Shall personal income tax paid abroad be deducted from personal income tax payable in Vietnam?

Shall personal income tax paid abroad be deducted from personal income tax payable in Vietnam?

Pursuant to Clause 3, Article 62 of Circular 80/2021/TT-BTC regulating the deduction of taxes paid abroad from taxes payable in Vietnam as follows:

Procedure for exemption or reduction of taxes according to the Double Tax Avoidance Agreement (Tax Agreement)

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3. Deduction of taxes paid abroad from taxes payable in Vietnam

Organizations and individuals who are residents of Vietnam and have paid taxes in a country that has signed a Tax Agreement with Vietnam, and the paid taxes comply with the foreign legal regulations and the Tax Agreement, shall have the paid taxes (or deemed paid) in the country that has signed the Tax Agreement with Vietnam deducted from the personal income tax payable in Vietnam. The procedure for deducting taxes paid abroad from taxes payable in Vietnam is as follows:

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Thus, personal income tax paid abroad will be deductible from the personal income tax payable in Vietnam when the following three conditions are met:

- The individual is a resident of Vietnam.

- The individual has paid taxes in a country that has signed a Tax Agreement with Vietnam.

- The paid taxes comply with the foreign legal regulations and the Tax Agreement.

Shall personal income tax paid abroad be deducted from personal income tax payable in Vietnam? (Image from the Internet)

What are principles for deducting personal income tax paid abroad from personal income tax payable in Vietnam?

Pursuant to Article 48 of Circular 205/2013/TT-BTC regulating the principles for deducting personal income tax paid abroad from personal income tax payable in Vietnam as follows:

- Tax paid in the Signatory Country is deductible as specified in the Agreement between the Signatory Country and Vietnam;

- The deductible tax amount must not exceed the amount payable in Vietnam calculated on income from the Signatory Country according to the current tax laws in Vietnam; however, it must not be deductible or refundable if it exceeds the amount paid abroad;

- Tax paid in the Signatory Country is the tax incurred during the taxable year in Vietnam.

What are procedures for deducting personal income tax paid abroad from tax payable in Vietnam?

Pursuant to Clause 3, Article 62 of Circular 80/2021/TT-BTC regulating the procedures for deducting personal income tax paid abroad from tax payable in Vietnam as follows:

(1) The taxpayer submits a dossier requesting the deduction of taxes paid (or deemed paid) abroad from taxes payable in Vietnam to the directly managing tax authority. The dossier includes:

- A request form for deducting foreign taxes from taxes payable in Vietnam under the Tax Agreement using Form No. 02/HTQT issued with Appendix 1 of Circular 80/2021/TT-BTC, which provides information about transactions related to foreign taxes to be deducted from taxes payable in Vietnam under the Tax Agreement.

- Other documents depending on the form of deduction request, specifically:

+ Direct deduction: The taxpayer has paid taxes in a country that has signed the Agreement with Vietnam and is deductible from Vietnam's payable tax according to the Tax Agreement.

++ Copy of the foreign income tax declaration confirmed by the taxpayer;

++ Copy of foreign tax payment receipt confirmed by the taxpayer;

++ Original certification from the foreign tax authority about the paid taxes.

+ Lump-sum tax deduction: The taxpayer has income and is supposed to pay taxes in a country that has signed the Agreement with Vietnam, but under the laws of that country is exempted or reduced as a special incentive measure, and is deductible from Vietnam's payable tax according to the Tax Agreement.

++ Copy of the foreign income tax declaration confirmed by the taxpayer;

++ Copy of business registration or legal documents confirming business activities abroad, confirmed by the taxpayer;

++ Confirmation letter from the competent foreign authority on tax exemption, reduction, and confirming the request for lump-sum tax deduction complies with the Tax Agreement and the Signatory Country’s laws.

+ Indirect deduction: The taxpayer has paid corporate income tax before the income is distributed to the entity in the country which signed the Tax Agreement with Vietnam and is deductible from Vietnam's payable tax according to the Tax Agreement.

++ Legal documents proving the relationship and capital contribution ratio of the entity requesting deduction;

++ Copy of the foreign income tax declaration of the company distributing dividends that the entity contributes to, confirmed by the taxpayer;

++ Copy of the withholding tax declaration for distributed dividends, confirmed by the taxpayer;

++ Certification from the foreign tax authority on the tax paid for distributed dividends and the corporate income tax paid before dividends distribution.

- Power of attorney in case the taxpayer authorizes a legal representative to perform the tax agreement application procedures.

(2) The tax authority shall base its consideration and resolution on the submitted dossiers to deduct the taxes paid abroad from taxes payable in Vietnam according to the Tax Agreement and guidance in Circular 80/2021/TT-BTC within 10 working days from the date of receipt of the complete dossier as stipulated at Point a, Clause 3, Article 62 of Circular 80/2021/TT-BTC. The 10 working day period does not include the time for dossier supplementation and explanation.