October 18, 2022
The personal income tax (PIT)'s for international workers in Vietnam requires deciphering a number of laws. The precise obligation and any necessary deductions must then be calculated for international employees.
Individuals can reduce their tax exposure by consulting with a local tax expert, and companies may be able to find more attractive wage structures with the aid of an advisor. Following an overview of the fundamentals of PIT, we'll go through tax-exempt earnings (benefits from employment that are not subject to PIT) and dependent tax breaks.
Tax residents must pay Vietnamese (PIT) on all of their worldwide taxable income, regardless of where it is earned or paid. Employer-provided income is taxed at a progressive rate. There are several different rates at which non-employment income is taxed.
On income earned as a consequence of working in Vietnam or income connected to Vietnam during the tax year, non-residents are liable to PIT at a flat rate, as well as at various different rates on their non-employment income. However, this will need to be taken into account in light of any potential double taxation agreements' (DTAs') restrictions.
The Personal Income Tax Law of Vietnam recognizes 10 different types of income, each of which is subject to a variety of different exemptions, tax rates, and deductions.
A person who lives in Vietnam for 183 days or more in either the calendar year or a period of 12 straight months from the date of arrival is considered to be a tax resident. No matter where the money is generated or paid, tax residents are liable to PIT at progressive rates ranging from 5% to a maximum of 35% on their worldwide work income. Non-resident taxpayers who receive income from Vietnam are liable to PIT at a flat rate of 20%.
A typical monthly compensation package in Vietnam will typically consist of a gross wage plus the legally required social security. After subtracting the required social insurance contributions, PIT is assessed on the remaining amount. At the start of the year, businesses do PIT finalization on behalf of their employees for taxable income from the prior year.
In Vietnam, some job perks may not be subject to taxation for foreign nationals. These exceptions consist of:
- Foreigners who migrate to Vietnam will get a one-time relocation stipend;
- Round-trip flights funded by companies once a year for foreign workers on vacation;
- Employers pay general education tuition or school fees for children of expats enrolled in Vietnamese schools.
Other benefits may also be considered non-taxable income if specific criteria are satisfied. These consist of:
- Housing expenditures for employees that are greater than 15% of all taxable income (housing benefits from employers excluded);
- The cost of a group of employees' transportation to and from work;
- Training costs for staff members who are interested in their professions or who are following a strategy set forth by their employers;
- If the employers personally arrange such meals for their employees, mid-shift meal allowances;
- If the sums are within the ranges specified by the applicable rules, presumed expenses for telephone, stationery, per diem, working attire, etc. are not taxed.
A number of earnings have been marked out by Vietnam's tax authorities as PIT-exempt. These comprise:
- Income from the sale of a residential property by a person who owns only one residential property or land block;
- Interest accrued on bank deposits or contracts for life insurance;
- Overseas remittance, a pension for retirement, and a scholarship;
- Income received as reimbursement for insurance contracts or from donations to charities;
- Wages paid for night shifts or overtime that are more than those paid for day shifts or during the legal working hours; and
- Income obtained from international assistance organizations or governments that has been authorized by reputable state bodies for charitable or humanitarian reasons.
Resolution 954/2020/UBTVQH14, which raises the PIT threshold, was published by the Vietnamese government and will take effect on July 1st, 2020.
As a result, a resident taxpayer will be entitled to deduct US$475 (VND 11 million) from his taxable income as opposed to US$387 (VND 9 million) earlier. The new rule will take effect on January 1, 2020, and it will be retroactive. Whether or not the person received income each month has no bearing on the ability to deduct the entire annual amount.
For dependents, the recently proposed Resolution 954 includes provisions. According to the new policy, the tax credit for each dependent has increased from US$157 (VND 3,600,000) per month to US$192 (VND 4,400,000). Children under the age of 18 or adults over the age of 18 who make a modest income that does not surpass US$43 (VND 1 million) per month qualify as dependents. Additionally, taxpayers' parents or spouses who are unable to work or have a low income qualify as dependents as well.
For each dependent, only one individual may make a claim for the decrease. The taxpayer must notify the tax authority of the qualified dependant and provide the necessary documentation in order for the dependent allowance to be awarded.
The following records are required in order to be eligible for a personal income tax deduction for dependent children:
- Certified photocopies of a minor's birth certificate and government-issued identification (If any).
- Children with disabilities who are adults (18 years of age or older) and are not able to work: Certified copies of the birth certificate, the national ID, and any supporting documentation for the handicap.
- Adult children who are still enrolled in school must provide certified copies of their birth certificates, national identification cards (if applicable), and student identification cards, as well as any documentation attesting to their attendance at such institutions.
- Adopted children, illegitimate children, and stepchildren: In addition to the aforementioned documents, the taxpayers must provide additional proof of their relationship with these dependents and their actual parental responsibilities, such as copies of the adoption dossier, decisions recognizing the children, marriage certificates, etc.
Foreign invested businesses (FIEs) are required to complete PIT finalization for their employees at the start of the year for taxable earnings resulting from the prior year.
A certificate of deduction may be issued by FIEs at the request of an employee who has many sources of income and desires to complete their tax filing independently. An expat should complete tax finalization before leaving Vietnam if their employment contract there concludes before the end of the current calendar year.
One of two methods—cash or bank transfer—is used by the taxpayer to pay PIT to the state treasury. To obtain the voucher from state officials, the taxpayer might pay cash directly to the state treasury. If not, they can deposit money into a bank account at the state treasury for the tax office. Tax payments must be made no later than 90 days following the end of the calendar year, which is the same date as tax finalization.
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