Personal Income Tax in Vietnam: Exemptions and Reductions

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For foreigners working in Vietnam, determining the applicability of personal income tax (PIT) involves decoding a number of rules. Following this, foreign workers need to calculate their precise liability and any applicable deductions.

Consulting with an in-country tax specialist can help individuals’ optimize their tax exposure, while employers’ may be able to identify more competitive salary packages with an advisor. Below we introduce the basics of PIT, before explaining tax-exempt incomes (employment benefits that are not subject to PIT) and tax reductions for dependents.

Residency status and PIT exposure

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.

A tax resident is defined as someone residing in Vietnam for 183 days or more in either the calendar year or a period of 12 consecutive months from the date of arrival.

Tax residents are subject to PIT on their worldwide employment income, regardless 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.

Tax-exempt incomes

Vietnam’s tax authorities have singled out a number of incomes that are exempt from PIT. These include:

  • Income 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 pension, scholarship;
  • Income 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 the law; and
  • Income 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 US$388 (VND9,000,000) every month or US$4,700 (VND108,000,000) every year. The yearly amount can be fully deducted, regardless of whether the taxpayer had an income every month.

Tax exemptions

In Vietnam, foreign individuals can be exempted from taxation for certain employment benefits. These exemptions include:

  • One-off relocation allowance for foreigners to relocate to Vietnam;
  • Round-trip airfares paid once a year by employers for foreign employees who are on annual leave; and
  • General education school fees or tuition paid by the employer for the expatriates’ children studying in Vietnam.

Additionally, other benefits can be treated as non-taxable income if certain conditions are met. These include:

  • 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;
  • Training fee for employees relevant to employees’ profession and/or in accordance with the employers’ plan;
  • Mid-shift meal allowances if the employers directly cater such meals for their employees; and
  • 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.

Tax reductions for dependents

The tax reduction for each dependent is pegged at US$155 (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 US$21 (VND 500,000) per month. In addition, spouses or parents of 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.

Tax payment

Foreign invested enterprises (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 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 the 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 on the date when the income arose.

Note: This article was first published in April 2015, and has been updated to include the latest developments.


About Us

Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Hanoi and Ho Chi Minh City. Readers may write to vietnam@dezshira.com for more support on doing business in Vietnam.

4 thoughts on “Personal Income Tax in Vietnam: Exemptions and Reductions

    Fernand joseph Stensen says:

    I stay 15 years in VN
    Pay tax.
    Can I have a residend card

    Kind regards.
    F. Stensen

    Dear Mr Stensen,

    Many thanks for your comment.

    We do indeed provide assistance in obtaining a residence card.

    Please see your inbox for further details.

    Best regards,

    Charles

    Nicholas Loh says:

    Hi,
    If I were to be working in VN for 3-5 years and I return to my home country after that, will I be able to get my tax and pension contributions refunded?
    Thank you and looking forward to your advice.
    Regards,
    Nicholas

    Pritesh Samuel says:

    Hi Nick,

    Thank you for your enquiry. Ideally should be able to get your contributions refunded, however, this would depend on several factors including work permits, contracts, and double taxation agreements. I would recommend you seek advice from our professional experts at vietnam@dezshira.com or http://www.dezshira.com

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