Q&A: How to File Your Personal Income Tax in Vietnam
The deadline to finalize your annual personal income tax (PIT) for 2021 is coming up.
Taxpayers who are required to finalize their annual PIT directly with the tax authorities should submit PIT returns before the end of April of the following year. With more efficient filing methods and heavy penalties for non-compliance, it’s vital for both employers and individuals to understand the requirements of PIT filing clearly and prepare in advance.
In a recent webinar, Thang Vu, Manager, Tax at Dezan Shira & Associates helped viewers understand the obligations of the employer as well as the employee for the preparation and submission of PIT. To clarify the situations where regulations differ from reality, Thang gave real-life examples and cases to help understand individual income tax obligations and equip taxpayers with the knowledge to act in a timely and compliant manner. While the full webinar can be viewed here, we have highlighted parts of the webinar below.
What is the purpose of annual PIT finalization?
It is a common statutory obligation by individuals to accurately assess the taxpayers’ liabilities or entitlements. It is also done to schedule tax payments, tax refunds, or any other purposes as necessary.
All tax residents are required to summarize their assessable income earned between January 1 and December 31 and calculate the tax payable on such income. Once assessed, PIT must be reported and filed with the tax authorities which completes the annual finalization.
Who is subject to annual PIT finalization?
For tax purposes, this means a resident who has stayed in Vietnam for 183 days or more in a calendar year. The length of stay in Vietnam does not have to be continuous. Individuals who have residency in Vietnam are also subject to annual PIT finalization
Non-residents are not required to finalize their PIT in Vietnam.
What is subject to annual PIT finalization?
Only income of salary and wages is subject to PIT, such as your salary, wages, income on sales, allowances provided by the employer such as meals and travel allowances, and bonus in cash. Other incomes such as rental income from investment properties, dividends, royalties, capital gains, and other types such as lottery, and inheritance are not subject to PIT, however, they are taxed separately using different tax forms.
What are the typical allowances and benefits subject to PIT?
There are several. Housing allowances such as rent and gas are subject to PIT. However, the actual assessable amount is capped at 15 percent of the employee’s assessable income. For example, if an employee’s annual income is US$100,000 a year, their assessable housing allowance will be capped at US$15,000 per year.
Other allowances subject to PIT include if the portion of lunch allowance is more than VND 730,000 (US$31.76). Member payments such as golf membership, healthcare, and spa are also exempt for certain employees. Certain employees are also subject to PIT on consulting and tax services.
Flight tickets for the foreign employee to their home countries once a year is tax-free, but if the company is generous and also pays for flights for the employee’s family members, then these are subject to PIT.
How do you calculate taxable income for PIT?
The taxable income for PIT determination is to determine the assessable income which includes salary and wages, allowances, other benefits-in-kind, and performance bonuses. However, employees are eligible for personal deductions equivalent to VND 11 million (US$478) as well VND 4 million (US174) per dependent. Other deductions include social insurance, health insurance and retirement funds, and any donations to approved charities and humanitarian organizations.
Who can be registered as dependents?
Dependents that can be registered include the taxpayer’s children, which include biological children, adopted children, illegitimate children, and stepchildren. The children should be less than 18 years old, or if they are 18 and over but suffer from some disability or are currently enrolled in a university with a monthly income within a year that is less than VND 1 million (US$44).
Other eligible dependents include spouses, parents, stepparents, nieces, and nephews, however these are subject to certain conditions.
Who is required to finalize PIT?
PIT finalization is not required if the payable PIT amount is less than VND 50,000 (US$2.5) or the payable PIT amount is less than the provisional tax paid or tax withheld but the taxpayers choose not to receive the refund.
In addition, PIT finalization is not required for individuals who have salary and wages from multiple sources that is less than VND 10 million (US$435) and subject to 10 percent PIT withholdings.
Our advice is to request your employer to provide you with your monthly payslips with include your PIT withholdings to estimate your estimated tax payable using progressive tax rates. This will help you assess your taxable income. It is always safer to finalize your PIT rather than face steep fines by the tax authorities.
Can you describe the general procedures to finalize your annual PIT?
Taxpayers should review their total income earned during the year and do a self-assessment. They can then estimate their total PIT payable and compare with the payable PIT amount to the withheld PIT and provisional PIT paid during the year.
The final step is to file the PIT finalization return and pay tax payment if there is a shortfall. Taxpayers should also be prepared for any clarification if the tax authority request it.
What are the deadlines for filing?
The deadline for organization and employee salaried individuals is March 31 of every year. For individuals submitting directly to the tax authorities it is typically April 30, so the last day of the fourth month of the calendar year. However, the deadline excludes public holidays and weekends, and as such, this year’s deadline would be May 4.
Where can you finalize your PIT?
Taxpayers can ask their employers to finalize PIT and submit it to the tax authorities on their behalf. However, if individuals want to file separately, they can submit it to the local managing tax office where the employer is located. For individuals that earn income from two or more employers, they can choose one tax office where the employers are located, preferably the one where the most income is earned or the tax office where the individual resides.
Taxpayers can engage a specialized tax consultant or a professional firm to handle and finalize PIT on their behalf.
Why are tax refunds sometimes difficult for foreign employees?
Typically, foreign employees are paid higher than local colleagues, therefore higher pay equals high risk. To ensure taxes are duly collected, tax authorities scrutinize all documents and verify if PIT assessed is true, particularly for foreign employees. In addition, foreign employees sometimes have more benefits than locals or have a salary split between countries, or may have inappropriate salary arrangements. Tax authorities, therefore, look carefully to assess if there are any discrepancies, which may delay refunds.
What are the tax compliance requirements when leaving Vietnam for a foreign employee?
Foreign employees whose employment contract is about to expire are required to finalize their PIT before departure. They can also entrust their employer to do so on their behalf. The deadline to comply is within 45 days upon departure. Taxpayers should fully comply with tax requirements when leaving Vietnam as they could return to Vietnam in the future or may need confirmation of tax remittance for tax filling purposes in other countries.
Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Hanoi, Ho Chi Minh City, and Da Nang. Readers may write to email@example.com for more support on doing business in Vietnam.
We also maintain offices or have alliance partners assisting foreign investors in Indonesia, India, Singapore, The Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.
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