Paying Personal Income Tax in Vietnam: Tax Exemptions and Tax Reductions
HCMC – For foreigners working in Vietnam, determining the applicability of personal income tax (PIT) to one’s situation involves decoding a set of intersecting criteria and rules. Following this, you will need to calculate your precise liability and any applicable deductions. Lastly, consulting with a Vietnam taxation specialist can help optimize one’s overall income to achieve the most profitable package for you and your employees. Below we consider tax-exempt incomes, employment benefits that are not subject to PIT, and tax reductions for dependents.
Vietnam’s Law on Personal Income Tax recognizes ten different categories of income, with a host of different deductions, tax rates and exceptions applying to each of them. Resident taxpayers are subject to PIT on their worldwide employment income, irrespective of where the income is paid or earned, at progressive rates from five percent to a maximum of 35 percent. Non-resident taxpayers are subject to PIT at a flat rate of 20 percent on their Vietnam-sourced income.
In general, a typical monthly salary package in Vietnam will include gross salary and mandatory social security. PIT is levied on the balance after deducting mandatory social insurance contributions. Companies conduct PIT finalization on behalf of their employees at the beginning of the year for taxable income arising from the previous year.
Vietnam’s tax authorities have singled out a number of incomes that are exempt from PIT, these include:
- Incomes from transfer of residential houses by individuals who possess only one residential house or land plot.
- Interest earned on deposit from the bank or from life insurance contracts.
- Overseas remittance; retirement salary; scholarship.
- Incomes from compensation for insurance contracts or from charity funds.
- Wages paid for night shift or overtime work, which are higher than those paid for day shifts or prescribed working hours in accordance with law.
- Incomes received from governmental or non-governmental foreign aid for charity or humanitarian purposes approved by competent state agencies.
A resident taxpayer is allowed to deduct from his taxable income VND9,000,000 every month or VND108,000,000 every year. The yearly amount can be fully deducted, regardless of whether the taxpayer had income every month.
In Vietnam, foreign individuals can be exempted from taxation for certain employment benefits, such as:
- One-off relocation allowance for foreigners to relocate to Vietnam.
- Round-trip airfares paid once a year by employers for their foreign employees who are on annual leave.
- General education school fee or tuition paid by the employer for the expatriates’ children studying in Vietnam.
Additionally, other benefits can be treated as non-taxable incomes if certain conditions are met. These include the following:
- Employee housing costs exceeding 15 percent of the total taxable income (excluding housing benefit from employers).
- Expenses for means of transportation for a group of employees to and from work are not taxable.
- Training fee for employees relevant to employees’ professions and/or in accordance with the employers’ plan is not taxable.
- Mid-shift meal allowances are not accounted as taxable if the employers directly cater such meals for their employees.
- Presumptive expenditures for telephone, stationery, per diem, working outfit, etc. are not subject to tax if the amounts are within the levels set out under relevant regulations.
The tax reduction for each dependent is pegged at VND 3,600,000 per month. Qualified dependents are children aged below 18 years old, or children over 18 years old but earning a low income, which does not exceed VND 500,000 per month. In addition, the spouses or the parents of the taxpayers who are unable to work or have low income are also qualified dependents.
Only one person can claim the reduction for each dependent. The dependent allowance is not automatically granted and the taxpayer needs to register the qualifying dependent and provide the supporting documents to the tax authority.
FIEs have to conduct PIT finalization on behalf of their employees at the beginning of the year for taxable incomes arising from the previous year. If an employee has more than one source of income and wishes to conduct tax finalization on their own, FIEs can issue a certificate of deduction at the request of the employee. If an expatriate’s labor contract in Vietnam expires before the end of a calendar year, they should conduct tax finalization before their departure.
The taxpayer pays PIT to the State Treasury in one of two ways: cash or bank transfer. The taxpayer can pay cash directly to the State Treasury to receive the voucher from the state officials. Otherwise, they can transfer money to a tax office bank account at the State Treasury. The deadline for tax payment is the same as tax finalization, meaning no later than 90 days from the end of calendar year.
Conversion of taxable income
If the taxable income is received in a foreign currency, it must be converted into Vietnamese dong at the average trading exchange rate on the inter-bank foreign currency market published by the State Bank of Vietnam as of the date when the income arose.
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