Is personal income tax withheld when signing seasonal employment contracts in Vietnam?

Vietnam: What types of employment contracts are there?

Based on Article 20 of the Labor Code 2019, there are two types of employment contracts:

- Indefinite-term employment contract: This is a type of contract where the two parties agree not to determine the term or the time of termination of the contract's validity.

- Definite-term employment contract: This is a type of contract where the term or the time of termination of the contract's validity is determined by the two parties within a period not exceeding 36 months from the effective date of the contract.

Is personal income tax withheld when signing seasonal employment contracts in Vietnam? (Image from Internet)

Is personal income tax withheld when signing seasonal employment contracts in Vietnam?

According to Article 22 of the Labor Code 2012 (This document has been invalid since January 1, 2021), seasonal employment contracts, also known as fixed-term contracts, are a type of employment contract signed for seasonal work or for a specific job with a term of less than 12 months.

However, the current Labor Code 2019 no longer defines the concept of seasonal employment contracts but rather specifies two types of contracts as mentioned above: definite-term and indefinite-term employment contracts.

Therefore, it can now be understood that a seasonal employment contract is a definite-term contract with a duration of less than 12 months. For contracts with a term of less than 12 months, personal income tax withholding is determined as follows:

As stipulated in Article 25 of Circular 111/2013/TT-BTC concerning tax withholding:

Tax Withholding and Tax Withholding Certificates

1. Tax Withholding

...

b) Income from salaries and wages

b.1) For resident individuals signing employment contracts of three (03) months or more, the organizations or individuals paying income shall withhold tax according to the progressive tax schedule, including cases where the individual signs contracts of three (03) months or more at multiple locations.

b.2) For resident individuals signing employment contracts of three (03) months or more but who quit before the contract ends, the organization or individual paying income will still withhold tax according to the progressive tax schedule.

...

b.5) The tax amount to be withheld from income from salaries and wages of resident individuals is determined according to the guidance in Article 7 of this Circular; for non-resident individuals, it is determined according to Article 18 of this Circular.

...

i) Tax withholding in certain other cases

Organizations and individuals paying wages, salaries, and other payments to resident individuals not signing employment contracts (as guided in points c, d, clause 2, Article 2 of this Circular) or signing employment contracts of less than three (03) months having a total income payment from two million (2,000,000) VND per payment or more must withhold tax at a rate of 10% on the income before payment to the individual.

In cases where an individual only has the sole income which is subject to tax withholding at the above-mentioned rate but estimates that the total taxable income of the individual after deducting family circumstances does not reach the level required to pay tax, the individual with income can make a commitment (using the form issued with tax management guidance documents) and send it to the income-paying organization as a basis to temporarily not withhold personal income tax.

Based on the income recipient's commitment, the income-paying organization will not withhold tax. At the end of the tax year, the income-paying organization shall still compile a list and the income of individuals not subject to tax withholding (using the form issued with the tax management guidance documents) and submit it to the tax authorities. Individuals making commitments must be responsible for their commitments, and if any fraud is discovered, they will be handled according to the provisions of the Tax Administration Law.

Individuals making commitments according to the guidance at this point must have tax registration and a tax identification number at the time of the commitment.

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Therefore, the withholding of personal income tax for those signing seasonal employment contracts depends on the contract term and the employee's income:

- For employees signing seasonal employment contracts of 3 months or more, the employer will withhold tax according to the progressive tax schedule. In this case, personal income tax will be calculated based on the total income and deducted according to the progressive tax brackets.

In this case, employees will only have personal income tax withheld if their income exceeds the deductible family allowance as stipulated.

- For employees signing employment contracts of less than three (03) months with a total income payment from two million (2,000,000) VND per payment or more, the employer will deduct the payable tax from the employee's income at a rate of 10% on the income before payment.

However, for cases where employees only have sole income subject to tax withholding at the above-mentioned rate but estimate that their total taxable income after deducting family allowances does not reach the level required to pay tax, they can commit and send this declaration to the income-paying organization so that the organization can temporarily not withhold personal income tax for these employees.

Is it necessary to issue a personal income tax withholding certificate for employees signing seasonal employment contracts in Vietnam?

According to clause 2, Article 25 of Circular 111/2013/TT-BTC, regarding the issuance of personal income tax withholding certificates, it is stipulated as follows:

Tax Withholding and Tax Withholding Certificates

...

2. Withholding Certificates

a) Organizations and individuals paying incomes that have been tax withheld as guided in clause 1 of this Article must issue a tax withholding certificate upon request of the individual subject to withholding. In case the individual authorizes tax finalization, no withholding certificate is issued.

b) Issuing withholding certificates in some specific cases as follows:

b.1) For individuals not signing employment contracts or signing employment contracts of less than three (03) months, the individual has the right to request the organization or individual paying the income to issue a withholding certificate for each tax withholding or to issue one withholding certificate reflecting the taxes withheld in one tax period.

For example 15: Mr. Q signs a service contract with company X to take care of ornamental plants in the company campus once a month from September 2013 to April 2014. Mr. Q's income is paid by the company monthly at 3 million VND. Thus, in this case, Mr. Q can request the company to issue a withholding certificate per month or one certificate reflecting the taxes withheld from September to December 2013 and one certificate for the period from January to April 2014.

b.2) For individuals signing employment contracts of three (03) months or more, the organization or individual paying the income shall issue to the individual one withholding certificate in one tax period.

Example 16: Mr. R signs a long-term employment contract (from September 2013 to the end of August 2014) with company Y. In this case, if Mr. R is subject to direct tax finalization with the tax authorities and requests the company to issue a withholding certificate, the company will issue 01 certificate reflecting the taxes withheld from September to the end of December 2013 and 01 certificate for the period from January to the end of August 2014.

Therefore, if the employee signing a seasonal employment contract is subject to self-finalization of personal income tax, the enterprise must issue a withholding tax certificate, and the withholding tax certificate is only provided upon the employee's request.

Note:

- For individuals not signing employment contracts or signing employment contracts of less than three (03) months: the individual has the right to request the organization or individual paying the income to issue a withholding certificate for each tax withholding or to issue one withholding certificate reflecting multiple tax withholdings in one tax period.

- For individuals signing employment contracts of three (03) months or more: the organization or individual paying the income only issues one withholding certificate to the individual in one tax period.