What are 03 methods for personal income tax withholding for employees in Vietnam?

Are incomes from wages and salaries of employees subject to withholding in Vietnam?

According to Article 28 of Decree 65/2013/ND-CP as follows:

Tax Withholding

1. Tax withholding is the act by which organizations or individuals paying income implement the deduction of the payable tax amount from the income of the taxpayer before making the payment.

2. Types of incomes subject to tax withholding:

a) Income of non-resident individuals, including cases where they are not present in Vietnam;

b) Income from wages, salaries, remuneration, including remuneration from brokerage activities;

c) Income of individuals from insurance agency activities, lottery agencies, multi-level sales;

d) Income from capital investment;

dd) Income from the transfer of capital of non-resident individuals, securities transfer;

e) Income from winnings;

g) Income from royalties;

h) Income from franchise activities.

3. The Ministry of Finance shall specify the cases, rates, and methods for individual income tax withholding stipulated in this Article.

Accordingly, wages and salaries of employees fall under the type of income subject to individual income tax withholding.

What are 03 methods for personal income tax withholding for employees in Vietnam? (Image from the Internet)

What are 03 methods for personal income tax withholding for employees in Vietnam?

According to point b and point i, clause 1, Article 25 of Circular 111/2013/TT-BTC (amended by clause 1, Article 20 of Circular 92/2015/TT-BTC), provides guidance on tax withholding for income from wages and salaries of employees, where enterprises shall implement personal income tax withholding for employees according to the following three methods:

(1) Withhold tax according to the progressive tax schedule, applicable for:

- Resident individuals signing labor contracts of three (03) months or more (including cases where individuals sign contracts of three (03) months or more at multiple places);

Individuals residing and signing labor contracts of three (03) months or more but terminating the contract prematurely, the organization or individual paying income still withholds tax according to the progressive tax schedule.

- Foreign individuals working in Vietnam, the organization or individual paying income bases the temporary tax withholding on the period of work in Vietnam recorded in the Contract or documents sending them to work in Vietnam (for individuals with a period of work in Vietnam from 183 days in the tax year).

(2) Withhold tax according to the full tax schedule, applicable for:

- Foreign individuals working in Vietnam with a period of work in Vietnam under 183 days in the tax year.

The organization or individual paying income bases the tax withholding on the period of work in Vietnam recorded in the Contract or documents sending them to work in Vietnam.

(3) Withhold tax at a rate of 10% on income before payment to individuals, applicable for:

- Resident individuals not signing labor contracts (as guided in point c, d clause 2, Article 2 of Circular 111/2013/TT-BTC) or signing labor contracts under three (03) months with a total income payment from two million (2,000,000) VND per instance or more shall withhold tax at a rate of 10% on income before payment to individuals.

Note for this case, if an individual only has a singular income subject to withholding as per the above rate but estimates their total taxable income after deductions does not reach the taxable threshold, the income-income individual may make a commitment (using the form issued together with the tax management guidance documents) to the income-paying organization to temporarily avoid personal income tax withholding.

Based on the recipient's commitment, the income-paying organization does not withhold tax. At the end of the tax year, the income-paying organization must still compile a list and income details of individuals not reaching the withholding threshold (using the form issued along with the tax management guidance documents) and submit it to the tax authority. Individuals making the commitment are responsible for their commitments, and any fraud detected will be dealt with following the provisions of the current Tax Management Law.

Is the enterprise required to provide tax withholding certificates to employees in Vietnam?

Regarding the content related to personal income tax withholding certificates, clause 2, Article 25 of Circular 111/2013/TT-BTC stipulates as follows:

Tax Withholding and withholding certificates

...

2. withholding certificates

a) Organizations or individuals paying incomes that have withheld taxes according to the guidance in clause 1 of this Article must issue withholding certificates as requested by the individuals subject to withholding. In cases where individuals authorize tax finalization, withholding certificates shall not be issued.

b) Issuance of withholding certificates in some specific cases as follows:

b.1) For individuals not signing labor contracts or signing labor contracts under three (03) months: individuals have the right to request the organization or individual paying income to issue withholding certificates for each tax withholding instance or issuing one document for multiple tax withholdings within one tax period.

Example 15: Mr. Q signs a service contract with company X to take care of ornamental plants in the company compound according to a schedule of once a month from September 2013 to April 2014. His income was paid monthly by the Company with an amount of 3 million VND. Thus, in this case, Mr. Q can request the Company to issue withholding certificates per month or issue one document reflecting the tax withheld from September to December 2013 and one document for the time from January to April 2014.

b.2) For individuals signing labor contracts of three (03) months or more: the organization or individual paying income only issues one withholding certificate to the individual for one 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 direct tax finalization with the tax authority and requests the Company to issue a withholding certificate, the Company will issue one document reflecting the tax withheld from September to the end of December 2013 and one document for the period from January to the end of August 2014.

Accordingly, the enterprise only provides tax withholding certificates to employees upon their request, and in cases where individuals authorize tax finalization, withholding certificates shall not be issued.