08 noted issues related to personal income tax under Vietnamese law

Personal income tax (“PIT”) is a direct tax imposed on a taxpayer’s balance of income after deductions are made. Accordingly, individuals who have income shall declare and pay PIT to tax authorities as prescribed.

BLawyers Vietnam would like to present an overview below of detailed regulations on PIT in Vietnam, especially PIT of foreigners living and working in Vietnam.

1. Taxpayers of PIT

Taxpayers of PIT include residents who have taxable income inside and outside of Vietnam and non-residents who have taxable income inside of Vietnam. Accordingly, residents fall into one of the following:

1. Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months from the first date of their presence in Vietnam; or
2. Having a place of habitual residence in Vietnam, which is a permanent residence or a rented house for living in Vietnam under a rental contract term of at least 183 days within a tax year.

Vice versa, a non-resident individual is a person who does not meet the above conditions. In fact, the determination of resident and non-resident individuals according to regulations still has many unclear issues, especially for foreigners living and working in Vietnam.

2. Taxable income and PIT bases

Taxable income of PIT is the received income of taxpayers include incomes from: business, salaries or wages, capital investment, capital transfer, real estate transfer, prizes, copyright, commercial franchising, inheritance, and gifts.

Accordingly, corresponding to each type of taxable income, the PIT calculation for each income type will be different, including:

1. PIT calculation for income from salaries and wages;
2. PIT calculation for income from businesses of individuals;
3. PIT calculation for income from capital or securities transfers;
4. PIT calculation for income from prizes, inheritances or gifts;
5. PIT calculation for income from real estate transfers;
6. PIT calculation for income from commercial franchising and copyright;
7. PIT calculation for income from capital investments.

In general, the PIT base for each income type includes:

• Accessible income equals taxable income minus deductions (if any);
• PIT rate is the percentage of each income type.

Therefore, the PIT is calculated on the taxable income minus deductions (if any), then multiplied by the PIT rate for each income type.

3. PIT calculation, declaration and payment

PIT calculation, declaration and payment are obligation of taxpayers. As regulations, taxpayers must calculate by themselves, declare the contents of the tax returns and submit documents of the tax declaration dossier to tax authorities accurately and fully. Based on that, taxpayers must follow the PIT declaration, payment, and finalization procedures required by tax authorities.

However, in some cases, other subjects are obligated to make a PIT declaration and payment on behalf of taxpayers. For example, organizations that have a PIT withholding obligation when paying income for employees; or organizations that must declare and pay PIT on behalf of individuals who received dividends by securities; or other cases prescribed by law.

4. PIT calculation period and time limit of PIT declaration and payment

Corresponding to each taxable income type, there is a different PIT calculation period, which includes the annual tax period and tax period upon each time of income generation. Taxpayers must declare and pay PIT according to each tax period. There is a time limit for PIT declaration, payment, and finalization that taxpayers must comply with.

Complying with the PIT calculation period and time limit of the PIT declaration and payment is important, because if taxpayers fail to declare under the tax period or make a late PIT declaration and payment, they will be sanctioned as prescribed.

5. PIT exemption

Taxpayers are entitled to exempt PIT on the following income:

1. Income from real estate transfers, inheritances or gifts between spouses; parents and their children; adoptive parents and their adopted children; fathers-in-law or mothers-in-law and daughters-in-law or sons-in-law; grandparents and their grandchildren; or among blood siblings.
2. Income from transfer of residential houses, rights to use residential land and assets attached to residential land received by individuals who have only one residential house or land plot.
3. Income from the value of land-use rights of individuals who are allocated land by the State.
4. Income of households and individuals directly engaged in agricultural or forest production, salt making, aquaculture, fishing and trading of aquatic resources not yet processed into other products or preliminarily processed aquatic products.
5. Income from conversion of agricultural land allocated by the State to households and individuals for production.
6. Income from interest on deposits at credit institutions or interest from life insurance policies.
7. Income from foreign exchange remittances.
8. 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.
9. Retirement pensions paid by the Social Insurance Agency.
10. Income from scholarships granted by the state budget and domestic and foreign organizations under their study promotion programs.
11. Income from compensation under life insurance policies, non-life insurance policies, compensation for labor accidents, compensation paid by the State and other compensation as provided for by law.
12. Income received from charity funds operating for charity, humanitarian or non-profit purposes.
13. Income received from governmental or non-governmental foreign aid for charity or humanitarian purposes.
14. Income from wages of Vietnamese seafarers working for foreign shipping lines or Vietnamese international shipping lines.
15. Income of individuals who are shipowners and individuals entitled to use ships and individuals working on ships for the provision of goods and services directly for offshore fishing activities.

6. PIT reduction

Taxpayers who face difficulties caused by natural disasters, fires, accidents or severe disease that affects their tax payment ability may be considered for tax reduction corresponding to the extent of damage they suffer, but not exceeding the payable tax amount.

7. PIT refund

Taxpayers are entitled to a tax refund in the following 03 cases:

1. Their paid tax amount is larger than the taxable amount;
2. They have paid tax but their assessable income does not reach a PIT liability;
3. Other cases decided by competent state agencies.

8. PIT obligation for expatriates in Vietnam

Foreigners who enter Vietnam and have activities producing an income in Vietnam, meaning expats, are taxpayers of PIT by law. However, tax regulations for such subjects are different from those for Vietnamese. For example, it will depend on the determination of an expat who is a resident or non-resident, taxable income of an expat in Vietnam and worldwide income, or the application of the Double Tax Agreement for calculating PIT for expats working in Vietnam.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. BLawyers Vietnam would love to hear from you.

Date: 14 November 2023

Writer: BLawyers Vietnam