Shall PIT apply to additional payment for probationers in Vietnam?

Are probationers required to pay personal income tax in Vietnam?

According to the provisions of Article 25 of Circular 111/2013/TT-BTC, tax deduction is addressed as follows:

Tax Deduction and Tax Deduction Certificates

1. Tax Deduction

...

b) Income from wages, salaries

b.1) For resident individuals signing labor contracts of three (03) months or more, the organization or individual paying the income shall deduct taxes 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 labor contracts of three (03) months or more but cease working before the contract ends, the organization or individual paying the income still deducts taxes according to the progressive tax schedule.

...

i) Tax deduction for certain other cases

Organizations or individuals paying wages, remunerations, or other expenses to resident individuals not signing labor contracts (as instructed in points c, d, clause 2, Article 2 of this Circular) or signing contracts under three (03) months with a total monthly income from two million (2,000,000) VND or more must deduct tax at a rate of 10% of the income before paying the individual.

If an individual has only the income subject to tax deduction at the rate stated above but estimates that the total taxable income after family deductions is not up to the taxable level, the individual with such income must make a commitment (using the sample issued together with tax management guidelines) and submit it to the income-paying organization so that the organization may temporarily not deduct PIT for such individuals.

Based on the individual's commitment, the income-paying organization may not deduct tax. At the end of the tax year, the organization must compile a list and report the income of individuals not up to the tax deduction level (using the sample issued with tax management guidelines) and submit it to the tax authorities. Individuals making commitments must be responsible for their commitments; if found fraudulent, they will be handled per the law on tax management.

Individuals making commitments as guided in this point must have a taxpayer registration and a tax identification number at the time of commitment.

2. Tax Deduction Certificates

a) Organizations or individuals paying income with deducted tax as instructed in clause 1 of this Article must issue tax deduction vouchers as per the request of the deducted individual. If the individual authorizes tax finalization, no tax deduction certificate is issued.

b) Issuing tax deduction certificates in specific cases as follows:

b.1) For individuals not signing labor contracts or signing labor contracts under three (03) months: The individual has the right to request their income-paying organization or individual to issue tax deduction certificates for each deduction instance or one certificate for multiple deductions within one tax period.

Example 15: Mr. Q signs a service contract with company X to take care of ornamental trees in the company's premises on a monthly schedule from September 2013 to April 2014. Mr. Q's income is paid monthly with an amount of 3 million VND. In this case, Mr. Q can request the company to issue tax deduction certificates monthly or one certificate reflecting deducted tax from September to December 2013 and another for the period from January to April 2014.

b.2) For individuals signing labor contracts from three (03) months or more: The income-paying organization or individual issues one tax deduction certificate per tax period.

Example 16: Mr. R signs a long-term labor contract (from September 2013 to the end of August 2014) with company Y. In this case, if Mr. R is subject to directly finalizing taxes with the tax authority, and requests the company to issue tax deduction certificates, the company will issue one certificate reflecting deducted tax from September to the end of December 2013 and another for the period from January to the end of August 2014.

Thus, tax deductions for probationer are implemented as follows:

(1) For probationers signing contracts of three (03) months or more, the organization or individual paying income deducts taxes according to the progressive tax schedule.

(2) For probationers signing contracts under three (03) months, the enterprise will deduct tax at a rate of 10% of income before paying the laborer.

However, in this case, if the laborer only has income subject to the aforementioned tax deduction but estimates the total taxable income, after family deductions, is not up to the taxable level, they must make a commitment to the income-paying enterprise for the enterprise to temporarily not deduct PIT for such individuals.

Shall PIT apply to additional payment for probationers in Vietnam? (Image from the Internet)

Shall additional payment equal to insurance contribution be made for probationers in Vietnam?

According to clause 1, Article 24 of Labor Code 2019, probation is regulated as follows:

Probation

1. The employer and employee may agree on probation content recorded in a labor contract or agree on probation by entering a probation contract.

2. The main content of a probation contract includes the probation period and the provisions at points a, b, c, đ, g, and h of clause 1, Article 21 of this Code.

3. Probation does not apply to employees entering labor contracts with a term of less than one month.

The employer and employee may agree on probation content recorded in a labor contract or agree on probation by entering a probation contract.

If the company and the employee agree on probation by signing a probation contract (not a labor contract), then the contents of the probation contract must comply with clause 2, Article 24 of Labor Code 2019, which do not include provisions regarding compulsory social insurance, health insurance, and unemployment insurance.

For cases where the employee and company agree on probation within a labor contract, they must conformably follow the provisions of clause 1, Article 21 of Labor Code 2019 regarding social insurance, health insurance, and unemployment insurance.

Moreover, clause 1, Article 2 of the Social Insurance Law 2014 specifies that when signing a labor contract from one month or more, the employee must participate in social insurance. And clause 3, Article 168 of Labor Code 2019 prescribes the employer's obligation to pay additional insurance contributions to the employee's salary when the employee does not fall into the category of mandatory insurance participation.

Thus, the determination of additional payment equal to the insurance contribution for probationers is as follows:

(1) Probation by signing a probation contract: The company is not required to pay insurance or additional amounts equal to the insurance payment into the probationer's salary.

(2) Probation by signing a labor contract:

- If the employee is required to participate in insurance, the company and the employee must pay insurance contributions accordingly. The company does not pay additional amounts equivalent to insurance contributions to the probation salary.

- If the employee is not required to participate in insurance, the company pays an additional amount equal to the social insurance contribution into the probation salary.

Shall PIT apply to additional payment for probationers in Vietnam?

Article 168 of Labor Code 2019 states the obligations concerning social insurance, health insurance, and unemployment insurance:

Participation in Social Insurance, Health Insurance, and Unemployment Insurance

1. Employers and employees must participate in mandatory social insurance, health insurance, and unemployment insurance; employees are entitled to benefits under the law regarding social insurance, health insurance, and unemployment insurance.

Employers and employees are encouraged to participate in other forms of insurance for employees.

...

3. For employees not subject to mandatory social insurance, health insurance, and unemployment insurance, the employer must additionally pay at the same time as the salary payment a sum equivalent to the employer's contributions to mandatory social insurance, health insurance, and unemployment insurance for the employee according to the law on social insurance, health insurance, unemployment insurance.

Consequently, a company's additional payment to probationers (who are not subject to mandatory social insurance participation) at the same time as the salary payment, equivalent to the employer's contributions to mandatory social insurance, is appropriate.

Regarding PIT applied to additional payments for employees, Article 2, Clause 2 of Circular 111/2013/TT-BTC specifies:

Taxable Income Categories

...

2. Income from Wages and Salaries

Income from wages, salaries is income that employees receive from employers, including:

a) Wages, salaries, and income of a similar nature under forms of money or non-money.

b) Allowances, subsidies, except for certain allowances, subsidies such as:...

...

đ) Monetary or non-monetary benefits outside wages, salaries provided by employers that taxpayers receive in any form:

...

Moreover, Article 7 of Circular 111/2013/TT-BTC outlines the tax basis for taxable income from wages and salaries:

Tax Basis for Taxable Income from Business, Wages, and Salaries

...

1. Taxable income is determined by taxable income as guided in Article 8 of this Circular minus (-) the following reductions:

a) Family circumstances-based reductions according to the guidance in clause 1, Article 9 of this Circular.

b) Contributions to insurance, voluntary pension funds as guided in clause 2, Article 9 of this Circular.

c) Contributions to charity, humanitarian, study promotion as guided in clause 3, Article 9 of this Circular.

Thus, the additional payment by the enterprise to probationers (who are not subject to mandatory social insurance participation) at the same time as the salary payment is identified as monetary benefits outside wages, salaries that employees enjoy. Therefore, this additional payment to probationers will be subject to PIT.

For further guidance, please refer to Official Dispatch 32076/CTHN-TTHT in 2021 regarding personal income tax on additional payments to probationers issued by the Hanoi Tax Department.