Vietnam: How much personal income tax reduction is granted if the tax payable in the tax year is higher than the damage level?

Vietnam: How much personal income tax reduction is granted if the tax payable in the tax year is higher than the damage level?

Pursuant to Article 4 of Circular 111/2013/TT-BTC as stipulated below:

Tax Reduction

In accordance with Article 5 of the Personal Income Tax Law, Article 5 of Decree No. 65/2013/ND-CP, taxpayers facing difficulties due to natural disasters, fires, accidents, severe illnesses affecting their tax payment ability may be considered for a tax reduction corresponding to the extent of damage but not exceeding the tax payable. Specifically:

1. Determining the Amount of Tax Reduction

a) The examination for tax reduction is conducted according to the tax year. Taxpayers facing difficulties due to natural disasters, fires, accidents, severe illnesses in any tax year will be considered for a reduction of the taxes payable for that tax year.

b) The tax payable that serves as the basis for tax reduction consideration is the total personal income tax that the taxpayer must pay in the tax year, including:

b.1) Personal income tax that has been paid or deducted regarding income from capital investment, income from capital transfer, income from real estate transfer, income from winnings, income from royalties, income from franchise, inheritance income; gift income.

b.2) Personal income tax payable on income from business and income from wages, salaries.

c) The basis for determining the extent of damage eligible for tax reduction is the total actual expenses for damage recovery minus (-) compensations received from insurance organizations (if any) or from organizations or individuals causing the accident (if any).

d) The amount of tax reduction is determined as follows:

d.1) In case the tax payable in the tax year is greater than the extent of damage, the tax reduction equals the extent of damage.

d.2) In case the tax payable in the tax year is less than the extent of damage, the tax reduction equals the tax payable.

2. Procedures and documents for tax reduction examination follow the guidance documents on tax management.

If the personal income tax payable in the tax year is greater than the extent of damage, the tax reduction will be equal to the extent of damage.

Vietnam: How much personal income tax reduction is granted if the tax payable in the tax year is higher than the damage level? (Image from Internet)

Who are personal income taxpayers in Vietnam?

Based on Article 1 of Circular 111/2013/TT-BTC, as amended by Article 2 of Circular 119/2014/TT-BTC as follows:

Taxpayers

Taxpayers are residents and non-residents as defined in Article 2 of the Personal Income Tax Law, Article 2 of Decree No. 65/2013/ND-CP dated June 27, 2013, of the Government of Vietnam detailing some articles of the Personal Income Tax Law and the Law on amendments and supplements to some articles of the Personal Income Tax Law (hereinafter referred to as Decree No. 65/2013/ND-CP), having taxable income in accordance with Article 3 of the Personal Income Tax Law and Article 3 of Decree No. 65/2013/ND-CP.

The scope for determining taxable income of taxpayers is as follows:

For resident individuals, taxable income is the income arising both inside and outside the territory of Vietnam, regardless of the place of income payment;

For individuals who are nationals of countries or territories that have signed Agreements with Vietnam on avoiding double taxation and preventing tax evasion concerning income taxes and are residents in Vietnam, the personal income tax liability is calculated from the month they enter Vietnam if it is their first time staying in Vietnam until the month the labor contract ends and they leave Vietnam (calculated in full months) without having to conduct consular certification procedures to be exempted from being taxed twice under the Agreement on avoiding double taxation between the two countries.

For non-resident individuals, taxable income is the income arising in Vietnam, regardless of the place of income payment and receipt.

Thus, according to the above regulations, the following subjects are required to pay personal income tax: residents and non-residents with taxable income arising within and outside the territory of Vietnam as prescribed. Among them:

- A resident individual is a person who meets one of the following conditions:

(1) Being present in Vietnam for 183 days or more within a calendar year or within 12 consecutive months from the first day of presence in Vietnam, whereby the day of arrival and day of departure are counted as 01 day each.

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

+ Having a regular residence as per the law on residence;

+ Having a leased house to live in Vietnam in accordance with the housing law, with the lease contracts lasting from 183 days or more within the tax year;

In cases where an individual has a regular residence in Vietnam as per the above provisions but actually stays in Vietnam for less than 183 days in the tax year and cannot prove to be a resident of another country, such individual is considered as a resident of Vietnam.

Proof of being a resident of another country is based on a Certificate of Residency. In cases where the individual is from a country or territory that has signed a tax agreement with Vietnam but does not issue a certificate of residency, the individual provides a photocopy of the Passport to prove the residency period.

- A non-resident individual is a person who does not meet the above conditions.

What are taxable income from wages and salaries for personal income tax in Vietnam?

According to Clause 2, Article 3 of the Personal Income Tax Law 2007, amended by Clause 1, Article 1 of the Law on Amendments to the Personal Income Tax Law 2012, income from salaries, and wages subject to personal income tax includes the following:

- Salaries, wages, and other amounts of similar nature to salaries and wages;

- Allowances and subsidies, except for the following:

+ Allowances and subsidies as stipulated by law on preferential treatment for persons with contributions; national defense and security allowances;

+ Hazardous, toxic allowances for industries, occupations, or jobs at workplaces with hazardous or toxic elements;

+ Attraction allowances, regional allowances as stipulated by law;

+ Sudden difficulty allowances, accident, occupational disease subsidies, lump-sum allowance for childbirth or adoption, allowances for reduced work capacity, lump-sum pension allowance, monthly survivorship allowance, and other subsidies per the social insurance law;

+ Severance allowances, unemployment allowances under the Labor Code;

+ Social protection allowances and other allowances and subsidies not of the nature of salaries and wages per the Government of Vietnam regulations.