For foreigners working in Vietnam, determining the applicability of (PIT) involves deciding a number of rules. Foreigners working in Vietnam should note that they are liable for personal income tax (PIT) in Vietnam.
Consulting with an in-country tax specialist can help individuals optimize their tax exposure, while employers may find that offering flexible employment and remuneration packages can often assist in mitigating tax exposure. We start with explaining tax-exempt incomes (employment benefits that are not subject to PIT) and tax reductions for dependents.
Residency status and PIT exposure
In Vietnam, individuals fall into two categories of income, with a host of different deductions, tax rates, and exceptions applying to each of them.
A tax resident is defined as someone residing in Vietnam for 183 days or more in either the calendar year or a period of 12 consecutive months from the date of arrival.
Tax residents are subject to PIT on their worldwide employment income, regardless of where the income is paid or earned. Non-residents are subject to PIT on their Vietnam-sourced income. Non-resident taxpayers are subject to PIT at a flat rate of 20 percent on their Vietnam-sourced income.
In Vietnam, a typical monthly salary package in Vietnam will include gross salary and PIT. PIT is levied on the balance after deducting mandatory social insurance contributions. Companies conduct PIT finalization on behalf of their employees at the beginning of the year for taxable income arising from the previous year.
Tax-exempt incomes
Foreigners in Vietnam have singled out a number of incomes that are exempt from PIT. These include:
- Income from transfer of residential houses by individuals who possess only one residential house or land plot;
- Interest earned on deposits from credit institutions or from life insurance sales;
- Overseas remittances, retirement pensions, and scholarships;
- Income from compensation for insurance contracts or from charity funds.
- Wages paid for night shifts or overtime work, which are paid at a higher rate than the rate for day shifts or prescribed working hours in accordance with the law; and,
- Incomes from governmental or non-governmental foreign aid for charity or humanitarian purposes approved by competent state agencies.
A resident taxpayer is allowed to deduct from his taxable income US384(VND9,000,000)everymonthorUS4,615 (VND108,000,000) per year. The giving amount will be fully deducted regardless of whether the taxpayer had an income every month.
Other benefits
In Vietnam, foreign individuals can be exempted from taxation for certain employment benefits. These exemptions include:
- One-off relocation allowance for foreigners to relocate to Vietnam;
- Round-trip airfares paid once a year by employers for their foreign employees who are on annual leave; and
- General education school fees or tuition paid by the employer for the expatriate children studying in Vietnam.
Other non-taxable benefits for foreign individuals that can be deducted before the calculation of tax include:
- Employee housing costs exceeding 15 percent of the total taxable income (excluding housing benefit from employers);
- Expense for means of transportation for a group of employees to and from work;
- Training fee for employees which is included in the enterprise’s plan, or in accordance with the employers’ plan;
- In-kind benefits like memberships of golf clubs, tennis courts, and other exclusive clubs for employees; and,
- Presumptive expenditures for telephone, stationery, per diem, working outfit, etc. are not subject to tax if the amounts are within the levels set out under the relevant regulations.
Tax reductions for dependents
For each dependent, a tax reduction is assigned as US$155 (VND3,600,000) per month. Qualified dependents are children aged below 18 years old or children over 18 years old but earning a low income, which does not exceed VND500,000 per month. Spouses or parents of taxpayers who are unable to work or have a low income are also qualified dependents.
Each dependent is only granted a reduction for each dependent. The dependent allowance is not automatically granted, and the taxpayer needs to register the qualifying dependent and provide the supporting documents to the tax authority.
Tax payment
Employers conduct PIT finalization on behalf of their employees at the beginning of the year for taxable income arising from the previous year.
If an individual has more than one source of income, they need to conduct tax finalization by themselves and can obtain a certificate of deduction at the request of the employee. If an expatriate’s labor contract in Vietnam expires before the end of a tax year, they need to complete PIT finalization before their departure.
The taxpayer pays PIT to the state treasury in one of two ways: cash or bank transfer. The taxpayer can pay cash directly to the state treasury to receive a receipt or may transfer money to the tax authorities’ account at a tax office bank account at the state treasury. The deadline for tax payment is the same as for tax finalization, and this will be by the 90th day from the end of the tax year.
Conversion of taxable income
Taxable income which is received in a foreign currency 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 on the date when the income arose.
Note: This article was first published in April 2015, and has been updated to include the latest developments.