Donation of a sole proprietorship is the act of transferring ownership of a sole proprietorship from the donor to the donee without requiring any payment. Such a transaction is entirely lawful and must comply with the procedure for registering a change of owner with the Business Registration Office in accordance with Decree No. 01/2021/ND-CP. Notably, income derived from receiving a donated sole proprietorship is subject to personal income tax at a rate of 10%. The procedures include preparing a valid dossier, submitting it to the Business Registration Office, and obtaining a Certificate of Change of Owner upon completion.

I. Current issues related to donation of the sole proprietorship

Donating the sole proprietorship is a significant legal matter in the process of transferring and handing over ownership and management of an enterprise. In the context of economic development and the need to expand or restructure ownership, the donation of the sole proprietorship not only affects the interests of the parties involved but also must comply with specific legal regulations.

However, many enterprises and individuals remain unclear about the relevant rules, ranging from legal procedures and tax obligations to the change of ownership.

II. Regulations related to donation of the sole proprietorship

1. What constitutes donation of a sole proprietorship?

Donation of a sole proprietorship is an act of transferring ownership of a sole proprietorship from the current owner (the donor) to another individual or organization (the donee) without requiring the recipient to pay any amount of money. Such a donation may involve part or the entirety of the enterprise, including assets and rights associated with the business operations of the sole proprietorship. Such a legal issue may arise from agreements between the parties or in cases of inheritance.

2. Is it permissible to donate the sole proprietorship?

Donation of the sole proprietorship is entirely lawful and is stipulated in Article 54 of Decree No. 01/2021/ND-CP on the registration of changes to the owner of a sole proprietorship in cases of sale, donation of the enterprise, or the death of the owner. The sole proprietorship is an economic organization without legal personality, and the transfer of ownership must be implemented in accordance with prescribed legal procedures. The conditions for donating the sole proprietorship must comply with civil law regulations, including contracts for the donation of property, particularly the donation of capital invested in the enterprise.

3. Conditions for donating the sole proprietorship

The donation of the sole proprietorship must ensure that the donation does not violate any statutory prohibitions or contravene social ethics. Specifically:

  • Donation contract: Pursuant to Articles 458 and 459 of the Civil Code 2015, a donation contract of property may involve movable or immovable assets. In the case of donating the sole proprietorship, the principal asset is the capital invested in the enterprise, and the relevant procedures for registering ownership with competent state authorities must be duly observed.
  • Validity conditions: The donation of the sole proprietorship must comply with the procedure for registering a change of owner at the Business Registration Office and must be accompanied by valid legal documents, such as a notice of change, documents evidencing ownership of the donor and the donee, and other relevant papers.

III. Questions related to donating the sole proprietorship

1. What is the tax rate applicable to donating the sole proprietorship?

Pursuant to Circular No. 111/2013/TT-BTC, income derived from receiving donation (including capital invested in a sole proprietorship) is subject to personal income tax. The applicable tax rate is 10% on taxable income derived from such a donation.

Taxable income is determined as the value of inherited assets or donation exceeding 10 million VND per receipt (in accordance with Article 16 of Circular No. 111/2013/TT-BTC).

  • Tax calculation: Personal income tax payable = Taxable income × 10% tax rate.

In the case of donating the sole proprietorship, if the donated capital contribution has a value exceeding 10 million VND, tax will be calculated based on the value of the assets received, namely the value of the capital invested in the sole proprietorship, as determined by the enterprise’s accounting book value at the most recent time prior to the donation.

2. Is a procedure for changing an owner required when donating the sole proprietorship?

When the sole proprietorship is donated, the change of ownership is a mandatory procedure. Article 54 of Decree No. 01/2021/ND-CP provides that the recipient of a donated or inherited sole proprietorship must submit an application dossier for registration of a change of enterprise owner to the Business Registration Office where the enterprise’s headquarters is located. The dossier includes a notice of change of enterprise owner, the donation contract, copies of personal identification documents of the recipient, and other relevant documents.

3. Procedure for changing the enterprise owner when donating the sole proprietorship

The procedure for changing the owner of the sole proprietorship upon donation includes the following steps:

- Preparation of the dossier, comprising: 

  • A notice of change of enterprise registration contents bearing the signatures of both the donor and the donee.
  • Copies of personal identification documents of the donee.
  • The contract for donating the sole proprietorship.
  • A certificate of inheritance in cases of inheritance.
  • A power of attorney if the legal representative does not directly implement the procedure.

- Submission of the dossier to the Business Registration Office: Upon completion, the dossier shall be submitted to the Business Registration Office where the enterprise’s headquarters is located to register the change of enterprise owner.

- Receipt of results: The Business Registration Office will review the dossier and issue a Certificate of Change of Owner of the sole proprietorship once all procedures have been duly completed.

IV. Legal advisory services related to donating the sole proprietorship

The above constitutes all detailed information provided by PLaw to assist clients regarding the donation of the sole proprietorship. Should you have any further questions concerning the above matter or other legal issues, please contact NPLaw immediately for direct consultation and guidance from our team.