Is personal income tax applicable to employee vacation allowance in Vietnam?

Is personal income tax applicable to employee vacation allowance in Vietnam?

Based on Official Dispatch 24530/CTBDU-TTHT of 2024 by the Binh Duong Provincial Tax Department regarding the guidance on personal income tax policy for employee vacation allowance as follows:

Pursuant to Clause 2, Article 2 of Circular No. 111/2013/TT-BTC stipulating:

Taxable Income Items

According to Article 3 of the Law on Personal Income Tax and Article 3 of Decree No. 65/2013/ND-CP, taxable personal income includes:

...

2. Income from Salaries and Wages

Income from salaries and wages is the income received by the employee from the employer, including:

...

đ) Benefits in money or in kind other than salaries and wages provided by the employer that the taxpayer enjoys under any form:

...

dd.3) Membership fees and other service expenses for individuals as required, such as health care, recreation, sports, entertainment, aesthetics. Specifically:

dd.3.1) Membership fees (e.g., golf, tennis club memberships, cultural, art, sport club memberships...) if the card specifies an individual or group of individuals using it. In cases where the card is used collectively and does not specify individuals or groups using it, it is not included in taxable income.

dd.3.2) Other service expenses serving individuals in activities such as healthcare, recreation, aesthetics... if the payment details specify the individual entitled to the benefit. If the service payment details do not specify the individual but are collectively for the workforce, it is not included in taxable income.

Based on the above regulations, the Binh Duong Provincial Tax Department provides guidance as follows:

(1) If a company has a vacation allowance policy for employees (specifically detailing the eligibility conditions and the benefit level in one of the following documents: Employment Contract; Collective Labor Agreement; Financial Regulations of the Company, General Company, Group; Bonus Regulations decided by the Chairman of the Board, General Director, or Director according to the Company's financial regulations) and if the allowance specifies the individual receiving the benefit, then this allowance is included in the employee’s taxable personal income.

(2) If the allowance is general for the workforce and does not specify the individual benefiting, this income is not included in the employee’s taxable personal income.

Thus, it is evident that the vacation allowance for employees is included in their taxable personal income if:

- The company has a vacation allowance policy for employees, specifically detailing the eligibility conditions and benefit levels in one of the following documents: Employment Contract; Collective Labor Agreement; Financial Regulations of the Company, General Company, or Group; Bonus Regulations decided by the Chairman of the Board, General Director, or Director according to the Company's financial regulations;

- The allowance specifies the individual receiving the benefit.

In addition, if the allowance is general for the workforce and does not specify the individual benefiting, this income is not included in the employee’s taxable personal income.

Is personal income tax applicable to employee vacation allowance in Vietnam? (Image from the Internet)

Which income from salaries and wages is subject to personal income tax in Vietnam?

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

- Salaries, wages, and similar income;

- Allowances and subsidies.

However, personal income tax is not applied to the following allowances and subsidies:

+ Allowances and subsidies as stipulated by law for those with merit; national defense and security allowances; hazardous, dangerous job allowances;

+ Attraction and regional allowances as stipulated by law;

+ Unexpected hardship subsidies, labor accident, occupational disease subsidies, a one-time subsidy for childbirth or adoption, disability reduction subsidies, one-time retirement subsidies, monthly pensions, and other subsidies as stipulated by law on social insurance;

+ Severance pay, job loss subsidies according to the Labor Code; social protection subsidies, and other non-salary, non-wage subsidies as prescribed by the Government of Vietnam.

When is the taxable period for personal income tax 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 taxable period for personal income tax is determined as follows:

(1) For resident individuals, the taxable period is determined:

- Annually for income from business; income from salaries, wages;

- Per occurrence of income for income from capital investment; income from capital transfer, excluding securities transfer; income from real estate transfer; winnings; royalties; franchising; inheritance; gifts;

- Per occurrence of transfer or annually for income from securities transfer.

(2) For non-resident individuals: the taxable period is calculated per occurrence of income for all taxable income.