Personal income tax is one concern for foreign people working in Vietnam. Not only for foreign workers but also Vietnamese employees who have high salaries have to follow the government’s personal income tax policy. The article will guide you about personal income tax (PIT) in Vietnam.
Residency status and PIT exposure
According to Vietnam’s personal income tax, there are ten types of income with a rule of deductions, tax rates, and exceptions applying for each category. How can a foreigner be considered a tax resident in Vietnam? Foreign workers are obliged to Vietnamese PIT if he/she meets the following conditions.
A resident who is eligible to pay tax is the one residing in Vietnam for 183 days in either the calendar year or a period of 12 consecutive months since the date of arrival. Besides, foreigners have to follow the PIT in Vietnam in case he/she has a permanent residential place in Vietnam (the permanent residents have to be registered under the approval of the Ministry of Public Security).
Tax residents comply with PIT on their worldwide employment income, regardless of where the income is paid or earned, at the rate ranging from 5% to 35% while non-resident taxpayers follow PIT at a rate of 20% on their Vietnam-sourced income.
Generally, Vietnam’s salary includes gross salary and compulsory social security. PIT is imposed on the balance after the deduction of mandatory social security charges.
Employment income and non-employment income
Tax declaration and payment is calculated based on a withholding basis. As mentioned earlier, the formula of computing PIT is the concept of tax removal at source and legalese this by stating that certain employers are assigned entities for tax collection purposes. These entities are required to be deducted before paying income to employees.
In spite of two options for foreigners whether to declare or settle their tax directly with the tax authority, the local tax authorities can require supposed employers in Vietnam to implement the process of tax collection for employees and ensure timely submission of the employee’s tax declarations.
The employer concludes the PIT on behalf of the employee at the year-end in case these employees have income merely from the employers (or any irregular income from other sources not exceeding 10,000,000VND per month and 10% of PIT will be eliminated) and their employees confirm that the employers have submitted the PIT on their behalf.
Each employee is required to have an individual tax number and to declare their dependent(s) qualifying for tax relief. More importantly, an employee has to finish their tax finalization return where their tax liability at year-end is greater than the sum of tax paid during a year.
Non-employment income includes investment capital, capital assignment, transfer of securities, royalties, winnings/ prizes, and franchise. Tax for these incomes is carried out on a withholding basis. For other income, individuals have to handle their tax declaration (not later than 20th of the following month).
Vietnamese authorities should be careful in removing categories that do not belong to tax declaration. If your income comes from some sources below, your income will not be deducted:
– 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 payment, 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.
– Income paid by governmental or non-governmental foreign aid for charity or humanitarian purposes approved by competent state agencies.
Current tax rates for residents and non-residents in Vietnam
The following table illustrates the tax rate for Vietnamese and foreign workers.
According to a newly updated regulation of tax for business income, since 2015, an individual’s business income exceeding 100 million VND has been subjected to PIT at the deemed rates.
Tax reduction for dependents
The tax reduction is allowed at $155 (VND 3,600,000) per month. Qualified dependents are children under 18 years old or children over 18 years old but earning low monthly income which does not exceed $21 (VND 500,000). Additionally, spouses or parents of taxpayers who disable to work or get a low income are also eligible dependents.
Only one person can claim the reduction of each dependent. Because the tax reduction is not automatically calculated, taxpayers have to register qualified dependents and provide required documents to tax authorities.
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In conclusion, the article provides you brief and essential information about personal income tax in Vietnam. It is vital for foreign workers to acknowledge conditions and cases that they have to comply with Vietnamese regulation. If you would like to have a law consultant, please contact Viettonkin.
This article is adapted from an article from KPMG’s website.
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