How to calculate personal income tax for foreigners who have income from capital investment in Vietnam?

Are foreigners considered residents or non-residents in Vietnam?

Based on Article 2 of Decree 65/2013/ND-CP, the following provisions apply:

Taxpayers

1. Personal income taxpayers include both resident and Vietnamese non-residents with taxable income as defined in Article 3 of the Law on Personal Income Tax and Article 3 of this Decree. The determination scope of taxable income for taxpayers is as follows:

a) For Vietnamese residents, taxable income is income arising both within and outside the territory of Vietnam, regardless of where the income is paid;

b) For Vietnamese non-residents, taxable income is income arising in Vietnam, regardless of where the income is paid.

2. A Vietnamese resident meets either of the following conditions:

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

The presence of the individual in Vietnam as mentioned in this point refers to the physical presence of that individual on Vietnamese territory.

b) Having a permanent residence in Vietnam in either of the following cases:

- Having a registered permanent residence as prescribed by the law on residence;

- Having a leased house to live in Vietnam as prescribed by the housing law, with the rental contracts having a duration of 183 days or more within the tax year.

If an individual has a permanent residence in Vietnam according to this Point but is actually present in Vietnam for less than 183 days in the tax year and cannot prove residency in another country, that individual is considered a resident in Vietnam.

3. A Vietnamese non-resident is someone who does not meet the conditions specified in Clause 2 of this Article.

The distinction between whether a foreigner is a resident or non-resident depends on their duration of presence and place of residence in Vietnam. Specifically:

(1) Vietnamese resident

A Vietnamese resident is one who is subject to personal income tax on income arising both within and outside Vietnam. An individual is considered a resident in Vietnam if they meet one of the following conditions:

- Present in Vietnam for 183 days or more:

+ In a calendar year or

+ Within 12 consecutive months from the first day present in Vietnam.

- Having a permanent residence in Vietnam, under either of the following circumstances:

+ Registered permanent residence according to the law on residence, or

+ Having a leased house to live in with a rental contract duration of 183 days or more within the tax year.

Note: If an individual has a permanent residence but is present in Vietnam for less than 183 days, the individual is still considered a resident in Vietnam unless they can prove residency in another country.

(2) Vietnamese non-resident

A Vietnamese non-resident is someone who does not meet any of the above conditions. Vietnamese non-residents are only taxed on income arising in Vietnam.

Thus, a foreigner can be either a resident or a non-resident depending on their duration of presence and place of residence in Vietnam.

How to calculate personal income tax for foreigners who have income from capital investment in Vietnam? (Image from the Internet)

How to calculate personal income tax for foreigners who have income from capital investment in Vietnam?

(1) For foreign Vietnamese residents according to Article 10 of Circular 111/2013/TT-BTC, the regulations state:

Tax Basis for Income from Capital Investment

The basis for calculation of tax on income from capital investment is taxable income and tax rate.

1. Taxable Income

Taxable income from capital investment is the income subject to tax that the individual receives as guided in Clause 3, Article 2 of this Circular.

2. Tax Rate for Income from Capital Investment is applied under the full tax schedule with a rate of 5%.

3. Time for Determining Taxable Income

The time for determining taxable income for income from capital investment is when the organization or individual pays income to the taxpayer.

Exceptions for determining taxable income timing include:

a) For income from the increased value of additional contributions as guided in Point d, Clause 3, Article 2 of this Circular, the time for determining income from capital investment is when the individual actually receives income upon the dissolution of the enterprise, change of business model, division, separation, merger, consolidation of enterprises, or withdrawal of capital.

b) For income from increased capital profits as guided in Point g, Clause 3, Article 2 of this Circular, the time for determining income from capital investment is when the individual transfers or withdraws capital.

c) For income from dividends paid in stock as guided in Point g, Clause 3, Article 2 of this Circular, the time for determining income from capital investment is when the individual transfers shares.

d) In case the individual receives income from overseas capital investment in any form, the time for determining taxable income is when the individual receives the income.

4. Tax Calculation

Personal Income Tax payable = Taxable Income × 5% Tax Rate

Therefore, the tax basis for income from capital investment is taxable income and tax rate. The tax rate for income from capital investment is applied under the full tax schedule at a rate of 5%.

Personal income tax for income from capital investment is calculated using the following formula:

Personal Income Tax payable = Taxable Income × 5% Tax Rate

* The timing for determining taxable income for income from capital investment is when the organization or individual pays income to the taxpayer.

Exceptions for the timing of determining taxable income include:

- For income from increased capital contributions as guided in Point d Clause 3 Article 2 Circular 111/2013/TT-BTC, the time for determining income from capital investment is when the individual actually receives income upon the dissolution of the enterprise, change of business model, division, separation, merger, consolidation of enterprises, or withdrawal of capital.

- For income from increased capital profits as guided in Point g, Clause 3 Article 2 Circular 111/2013/TT-BTC, the time for determining income from capital investment is when the individual transfers or withdraws capital.

- For income from dividends paid in stock as guided in Point g Clause 3 Article 2 Circular 111/2013/TT-BTC, the time for determining income from capital investment is when the individual transfers shares.

- In case the individual receives income from overseas capital investment in any form, the time for determining taxable income is when the individual receives the income.

(2) For non-resident foreigners, according to Article 19 of Circular 111/2013/TT-BTC, it is regulated:

For Income from Capital Investment

Personal income tax on income from capital investment for Vietnamese non-residents is determined by the total taxable income that the Vietnamese non-resident receives from investing capital into Vietnamese organizations or individuals, multiplied by the tax rate of 5%.

Taxable income, the timing for determining taxable income from capital investment for Vietnamese non-residents is determined similarly to taxable income and the timing for determining taxable income from capital investment for Vietnamese residents as guided in Clause 1, Clause 3, Article 10 of this Circular.

Therefore, the calculation of personal income tax on income from capital investment for Vietnamese non-residents is done similarly to Vietnamese residents. Tax calculation is based on the total taxable income that the Vietnamese non-resident receives from capital investment into Vietnamese organizations or individuals.

Which types of income from capital investment are subject to personal income tax in Vietnam?

Pursuant to Clause 3, Article 2 of Circular 111/2013/TT-BTC (amended by Clause 6, Article 11 of Circular 92/2015/TT-BTC), the income from capital investment subject to taxation consists of the following:

(1) Dividends received from equity investment in shares.

(2) Profit shares:

+ Profits received from participating in capital contribution to limited liability companies, partnerships, cooperatives, joint ventures, business cooperation contracts, and other business forms as prescribed by the Law on Enterprises and the Law on Cooperatives;

+ Profits received from participating in capital contribution to establish credit institutions under the Law on Credit Institutions;

+ Profits from capital contribution in securities investment funds and other investment funds established and operating under the law.

For profits of private enterprises, single-member limited liability companies owned by individuals, these are not included in taxable income from capital investment.

(3) The additional value of the capital contribution received upon dissolution of the enterprise, conversion of the business model, division, separation, merger, or consolidation of enterprises, or upon capital withdrawal.

(4) Income received from interest on bonds, treasury bills, and other valuable papers issued by domestic organizations, except for income exempt from tax as guided in sub-sections g.1 and g.3, Point g, Clause 1, Article 3 Circular 111/2013/TT-BTC.

(5) Income received from capital investment in other forms, including cases where capital is contributed by tangible assets, reputations, land use rights, inventions, or patents.

(6) Income from dividends paid in stock and income from increased capital profits.