Tax is an important factor that determines the success of every M&A deal. Many deals in Vietnam have resulted in billions of dong in tax arrears, causing financial losses and delaying integration plans. Understanding tax risks after M&A helps businesses and investors optimize deal value, while minimizing legal risks.

1. Why is tax a legal risk?

In M&A transactions, the buyer often has to inherit the target company's unpaid tax obligations. For example, a business selling 40% of its capital with a tax debt of VND 5 billion will cause the buyer to pay this amount if the tax authority collects it.

In addition, the tax authority has the right to adjust the transaction price if the declaration is lower than the market price, especially in transactions between related parties.�t or foreign investors. According to Vietnam M&A Report 2024, about 30% of deals have their value adjusted after tax appraisal.

Transaction structure also affects risk: Share Deals often carry high historical tax risks, while Asset Deals are only subject to taxes arising from transferred assets, but VAT and registration fees may be higher. In addition, changes in tax policies related to corporate income tax, VAT, income from investment projects or intellectual property rights can also impact the deal.

2. Common types of tax risks

In M&A, common risks include:

• Unpaid corporate income tax: The target business has not declared all its profits. For example, a Share Deal had 15 billion VND in arrears due to under-declaration of profits.
• VAT: Transaction of private assetsVAT but declared incorrectly. A real estate Asset Deal with 10% VAT, if declared incorrectly, will be collected and fined.
• Personal income tax: Shareholders have not paid personal income tax when transferring shares. For example, if an individual sells shares without paying 20% ​​tax, the buyer may be affected if due diligence is not performed.
• Foreign investors: Indirect transactions through the parent company may still be taxed in Vietnam. A foreign fund investing through a foreign parent company once faced the risk of having to collect 20% of capital gains, but it was reduced thanks to the Double Taxation Agreement (DTA).

3. Tax risk prevention strategy

To limit tax risks, businesses and investors should:

• Thorough tax due diligence (Tax Due Diligence): Check tax debt, VAT declaration, related transactions, contracts and expensesEligible fees.
• Choose the appropriate transaction structure: Share Deal or Asset Deal, considering the risk of tax debt, VAT and registration fees.
• Prepare transparent valuation documents: Avoid price adjustment by tax authorities.
• Flexible payment mechanism: Staged payment or earn-out helps reduce tax costs immediately.
• Take advantage of Double Taxation Agreement (DTA): Special important for foreign investors to avoid double taxation.

4. For example

• A Share Deal deal worth VND 50 billion has VAT and CIT of VND 3 billion due to under-declaration of valid expenses.
• Foreign funds investing 30% of shares through a foreign parent company face the risk of capital gains tax of 20% being collected, but this is reduced thanks to the Vietnam - Singapore DTA.
• An Asset Deal b�Real estate worth 100 billion VND, if not optimal, 10% VAT and 1% registration fee will incur an additional 11 billion VND in tax costs.

Legal tax risks in M&A directly affect the deal value, cash flow and investor reputation. Understanding risks, planning prevention and optimizing transaction structures are the keys to successful and sustainable M&A.

In this context, NewWind is a professional M&A consulting partner, providing comprehensive services: legal and tax appraisal, asset valuation, transaction structure optimization, contract negotiation support and post-M&A solutions such as management, digital transformation, and human resource development. With experience in implementing many successful deals and a wide connection network, NewWind helps businesses and investorsIdentify risks early, prevent them effectively and maximize deal value.

Thanks to NewWind's companionship, M&A is not only a purchase and sale transaction but also a strategic, safe and sustainable growth opportunity.