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Income Tax in Vietnam: Personal Income Tax

Income Tax in Vietnam: Personal Income Tax

Personal income tax in Vietnam (PIT) is a familiar concept to working people, but there is still no exact definition of PIT in current Vietnamese legal documents. In particular, not all employees understand the importance of the PIT Code. So what is personal income tax?

What is personal income tax in Vietnam?

What is personal income tax in Vietnam?

The specific concept of personal income tax (PIT) has not appeared in the current legal documents of Vietnam. However, based on the Personal Income Tax Law 2007 (amended and supplemented in 2018) as well as a number of decrees and guiding circulars, it can be understood:

Personal income in economics is a term that refers to all the income an individual earns in a given period of time from wages, investments, and other amounts, it is the sum of all real income received by all individuals or households. Usually, personal income is subject to income tax.

Personal income tax is a direct tax, that is, it is calculated based on the taxpayer’s income after deducting tax-free income and family deductions in accordance with the Law on Personal Income Tax. with relevant documents and instructions.

This tax collects a number of legitimate high incomes of individuals in order to regulate incomes between classes of the population, contribute to social justice, and increase revenue for the State budget.

What is personal income tax in Vietnam?

According to PwC Vietnam’s Tax Handbook 2021, tax residents are individuals who meet one of the following conditions:

  • Reside in Vietnam for 183 days or more in a tax year;
  • Have a regular place of residence in Vietnam (including a place of residence registered on a permanent/temporary residence card or a rented house to stay in Vietnam for a period of 183 days or more in the tax year) and cannot prove to be a tax resident in another country.

Tax residents subject to PIT includes all taxable income arising within and outside the borders of Vietnam, without distinction between the place of payment or receipt of income:

  • With income from wages/wages, the tax calculation is based on the partial accrual tax rate
  • With other types of income, the calculation depends on different tax rates

Non-residents are individuals who do not meet the conditions for becoming a resident.

  • With income from salary/wages, the tax rate is 20%
  • With other types of income, the calculation depends on different tax rates. However, taxation of these types of income should be referenced with the provisions of the Agreement on the avoidance of double taxation with Vietnam.

The Role of personal income tax in Vietnam

The Role of personal income tax in Vietnam

Personal income tax is considered an important source of revenue in the total state budget revenue. The process of trade liberalization causes the state’s income from import and export taxes to decrease significantly, while the demand for indicators increases and the functional conditions of the state are increasingly expanded.

Paying personal income tax contributes to promoting economic growth while attracting human resources, and ensuring competition in the region.

Implement the state’s economic adjustment target as a macro-regulatory tool, through preferential and exemption policies to make people more oriented in consumption and investment.

Legal proof of the individual’s source of income. Taxpayers need to declare income when carrying out personal income tax payment procedures, so the State can control the legality.

The role of reducing income and class disparities. In many countries, there are regulations on tax exemption and reduction for individuals carrying a social burden. In Vietnam, there is still a clear difference between the incomes of all classes of people, especially individuals working in foreign-invested enterprises, foreigners working in Vietnam account for a small percentage. in the population but has a large source of income compared to the majority of the population.

The reason why employees have to pay personal income tax in Vietnam

The reason why employees have to pay personal income tax in Vietnam

Tax payment has always been considered an obligation of all citizens in the territory of Vietnam. With contributions from personal income, it will increase revenue for the state, ensuring social justice.

When subject to PIT, it means that you are having a higher actual income than the starting income required by the state to be taxable. So even if tax exemptions and family allowances are deducted, employees are still able to support themselves and their families.

Paying personal income tax contributes to stabilizing the social gap between the rich and the poor.

Paying personal income tax increases the country’s economy, creates more jobs for workers, and ensures a fuller life for disadvantaged people with welfare policies.

Summary of personal income tax regulations and Laws

Summary of personal income tax regulations and Laws

The system of current legal documents related to personal income tax in Vietnam:

Law

– Law No. 04/2007/QH12 dated November 21, 2007, Law on Personal Income Tax, effective from January 1, 2009;

– Law No. 26/2012/QH13 dated November 22, 2012, Law amending and supplementing a number of articles of the Law on Personal Income Tax effective from July 1, 2013.

Decree

Decree 65/2013/ND-CP dated June 27, 2013, detailing a number of articles of the Law on PIT and the Law amending and supplementing a number of articles of the Law on PIT, effective date from July 1, 2013.

Circular

  • Circular 111/2013/TT – BTC dated August 15, 2013: Guiding the implementation of the PIT Law, effective from October 1, 2013;
  • Circular 128/2014/TT – BTC dated September 5, 2014: Guiding PIT reduction for individuals working in economic zones, effective from October 20, 2014, and replaces Circular No. 176/2009/TT-BTC dated September 9, 2009, of the Ministry of Finance;
  • Circular 92/2015/TT-BTC dated June 15, 2015: Changes and supplements to a number of articles of personal income tax take effect from July 30, 2015, and apply to the personal income tax period multiplied from 2015 onwards;
  • Circular 04/VBHN – BTC dated February 5, 2015: Consolidating documents: Circular 111/2013/TT-BTC, Circular 119/2014/TT-BTC, and Circular 151/2014/TT-BTC.
  • Circular No. 25/2018/TT-BTC, March 16, 2018: Guiding Decree No. 146/2017/ND-CP dated December 15, 2017, of the government and amending and supplementing a number of articles of the Circular No. 78/2014/TT-BTC dated June 18, 2014, of the Ministry of Finance, Circular No. 111/2013/TT-BTC dated August 15, 2013, of the Ministry of Finance.

The most recent is Circular 25/2018/TT-BTC, Guidelines for Decree 146/2017/ND-CP amending Circular 78/2014/TT-BTC, Circular 111/2013/TT-BTC with regulations:

Income from securities transfer, including income from the transfer of shares, the right to buy stocks, bonds, bills, fund certificates, and other securities as prescribed in Clause 1, Article 6 of the Law on Securities. securities. Incomes from the transfer of shares of individuals in a joint-stock company as prescribed in Clause 2, Article 6 of the Law on Securities and Article 120 of the Law on Enterprises.

You can read the previous article here: Vietnam Economy Overview: Socio-economic Part Two

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