In which cases are employees eligible for a personal income tax reduction in Vietnam?

In which cases are employees eligible for a personal income tax reduction in Vietnam?

According to Article 5 of the Personal Income Tax Law 2007:

Tax reduction

Taxpayers facing difficulties due to natural disasters, fires, accidents, or serious illnesses affecting their tax-paying ability will be considered for a tax reduction corresponding to the level of damage but not exceeding the payable tax amount.

Employees who pay personal income tax and encounter difficulties due to natural disasters, fires, accidents, or serious illnesses affecting their tax-paying ability will be considered for a tax reduction corresponding to the level of damage but not exceeding the payable personal income tax amount.

In which cases are employees eligible for a personal income tax reduction in Vietnam?​ (Image from the Internet)

What are methods for determination of the amount of tax reduction in Vietnam?

According to Article 4 of Circular 111/2013/TT-BTC:

Tax reduction

According to the provisions of Article 5 of the Personal Income Tax Law and Article 5 of Decree No. 65/2013/ND-CP, taxpayers facing difficulties due to natural disasters, fires, accidents, or serious illnesses affecting their tax-paying ability will be considered for a tax reduction corresponding to the level of damage but not exceeding the payable tax amount. To be specific:

1. Determining the reduced tax amount

a) The tax reduction is considered on an annual basis. Taxpayers experiencing difficulties due to natural disasters, fires, accidents, or serious illnesses in any particular tax year will be considered for a tax reduction in the payable tax amount for that year.

b) The base tax payable amount for considering the tax reduction is the total personal income tax liability of the taxpayer for that tax year, including:

b.1) Personal income tax already paid or deducted on income from capital investments, income from capital transfers, income from real estate transfers, income from lottery winnings, income from royalties, income from franchise, inheritance income, and gift income.

b.2) Personal income tax payable on income from business and income from wages and salaries.

c) The basis for determining the level of damage to consider the tax reduction is the total actual cost to remedy the damage, minus any compensation received from insurance organizations (if any) or from organizations/individuals causing the accident (if any).

d) The reduced tax amount is determined as follows:

d.1) If the payable tax amount for the tax year is greater than the level of damage, the reduced tax amount is equal to the level of damage.

d.2) If the payable tax amount for the tax year is less than the level of damage, the reduced tax amount is equal to the payable tax amount.

2. Procedures and documentation for tax reduction are carried out according to tax management guidance documents.

The personal income tax reduction is considered on an annual basis. The total personal income tax payable serves as the basis for considering the tax reduction.

The reduced personal income tax amount is determined as follows:

- If the payable tax amount for the tax year is greater than the level of damage, the reduced tax amount is equal to the level of damage.

- If the payable tax amount for the tax year is less than the level of damage, the reduced tax amount is equal to the payable tax amount.

How much salary shall an employee in Vietnam earn to be subject to personal income tax?

According to Clause 1, Article 21 of the Personal Income Tax Law 2007 (amended by Clause 5, Article 1 of the Amended Personal Income Tax Law 2012):

Taxable income

1. Taxable income from business, wages, and salaries is the total taxable income stipulated in Articles 10 and 11 of this Law, minus social insurance contributions, health insurance contributions, unemployment insurance contributions, professional liability insurance for certain occupations mandated to participate in compulsory insurance, voluntary retirement fund contributions, and deductions specified in Articles 19 and 20 of this Law.

...

According to Article 1 of Resolution 954/2020/UBTVQH14:

Family deduction

Adjusting the family deduction defined in Clause 1, Article 19 of the Personal Income Tax Law No. 04/2007/QH12, as amended and supplemented by Law No. 26/2012/QH13, as follows:

1. The deduction for taxpayers is 11 million VND/month (132 million VND/year);

2. The deduction for each dependent is 4.4 million VND/month.

Additionally, point i, Clause 1, Article 25 of Circular 111/2013/TT-BTC provides the regulations on tax deduction as follows:

Tax deduction and tax deduction certificates

1. Tax deduction

Tax deduction is the process where organizations or individuals paying income calculate and subtract the tax liability from the income before paying the taxpayer. To be specific:

...

i) Tax deduction for certain other cases

Organizations and individuals paying wages, remuneration, or other payments to resident individuals who do not sign labor contracts (as guided in points c and d, Clause 2, Article 2 of this Circular) or who sign labor contracts of less than three (03) months with a total payment from two million (2,000,000) VND per time or more must deduct tax at the rate of 10% on the total income before payment.

...

Individuals without dependents must pay personal income tax when their total income from wages and salaries exceeds 11 million VND/month (132 million VND/year).

In cases where employees do not sign labor contracts or sign labor contracts of less than 03 months with a total payment from 2,000,000 VND per time or more, tax must be deducted at the rate of 10% on the total income before payment.

If an individual has only one source of income subject to tax deduction at the aforementioned rate but estimates that their total taxable income after family deductions does not reach the tax threshold, the individual can commit in writing to the income-paying organization for the latter to temporarily not deduct personal income tax.