Personal Income Tax in Vietnam: Tax Exemption, Reduction & Payment
HANOI – As major businesses continue to prioritize investment into Vietnam as a strategy to diversify sourcing options and supplier portfolios outside of China, it is increasingly important to understand not only how businesses are taxed in Vietnam, but also individuals. Continuing our coverage of personal income tax (PIT), this article will examine exemptions, reductions and payments to PIT in Vietnam.
Tax exempt incomes
Incomes exempted from PIT include:
- Incomes from the transfer of real estate between husbands and wives, natural/adoptive parents and their children/adopted children;
- Incomes from the transfer of residential houses by individuals who possess only one residential house or land plot;
- Inheritance or gifts between husbands and wives, natural/adoptive parents and their children/adopted children;
- Interest earned on deposits from the bank or from life insurance contracts;
- Overseas remittances, retirement salaries, or scholarships;
- Incomes from compensation for insurance contracts or from charity funds; and
- Income from cultivation and husbandry, aquatic and marine products which have not yet been processed into other products or have been preliminarily processed and then sold by producing or fishing organizations or individuals themselves.
Foreign individuals can be exempted from taxation for certain benefits such as:
- One-off relocation allowances for foreigners to relocate to Vietnam (based on the amount stipulated in the labor contract or agreement between the employer and the employee).
- One round-trip air fare a year for foreign employees’ annual leave, paid for by employers (the air ticket should indicate the country where these employees are nationals or where the foreigner’s family lives).
- General education school fee or tuition paid by the employer for the expatriates’ children studying in Vietnam (based on the invoice from the school and the labor contract).
- Contributions to a voluntary pension fund, up to the amount of VND1,000,000 per month.
Other benefits can be treated as non-taxable incomes if certain conditions are met, including:
- Employee housing costs up to 15 percent of the total taxable income (excluding housing benefit from employers);
- Membership fees for golf, tennis, cultural, art/sport or physical training clubs; or charges for other services such as healthcare, entertainment, sports, recreation and beauty care if they are for common use;
- Training fee for employees relevant to employees’ professions and/or in accordance with the employers’ plan;
- Mid-shift meal allowances if the employers directly cater such meals for their employees;
- Presumptive expenditures for telephone, stationery, per diem, working outfit, etc. if the amounts are within the levels set out under relevant regulations.
A resident taxpayer is allowed to make a personal deduction of VND9,000,000 every month or VND108,000,000 every year from his taxable income. The yearly amount can be fully deducted, regardless of whether the taxpayer had income every month.
The tax reduction for each dependant is pegged at VND3,600,000 per month or VND43,200,000 annually. Qualified dependants are children aged below 18 years old or children over 18 years old but earning a low income which does not exceed VND1,000,000 per month. In addition, the spouses or the parents of the taxpayers who are unable to work or have low incomes are also qualified dependants. The reduction for each dependant can be claimed only by one person. The dependent allowance is not automatically granted and the taxpayer needs to register qualifying dependents and provide supporting documents to the tax authority.
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.
PIT payment is done in the same way as corporate income tax and paid by the taxpayer to the State Treasury in one of two ways: by 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 State Treasury accredited operations. 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 taxable income is received in 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.
Portions of this article was was taken from Vietnam Briefing’s Doing Business in Vietnam technical guide. This guide aims to assist foreign investors in understanding the business environment of Vietnam, including reasons to invest and the challenges for which to prepare for. This publication is available as a PDF download in the Asia Briefing Bookstore.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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