Are income payers required to issue certificate of tax deduction to employees in Vietnam?

What is personal income tax withholding in Vietnam?

According to Clause 1, Article 28 of Decree 65/2013/ND-CP, tax withholding is defined as the act by which organizations or individuals paying income deduct the tax payable from the income of the taxpayer before paying them.

The types of income subject to tax withholding include:

(1) Income of non-resident individuals, including cases of absence in Vietnam;

(2) Income from wages, salaries, and remuneration, including brokerage fees;

(3) Income from insurance agents, lottery agents, multi-level marketing;

(4) Income from capital investment;

(5) Income from the transfer of capital by non-resident individuals, transfer of securities;

(6) Income from winnings;

(7) Income from royalties;

(8) Income from franchise activities.

Are income payers required to issue certificate of tax deduction to employees in Vietnam? (Image from Internet)

How should income payers withhold personal income tax for employees with employment contracts of less than 3 months in Vietnam?

Pursuant to Article 25 of Circular 111/2013/TT-BTC, tax withholding is outlined as follows:

Tax Withholding and Withholding Certificates

1. Tax Withholding

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b) Income from wages and salaries

b.1) For resident individuals with employment contracts of three (03) months or more, the organization or individual paying the income withholds tax according to the progressive tax schedule, even in cases where the individual signs contracts at multiple places for three (03) months or more.

b.2) For resident individuals who sign employment contracts for three (03) months or more but leave before the contract term ends, the organization or individual paying the income still withholds tax according to the progressive tax schedule.

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i) Tax withholding for some specific cases

Organizations and individuals paying wages, remuneration, or other payments to resident individuals without employment contracts (as guided in points c, d, clause 2, Article 2 of this Circular) or with employment contracts of less than three (03) months, if the total payment is two million (2,000,000) VND or more per time, must withhold tax at a rate of 10% on the income before payment to the individual.

In cases where the individual has only one source of income subject to the above withholding rate and estimates that the total taxable income after personal deductions does not reach the taxable threshold, they should make a commitment (following the form issued with tax management guidance documents) to the income-paying organization, which serves as the basis for temporarily not withholding personal income tax.

Based on the individual's commitment, the income-paying organization does not withhold tax. At the end of the tax year, the income-paying organization must compile a list and the incomes of individuals who did not meet the withholding threshold (following the form issued with tax management guidance documents) and submit it to the tax authority. The individual making the commitment is responsible for it, and any fraud discovered will be processed according to the Law on Tax Administration.

The individual making the commitment as guided herein must taxpayer registration and have a tax identification number at the time of the commitment.

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Thus, in the case where an employee signs a employment contract from 1 month to less than 3 months, the enterprise will deduct the tax payable from the employee's income at a rate of 10% on the income before paying the income and issue a tax withholding certificate to the employee.

However, for employees who have only one income source subject to the above withholding rate and estimate that their total taxable income after personal deductions is not enough to pay tax, they should make a commitment to the income-paying enterprise as a basis for temporarily not withholding personal income tax for those employees.

The condition for making a commitment is that the individual must have taxpayer registration and a tax identification number at the time of the commitment.

Are income payers required to issue certificate of tax deduction to employees in Vietnam?

According to Clause 2, Article 25 of Circular 111/2013/TT-BTC, the issuance of certificate of tax deduction is stipulated as follows:

Tax Withholding and Withholding Certificates

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2. Withholding Certificates

a) Organizations and individuals paying income which has been withheld according to the guidelines in clause 1 of this Article must issue withholding certificates at the request of the individual subject to withholding. In cases where the individual authorizes tax finalization, no withholding certificate is issued.

b) Issuing withholding certificates in specific cases as follows:

b.1) For individuals without employment contracts or with employment contracts of less than three (03) months: the individual has the right to request the organization or individual paying the income to issue a withholding certificate for each time tax is withheld or issue one withholding certificate for multiple times tax is withheld within a tax period.

Example 15: Mr. Q signs a service contract with company X to take care of plants in the company's premises on a monthly schedule from September 2013 to April 2014. Mr. Q's income is paid monthly by the company at 3 million VND. In this case, Mr. Q can request the company to issue withholding certificates monthly or issue one certificate reflecting the withheld tax from September to December 2013 and one certificate for the period from January to April 2014.

b.2) For individuals signing employment contracts of three (03) months or more: the organization or individual paying income issues one withholding certificate for an individual within a tax period.

Example 16: Mr. R signs a long-term employment contract (from September 2013 to the end of August 2014) with company Y. In this case, if Mr. R is subject to direct tax finalization with the tax authority and requests the company to issue withholding certificates, the company will issue one certificate reflecting the withheld tax from September to December 2013 and one certificate for the period from January to the end of August 2014.

Thus, only when the employee is subject to self-tax finalization does the income payer have to issue a tax withholding certificate, and the withholding certificate is issued only upon the employee's request.

Note:

- For individuals without employment contracts or with employment contracts of less than three (03) months: the individual has the right to request the organization or individual paying income to issue a withholding certificate for each time tax is withheld or issue one withholding certificate for multiple times tax is withheld within a tax period.

- For individuals signing employment contracts of three (03) months or more: the organization or individual paying income issues one withholding certificate for the individual within a tax period.