Are probationary employees subject to personal income tax in Vietnam?

Are probationary employees subject to personal income tax in Vietnam?

Pursuant to Clause 2, Article 3 of the Law on Personal Income Tax 2007 as amended by Clause 1, Article 1 of the Law on Amendments to Law on Personal Income Tax 2012, which regulates taxable income from salary and wages, the salary of probationary employees is still considered subject to personal income tax (PIT).

Simultaneously, based on Points b and i, Clause 1, Article 25 of Circular 111/2013/TT-BTC, which provides regulations on PIT deduction in certain cases as follows:

Tax Deduction and Tax Deduction Certificates
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b) Income from wages and salaries
b.1) For resident individuals signing labor contracts for three (03) months or more, organizations and individuals paying income are responsible for deducting tax according to the progressive tax rates applicable, even if the individual signs contracts for three (03) months or more at multiple locations.

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i) Tax Deduction for Certain Other Cases
Organizations and individuals paying wages, fees, and other payments to resident individuals not signing labor contracts (as guided in Points c and d, Clause 2, Article 2 of this Circular) or signing labor contracts under three (03) months with a total income payment of two million (2,000,000) VND or more per instance must deduct tax at a rate of 10% on the income before paying it to the individual.

If the individual has only one income source subject to the deduction rate mentioned above but estimates that the total taxable income after family circumstance deduction does not reach the taxable threshold, the individual can make a commitment (according to the form issued with tax management guidance documents) to the organization paying the income, which will serve as a basis not to temporarily deduct personal income tax.

Based on the income receiver's commitment, the paying organization does not deduct tax. At the end of the tax year, the organization must compile a list and income statement for individuals below the tax deduction threshold (in the form issued with tax management guidance documents) and submit it to the tax authority. Individuals making a commitment are responsible for their commitment; if found fraudulent, they will be handled according to tax management laws.

Commitments made by individuals as instructed at this point must be tax registered and have a tax identification number at the time of the commitment.

Thus, probationary employees may be subject to personal income tax in the following cases:

- Signing a labor contract (with an agreed probation period) over 3 months will result in paying personal income tax according to the progressive tax rates.

- Not signing a labor contract or signing a labor contract under 03 months with a total income payment from 2,000,000 VND or more per instance.

Note: In cases where an employee does not sign a labor contract or signs one under 03 months with a total income payment from 2,000,000 VND or more per instance and meets the following conditions, they will not be subject to personal income tax:

- Only having income subject to tax deduction but estimating that their total taxable income, after personal exemptions, does not reach the taxable threshold.

- The employee makes a commitment to the income-paying organization to serve as a basis not to deduct personal income tax.

Are probationary employees eligible for personal exemptions for personal income tax in Vietnam?

Pursuant to Clause 1, Article 9 of Circular 111/2013/TT-BTC, personal exemptions are amounts allowed to be deducted from taxable income before calculating tax for income from salary and wages of resident taxpayers.

Additionally, based on Points b and i, Clause 1, Article 25 of Circular 111/2013/TT-BTC, regulations on PIT deduction in some cases are provided.

Furthermore, according to Official Dispatch 47484/CT-TTHT in 2018 from the Hanoi Tax Department about PIT deduction during the probation period, the following guidance is given:

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According to the above provisions, if a company signs a probationary contract with an employee:

If, after the probationary contract ends, the company signs a labor contract of three (03) months or more with the employee, the company must deduct PIT according to the progressive tax rates for the entire probation period.

If, after the probationary contract ends, the company does not sign a labor contract with the employee, the company must deduct PIT at a rate of 10% for the employee's income during the probation period from 2 million VND or more per instance.

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Thus, probationary employees may be eligible for personal exemptions for personal income tax in the following cases:

- Signing a labor contract (with an agreed probation period) over 3 months: The probationary employee will be granted personal exemptions and taxed according to the progressive tax rates.

- Signing a probationary contract and post-completion, the company signs a labor contract for 03 months or more: The probationary employee is granted personal exemptions for income during the probation period and applies the progressive tax rates for PIT.

In other cases like signing a probationary contract and, post-completion, the company does not proceed with a labor contract, the personal exemption is not applied to probationary employees.

What is the personal exemption level for personal income taxpayers who are probationary employees in Vietnam?

Pursuant to Article 1 of Resolution 954/2020/UBTVQH14, the personal exemption levels are stipulated as follows:

Personal exemption Levels
Adjustment of personal exemptions stipulated in Clause 1, Article 19 of the Law on Personal Income Tax No. 04/2007/QH12, amended by Law No. 26/2012/QH13 as follows:

1. Deduction for taxpayers: 11 million VND/month (132 million VND/year);

2. Deduction for each dependent: 4.4 million VND/month.

Thus, the personal exemption level for personal income taxpayers who are probationary employees is determined as follows:

- For the taxpayer themselves: 11 million VND/month.

- For dependents (if applicable): 4.4 million VND/month per dependent, and it increases incrementally based on the number of dependents.