Are foreign employees subject to deduction of PIT by the income payer before receiving income in Vietnam?

Are foreign employees subject to deduction of PIT by the income payer before receiving income in Vietnam?

Individual taxpayers, as defined in Article 1 of Circular 111/2013/TT-BTC (amended by Article 2 of Circular 119/2014/TT-BTC), are residents as follows:

Taxpayer

1. A Vietnamese resident is a person who meets one of the following conditions:

a) Being present in Vietnam for 183 days or more within a calendar year or 12 consecutive months from the first day of presence in Vietnam, where the day of arrival and day of departure are counted as one (01) day. The days of arrival and departure are based on immigration office endorsements on the individual's passport (or laissez-passer) upon entry and exit. If entry and exit occur on the same day, it is counted as one day of residency.

The presence of the individual in Vietnam is determined by their physical presence within the territory of Vietnam as guided in this point.

b) Having a permanent place of residence in Vietnam as per one of the following cases:

b.1) Having a permanent place according to the residency law:

b.1.1) For Vietnamese citizens: a permanent place is where an individual resides regularly and stably without a fixed term at a certain residence and has registered permanent residency as per the residency law.

b.1.2) For foreign individuals: a permanent place is the permanent residence indicated in the Permanent Residency Card or temporary residence when registered for Temporary Residency Card issued by the authority of the Ministry of Public Security.

b.2) Renting a house in Vietnam for living purposes in accordance with the housing law, with rental contracts of 183 days or more in the tax year. Specifically:

b.2.1) Individuals who do not have or do not yet have a permanent place of residence as detailed in point b.1, clause 1 of this Article but have a total number of rented days for living per rental contracts from 183 days or more in the tax year are also considered as residents, including cases of renting houses in various locations.

b.2.2) Rented accommodations include hotels, guest houses, motels, workplaces, agency headquarters, etc., regardless of whether the individual rents themselves or the employer rents for the employee.

If an individual has a permanent place of residence in Vietnam as prescribed in this clause but is present in Vietnam for less than 183 days in the tax year and cannot prove residency of another country, then they are considered a resident in Vietnam.

Proof of residency in another country is based on a Residency Certificate. If the individual is from a country or territory that has signed a tax agreement with Vietnam without issuing a Residency Certificate, they must provide a copy of the Passport to prove residency duration.

2. A non-Vietnamese resident is one who does not meet the conditions stipulated in clause 1 of this Article.

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Additionally, based on the guidance in Official Dispatch 11000/CTHN-TTHT in 2023 addressing tax policy inquiries for foreigners for enterprises as follows:

"In the year 2022, if the Company has foreign employees who do not meet the residency conditions under clause 1 Article 1 of Circular 111/2013/TT-BTC, they are considered non-Vietnamese residents with the scope of PIT taxable income being income arising in Vietnam, regardless of where the income is paid and received. The Company that pays such income is responsible for withholding 20% before paying income to individuals as prescribed in Article 18 of Circular 111/2013/TT-BTC of the Ministry of Finance."

"In the year 2023 and subsequent years, if foreign individuals meet the residency conditions as stated in clause 1 Article 1 of Circular 111/2013/TT-BTC of the Ministry of Finance, the scope for determining PIT taxable income covers income arising within and outside Vietnam territory, regardless of place of payment and receipt as guided in Article 2 of Circular 119/2014/TT-BTC. For salary, wage income of foreign Vietnamese residents employed under labor contracts of three (03) months or more, the organization or individual paying the income must withhold tax according to the progressive tax rate specified in clause 1 Article 25 of Circular 111/2013/TT-BTC of the Ministry of Finance."

Thus, in the year 2024 and subsequent years, for cases where the company has foreign employees meeting the residency conditions, determining the scope of PIT taxable income is based on income arising both within and outside the territory of Vietnam, without distinguishing the place of payment or receipt.

Furthermore, for income from salaries, wages of foreign Vietnamese residents under labor contracts of 03 months or more, the company paying income must withhold tax according to the progressive tax rate as stipulated in clause 1 Article 25 of Circular 111/2013/TT-BTC (amended by clause 1, clause 2 Article 20 of Circular 92/2015/TT-BTC).

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Are foreign employees subject to deduction of PIT by the income payer before receiving income in Vietnam? (Image from Internet)

How to determine PIT taxable income from salary, wages of Vietnamese residents who are foreign employees?

Based on the regulations in point a clause 2 Article 8 of Circular 111/2013/TT-BTC, the determination of PIT taxable income from salary, wages of Vietnamese residents who are foreign employees is guided as follows:

Taxable income from salary, wages is calculated by the total amount of salaries, wages, remuneration, and other income of salary, wage nature received by the taxpayer in the tax period according to the guidance in clause 2 Article 2 of Circular 111/2013/TT-BTC (amended in Circular 92/2015/TT-BTC and Circular 151/2014/TT-BTC).

When is the time for determining PIT taxable income from salary, wages of Vietnamese residents who are foreign employees?

According to the regulations at point b clause 2 Article 8 of Circular 111/2013/TT-BTC, the time for determining PIT taxable income from salary, wages of Vietnamese residents who are foreign employees is the time at which the company pays the income to the taxpayer.

Specifically, the time for determining taxable income concerning the insurance premium payment for accumulated insurance products as detailed in point đ.2 clause 2 Article 2 of Circular 111/2013/TT-BTC (amended by clause 3 Article 11 of Circular 92/2015/TT-BTC) is the time when the insurer or the voluntary pension fund management company pays the insurance money.