Is severance pay paid to employees in Vietnam subject to PIT?

Is severance pay paid to employees in Vietnam subject to PIT?

Under point b, clause 2, Article 2 of Circular 111/2013/TT-BTC (amended by clause 1, Article 11 of Circular 92/2015/TT-BTC) stipulating taxable income from wages and remunerations:

Taxable Income

2. Income from wages and remunerations

...

b) Allowances and benefits, except for:

b.1) Monthly benefits, lump-sum benefits and allowances according to regulations of law on incentives for contributors.

b.2) Monthly allowances and lump-sump allowances for the persons that participate in the resistance movements, national defense, fulfillment of international tasks, and discharged volunteers.

b.3) Benefits for national defense and security; subsidies for the armed forces.

b.4) Benefits for dangerous or harmful works.

b.5) Benefits for employees in disadvantaged areas.

b.6) Irregular allowances for difficulties, occupational accident benefits, occupational illness benefits, lump-sum allowances for childbirth or adoption, maternity leave benefits, post-maternity recovery benefits, benefits for reduction in work ability, lump-sum pension, monthly widow’s pension, severance pay, redundancy pay, unemployment benefits, and other benefits according to the Labor Code and the Law on Social insurance.

b.7) Benefits for beneficiaries of social security.

b.8) Benefits for senior officers.

b.9) Lump-sum benefits for the persons reassigned to the areas facing extreme economic and social difficulties, lump-sum supports for officers working for sovereignty over sea and islands as prescribed by law. Lump-sum moving allowances for foreigners that move and reside in Vietnam and Vietnamese people that go to work abroad, and Vietnamese people that have long-term residence overseas then go back to work in Vietnam

b.10) Benefits for medical employees in villages.

b.11) Occupational benefits.

The allowances and benefits that are not included in taxable incomes as guided in Point b Clause 2 of this Article must be defined by competent authorities.

If the documents on allowances and benefits are applicable to the public sector, other economic sectors and business establishments shall calculate allowances and benefits based on such documents.

If the actual benefits and allowances received are in excess of those stated above, the excess shall be included in taxable incomes.

Lump-sum moving allowances for foreigners that reside in Vietnam and Vietnamese people working overseas shall be deducted in accordance with the labor contract or collective bargaining agreement.

Thus, if an employee receives severance or redundancy pay according to the prescribed levels, it is not included in taxable income subject to PIT.

However, if the severance pay received by the employee exceeds the levels prescribed by the Labor Code 2019, the excess amount will be subject to PIT.

Is severance pay paid to employees in Vietnam subject to PIT? (Image from the Internet)

Who are employees required to pay PIT in Vietnam?

Under Article 2 of the PIT Law 2007, employees who are subject to PIT include:

- Personal income taxpayers include residents who earn taxable incomes specified in Article 3 of the Personal Income Tax Law 2007 inside and outside the Vietnamese territory and non-residents who earn taxable incomes specified in Article 3 of the Personal Income Tax Law 2007 inside the Vietnamese territory.

- Resident means a person who satisfies one of the following conditions:

+ Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months counting from the first date of their presence in Vietnam;

+ Having a place of habitual residence in Vietnam, which is a registered place of permanent residence or a rented house for dwelling in Vietnam under a term rent contract.

- Non-resident individuals are those who do not meet the conditions specified in clause 2, Article 2 of the PIT Law 2007.

What is the time of determination of taxable income for non-resident employees in Vietnam?

Under Article 32 of the PIT Law 2007, the time of determination of taxable income is regulated as follows:

Time of determination of taxable income

1. Time of determination of taxable income with respect to incomes specified in Article 25 of this Law is the time when a non-resident earns an income or a goods sale or service provision invoice is issued.

2. Time of determination of taxable income with respect to incomes specified in Articles 26, 27, 30 and 31 of this Law is the time when an organization or individual in Vietnam pays an income to a non-resident or when a non-resident receives an income from an overseas organization or individual.

3. Time of determination of taxable income with respect to incomes specified in Articles 28 and 29 of this Law is the time when a transfer contract becomes effective.

Article 33. Responsibilities of income-paying organizations and individuals and responsibilities of non-resident taxpayers

1. Income-paying organizations and individuals shall withhold and remit tax into the state budget upon each time of payment of taxable incomes to taxpayers.

2. Non-resident taxpayers shall make tax declaration and payment upon each time of generation of taxable income in accordance with the law on tax administration.

The determination of taxable income for PIT of non-resident employees is the time when an organization or individual in Vietnam pays an income to a non-resident or when a non-resident receives an income from an overseas organization or individual.