How to calculate personal income tax from salaries and wages in Vietnam?

What types of income from salaries and wages are subject to personal income tax in Vietnam?

According to Clause 2, Article 3 of the Law on Personal Income Tax of 2007, as amended by Clause 1, Article 1 of the Law Amending the Law on Personal Income Tax of 2012, income from salaries and wages subject to personal income tax includes:

- Salaries, wages, and other amounts of a salary or wage nature;

- Allowances and subsidies, except for the following:

+ Allowances and subsidies as prescribed by law for individuals with contributions to the nation;

+ National defense and security allowances;

+ Hazardous and dangerous allowances for industries, professions, or jobs in workplaces with hazardous or dangerous factors;

+ Attraction allowances, regional allowances as prescribed by law; sudden hardship allowances, labor accident benefits, occupational disease benefits, one-time maternity or adoption support, disability reduction allowances, one-time retirement support, monthly survivor pension, and other support as prescribed by social insurance law;

+ Severance and job loss allowances as prescribed by the Labor Code;

+ Social protection allowances and other allowances and subsidies not of a salary or wage nature as prescribed by the Government of Vietnam.

How to calculate personal income tax from salaries and wages in Vietnam? (Image from the Internet)

How to calculate personal income tax from salaries and wages for resident individuals in Vietnam?

The payable personal income tax is calculated by the following formula:

Payable Personal Income Tax = Taxable Income x Tax Rate

In which:

(1) Taxable Income

According to Clause 1, Article 21 of the Law on Personal Income Tax of 2007, as amended by the Law Amending the Law on Personal Income Tax of 2012, Law Amending Various Tax Laws of 2014, taxable income from salaries and wages is the total taxable income prescribed in Article 11 of the Law on Personal Income Tax of 2007, subtracting mandatory social insurance contributions, health insurance, unemployment insurance, professional liability insurance premiums for certain industries, voluntary pension fund contributions, and the following deductions:

- Personal exemptions:

According to Article 19 of the Law on Personal Income Tax of 2007, as amended by Resolution 954/2020/UBTVQH14, personal exemptions are amounts deducted from taxable income before calculating tax on business income, salaries, and wages of resident tax subjects. Personal exemptions include two parts:

+ Deduction for the taxpayer: 11 million VND/month (132 million VND/year);

+ Deduction for each dependant: 4.4 million VND/month.

- Deductions for charitable and humanitarian contributions:

According to Article 20 of the Law on Personal Income Tax of 2007, as amended by the Law Amending Various Tax Laws of 2014, charitable and humanitarian contributions are deducted from taxable income before calculating tax on salaries and wages of resident tax subjects, including:

+ Contributions to organizations or establishments that care for and nurture children in particularly difficult circumstances, disabled people, and the elderly with no family support;

+ Contributions to charitable funds, humanitarian funds, and study promotion funds.

(2) Tax Rates

According to Article 22 of the Law on Personal Income Tax of 2007, the progressive tax rate schedule for calculating personal income tax from salaries and wages is as follows:

How to calculate personal income tax from salaries and wages for non-resident individuals in Vietnam?

According to Article 26 of the Law on Personal Income Tax of 2007, personal income tax from salaries and wages for non-resident individuals is calculated by the following formula:

Payable Personal Income Tax = Taxable Income from Salaries and Wages x Tax Rate

In which:

- Taxable income from salaries and wages is the total salary and wage amount that a non-resident individual receives for work performed in Vietnam, regardless of the place where the income is paid.

- The personal income tax rate from salaries and wages for non-resident individuals is 20%.

Who are resident and non-resident individuals in Vietnam?

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

- Resident individuals with taxable income specified in Article 3 of the Law on Personal Income Tax of 2007 arising within and outside Vietnamese territory, and non-resident individuals with taxable income specified in Article 3 of the Law on Personal Income Tax of 2007 arising within Vietnamese territory.

- A resident individual is a person who meets one of the following conditions:

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

+ Having a regular place of stay in Vietnam, including a registered permanent residence or a rented house to stay in Vietnam under a lease contract.

- A non-resident individual is one who does not meet the conditions of a resident individual.