Airfares for Overseas Employees Working in Vietnam Not Subject to Personal Income Tax

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HANOI – On May 15, Vietnam’s Ministry of Finance released Official Letter 6375/BTC-TCT which clarified that airfares and related expenses provided to overseas employees for travel between their foreign location and Vietnam are not subject to Personal Income tax (PIT). This ruling will also be applied retroactively to the period prior to the August 15, 2013 issuance of Circular 1 11/2013/TT-BTC.

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Previously, confusion existed around these regulations due to a series of Official Letters issued by the General Department of Taxation which seemed to imply that airfares provided in relation to overseas employees who travel to and from Vietnam on a rotation basis would be subject to PIT. While the letters were intended to apply to the period before the implementation of Circular 1 11/2013/TT-BTC, they also seemed to contradict the Circular for the period going forward.

However, many professional accounting firms, along with their clients, argued that the views expressed in the Official Letters were incorrect and that airfares should not be taxable for either the period before the Circular or the period after.

The crux of the argument against the Official Letters was that airfares are a normal business expense and are not a benefit provided to the employees.

On May 15, the Vietnamese government announced that it agreed with this argument against the PIT and stated that the appropriate changes would be made forthwith.

In recent years, the Vietnamese government has been making increasing efforts to improve the business environment for foreign businesses and investors within the country. This positive move to improve PIT regulations is a further step along the road to improving the ease of doing business in Vietnam.

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