Is severance pay higher than the prescribed level subject to PIT deduction in Vietnam?
Is severance pay higher than the prescribed level subject to PIT deduction in Vietnam?
Based on the provisions at Point b, Clause 2, Article 2 of Circular 111/2013/TT-BTC regarding allowances and subsidies subject to personal income tax as follows:
Taxable Income
As stipulated in Article 3 of the Law on Personal Income Tax and Article 3 of Decree No. 65/2013/ND-CP, the taxable income includes:
...
2. Income from salaries and wages
Income from salaries and wages is income that an employee receives from their employer, including:
...
b) Allowances and subsidies, except for the following allowances and subsidies:
...
b.6) Emergency hardship allowances, work accident allowances, occupational disease allowances, one-time allowances for childbirth or adoption, maternity benefit policies, health recovery after maternity, allowances due to reduced working capacity, one-time retirement allowances, monthly survivor's benefits, severance pay, unemployment compensation, and other allowances under the provisions of the Labor Code and the Social Insurance Law.
...
Allowances and subsidies and the levels of allowances and subsidies not included in taxable income as guided at point b, clause 2 of this Article must be stipulated by the competent State authority.
In cases where guidance documents on allowances and subsidies, and levels applied to the State sector, other economic entities, and business establishments are based on the list and levels of allowances and subsidies for the State sector to deduct.
If the received allowances or subsidies exceed the guided levels mentioned above, the excess portion must be included in taxable income.
Specifically, a one-time relocation allowance for foreigners residing in Vietnam or Vietnamese working abroad is deductible based on the level recorded in the employment contract or collective bargaining agreement.
Thus, based on the above provisions, two scenarios occur:
- If the Company pays severance pay to employees who quit according to the correct subjects and levels prescribed by the Labor Code 2019, this income is not included in the taxable income of the employee's salary and wage for PIT.
- If the Company pays severance pay to employees who quit that is higher than the prescribed level in the Labor Code 2019, the excess portion must be included in the employee's taxable income from salaries and wages for PIT.
Is severance pay higher than the prescribed level subject to PIT deduction in Vietnam? (Image from Internet)
Vietnam: Will PIT deduction be applied according to the progressive tariff or the 10% rate?
Based on the guidance in Official Dispatch 13510/CTHN-TTHT 2023 on personal income tax policies for severance pay as follows:
"Based on the above legal provisions, if the Company pays severance pay to employees who quit according to the correct subjects and levels prescribed by the Labor Code, this income is not included in the taxable income of the employee's salary and wage for PIT as guided at sub-point b.6, point b, clause 2, Article 2 of Circular 111/2013/TT-BTC. Regarding severance pay for employees exceeding the prescribed level in the Labor Code No. 45/2019/QH14 of the National Assembly, the Company sums it up with salaries and wages to deduct PIT according to the progressive tariff before payment.
In cases where the Company provides additional financial support to employees (beyond the provisions of the Labor Code and Social Insurance Law) after terminating the labor contract, if such payment is from two million (2,000,000) dong or more, the Company shall withhold PIT at the rate of 10% on total income before paying to individuals as prescribed at point i, clause 1, Article 25 of Circular 111/2013/TT-BTC of the Ministry of Finance."
Thus, if the Company pays severance pay to employees higher than the prescribed level in the Labor Code 2019, the Company should sum it up with salaries and wages to deduct PIT according to the progressive tariff before payment.
What are regulations on the progressive tariff in Vietnam?
In accordance with Clause 2, Article 7 of Circular 111/2013/TT-BTC, the PIT rate for income from salaries and wages is applied according to the following progressive tariff:
| Tax Bracket | Taxable Income Per Year (million dong) |
Taxable Income Per Month (million dong) |
Tax Rate (%) |
| 1 | Up to 60 | Up to 5 | 5 |
| 2 | Over 60 to 120 | Over 5 to 10 | 10 |
| 3 | Over 120 to 216 | Over 10 to 18 | 15 |
| 4 | Over 216 to 384 | Over 18 to 32 | 20 |
| 5 | Over 384 to 624 | Over 32 to 52 | 25 |
| 6 | Over 624 to 960 | Over 52 to 80 | 30 |
| 7 | Over 960 | Over 80 | 35 |
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