Are incomes from indemnities paid under life insurance policies subject to personal income tax in Vietnam?

Are incomes from indemnities paid under life insurance policies subject to personal income tax in Vietnam?

Based on Clause 12, Article 4 of the Law on Personal Income Tax 2007, which stipulates tax-exempt income as follows:

Tax-exempt Income

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11. Income from scholarships, including:

a) Scholarships received from the state budget;

b) Scholarships received from domestic and foreign organizations under their education promotion programs.

12. Income from indemnities paid under life insurance and non-life insurance contracts, compensation for labor accidents, state compensation, and other compensations as prescribed by law.

13. Income received from a charity fund permitted or recognized by a competent state authority, operating for charitable humanitarian purposes and not for profit.

...

According to the above regulation, income from indemnities paid under life insurance policies is tax-exempt for personal income tax purposes.

Are incomes from indemnities paid under life insurance policies subject to personal income tax in Vietnam? (Image from the Internet)

Who are personal income taxpayers in Vietnam?

According to Article 2 of the Law on Personal Income Tax 2007, the subjects required to pay personal income tax are:

Taxpayers

1. Taxpayers are resident individuals with taxable income defined in Article 3 of this Law arising both inside and outside the territory of Vietnam, and non-resident individuals with taxable income defined in Article 3 of this Law arising within the territory of Vietnam.

2. Resident individuals are those who meet one of the following conditions:

a) Being present in Vietnam for 183 days or more in a calendar year or for 12 consecutive months from the first day of presence in Vietnam;

b) Having a regular residence in Vietnam, including having a registered place of permanent residence or a rented house for residence in Vietnam under a term lease.

3. Non-resident individuals are those who do not meet the conditions specified in Clause 2 of this Article.

Thus, according to the above provisions, taxpayers are resident individuals with taxable income defined in Article 3 of the Law on Personal Income Tax 2007 arising both inside and outside of Vietnam, and non-resident individuals with taxable income defined in Article 3 of the Law on Personal Income Tax 2007 arising within Vietnam.

Resident and non-resident individuals are determined as follows:

- Resident individuals are those who meet one of the following conditions:

+ Being present in Vietnam for 183 days or more in a calendar year or for 12 consecutive months from the first day of presence in Vietnam;

+ Having a regular residence in Vietnam, including having a registered place of permanent residence or a rented house for residence in Vietnam under a term lease.

- Non-resident individuals are those who do not meet one of the following two conditions:

+ Being present in Vietnam for 183 days or more in a calendar year or for 12 consecutive months from the first day of presence in Vietnam;

+ Having a regular residence in Vietnam, including having a registered place of permanent residence or a rented house for residence in Vietnam under a term lease.

How to determine the personal income tax period in Vietnam?

According to Article 7 of the Law on Personal Income Tax 2007, amended by Clause 3 Article 1 of the Amended Law on Personal Income Tax 2012, the determination of the personal income tax period is as follows:

Firstly, for resident individuals

- The tax period is annually for income from business; income from wages and salaries;

- The tax period is on each occasion income arises for income from investment; income from transferring capital, except income from securities transfer; income from real estate transfer; income from winning prizes; income from royalties; income from franchising; income from inheritance; income from gifts;

- The tax period can be per transaction or annually for income from securities transfer.

Additionally, the annual tax period for business income and wage/salary income is guided in Article 6 of Circular 111/2013/TT-BTC as follows:

- If, in the calendar year, an individual is present in Vietnam for 183 days or more, the tax period is calculated on a calendar year basis.

- If, in the calendar year, an individual is present in Vietnam for less than 183 days but, in 12 consecutive months from the first day of presence in Vietnam, is present for 183 days or more, the first tax period is determined to be the 12 consecutive months from the first day of presence in Vietnam. From the second year, the tax period is based on the calendar year.

Secondly, for non-resident individuals

The tax period for non-resident individuals is determined per each occasion that taxable income arises, applicable to all taxable income.