another receiver after the heir disclaims, the receiver must have the approval of the company’s General Meeting of shareholders.
For sole proprietorship: If the owner of a sole proprietorship dies without any heir or his/her heir disclaims the inheritance or is deprived of the right to inherit, the property of the owner of the sole proprietorship shall be handled in accordance with civil law.
For partnerships: if his/her testamentary heir or at-law heir disclaims the inheritance, the estate left after the performance of property obligations shall belong to the State.
How is the procedure to receive inheritance related to enterprise-ownership rights?
The procedure to receive inheritance related to enterprise-ownership rights includes declaring the inheritance and then carrying out the procedure related to enterprise registration.
In procedures related to enterprise registration, a foreigner in this case may perform the procedure prescribed for a foreign investor investing in the form of capital contribution or purchase of shares or stakes before carrying out the procedure for changing a member or shareholder.
How is inheritance tax related to enterprise-ownership rights in Vietnam? Is there tax exemption?
Income from inheritance is divided into the following categories:
For inherited securities, including shares, call options on shares, bonds, treasury bills, fund certificates, and other securities according to the Law on Securities; shares of the person in the joint-stock company according to the Law on Enterprises 2020.
For inherited capital in economic organizations and businesses, including capital contribution to limited liability companies, cooperatives, partnerships, business cooperation contracts; capital in private enterprises and businesses of the person; capital in associations and funds established within the law, or the entire business if the private enterprise or business is under the ownership of the person.
According to current law, income from inheritance is one of the incomes to pay personal income tax. The personal income tax rate for inheritance is applied according to the Tax Table with a tax rate of 10%. The time of determining taxable income from inheritance is the time when an individual carries out procedures for registration of the ownership rights and right to use the inherited property.
Vietnamese law also stipulates that the case of receiving inheritance as enterprise ownership is not eligible for income tax exemption from inheritance. However, a reduced tax may be applied in special cases such as taxpayers facing difficulties due to natural disasters, fires, accidents, or fatal diseases affecting their ability to pay taxes.
Date: 14 August 2023
Writers: Linh Nguyen & Tinh Nguyen