Is the personal exemption applicable to Vietnamese non-residents' business income?

Is the personal exemption applicable to Vietnamese non-residents' business income?

Based on Article 19 of the Law on Personal Income Tax 2007, as amended by clause 4, Article 1 of the 2012 Amended Law on Personal Income Tax, Article 1 of Resolution 954/2020/UBTVQH14, and clause 4, Article 6 of the 2014 Amended Laws on Tax, specific regulations on personal exemption are as follows:

personal exemption

1. personal exemption is an amount deducted from taxable income before tax calculation for income from business, salary, wages of resident taxpayers. The personal exemption includes the following two parts:

a) The deduction for the taxpayer is 11 million VND/month (132 million VND/year);

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

2. The determination of the personal exemption for dependents follows the principle that each dependent is only entitled to one deduction from a taxpayer.

3. Dependents are those whom the taxpayer is responsible for supporting, including:

a) Minor children; children who are disabled, unable to work;

b) Individuals without income or with income not exceeding the prescribed level, including adult children studying at universities, colleges, vocational schools; spouse unable to work; parents who are beyond working age or unable to work; other people without any support whom the taxpayer must directly support.

The Government of Vietnam stipulates the income level and declaration to determine dependents for personal exemption.

Therefore, according to the above regulations, business income of Vietnamese non-residents is not entitled to personal exemptions.

Is the personal exemption applicable to Vietnamese non-residents' business income? (Image from Internet)

How to determine the business income tax for Vietnamese non-residents?

According to Article 25 of the Law on Personal Income Tax 2007, there are specific regulations on the business income tax base for Vietnamese non-residents:

[1] Tax on business income of Vietnamese non-residents is determined by the revenue from production, business activities specified in clause 2, Article 25 of the Law on Personal Income Tax 2007 multiplied by the tax rate specified in clause 3, Article 25.

[2] Revenue is the total amount arising from the supply of goods, services, including costs paid by the purchaser in lieu of the Vietnamese non-resident that is not reimbursed.

If the contract agreement does not include personal income tax, the revenue for tax calculation must be converted to the total amount received by the Vietnamese non-resident in any form from the supply of goods, services in Vietnam, irrespective of the location of business activities.

What tax rate applies to business income of Vietnamese non-residents?

According to Article 25 of the Law on Personal Income Tax 2007, there are specific regulations on tax for business income as follows:

Tax on Business Income

....

3. The tax rate for business income is specified for each field, industry of production, and business as follows:

a) 1% for goods trading activities;

b) 5% for service business activities;

c) 2% for production, construction, transportation, and other business activities.

Therefore, according to the above regulations, the tax rates for business income of Vietnamese non-residents are specifically divided as follows:

- Goods trading activities will be subject to a 1% tax rate.

- Production, construction, transportation activities will be subject to a 2% tax rate.

- Other business activities will be subject to a 2% tax rate.

- Service business activities will be subject to a 5% tax rate.

What income of Vietnamese non-residents is subject to personal income tax?

According to point b, clause 1, Article 2 of Decree 65/2013/ND-CP, specific regulations on individuals are as follows:

Taxpayers

1. Personal income taxpayers include resident and Vietnamese non-residents with taxable income stipulated in Article 3 of the Law on Personal Income Tax and Article 3 of this Decree. The scope of taxable income determination for taxpayers is as follows:

a) For Vietnamese residents, taxable income is the income arising within and outside the territory of Vietnam, regardless of the place of income payment;

b) For Vietnamese non-residents, taxable income is the income arising in Vietnam, regardless of the place of income payment.

2. A Vietnamese resident is someone who meets one of the following conditions:

a) Present in Vietnam for 183 days or more in a calendar year or 12 consecutive months from the first day of presence in Vietnam;

Individuals present in Vietnam as per this point are within the territory of Vietnam.

b) Having a regular place of residence in Vietnam under one of the following cases:

- Having a registered permanent residence according to residence law;

- Having a rented house to stay in Vietnam as per housing law, with lease contracts of 183 days or more during the tax year.

If an individual has a regular place of residence in Vietnam but is physically present in Vietnam for less than 183 days during the tax year and cannot prove residency in another country, that individual is deemed a resident in Vietnam.

3. A Vietnamese non-resident is someone who does not meet the conditions prescribed in Clause 2 of this Article.

Therefore, according to the above regulations, the taxable income for Vietnamese non-residents is the income arising in Vietnam, regardless of the place of income payment.