What are personal exemptions in Vietnam?

What are personal exemptions in Vietnam?

Based on Clause 1, Article 25 of Circular 111/2013/TT-BTC, amended by Clause 2, Article 20 of Circular 92/2015/TT-BTC, personal exemptions is the process by which organizations or individuals paying income deduct the amount of tax payable from the taxpayer's income before disbursement. To be specific:

- Income of non-resident individuals

Organizations and individuals paying taxable income to non-resident individuals are responsible for withholding personal income tax prior to disbursement. The amount of tax to be withheld is determined according to the guidelines in Chapter 3 (from Article 17 to Article 23) of Circular 111/2013/TT-BTC.

- Income from wages and salaries

+ For resident individuals who sign labor contracts for three (03) months or more, the organizations or individuals paying income shall withhold tax according to the partially progressive tax table, even if the individual signs contracts for three (03) months or more at multiple places.

+ For resident individuals who sign labor contracts for three (03) months or more but cease working prior to the contract's end, the organizations or individuals paying income shall still withhold tax according to the partially progressive tax table.

+ For foreign individuals working in Vietnam, the organizations or individuals paying income shall base the temporary withholding tax on the time the taxpayer works in Vietnam, as noted in the contract or deployment documents to Vietnam's work assignment, using either the partially progressive tax table (for individuals who work in Vietnam for 183 days or more in the tax year) or the full tax rate table (for individuals who work in Vietnam for less than 183 days in the tax year).

+ Insurance enterprises have the responsibility to withhold tax on the accumulated premium amount corresponding to the part where the employer buys life insurance (excluding voluntary retirement insurance) for employees and other non-mandatory insurance with premium accumulation of insurers established and operating under Vietnam's law. The amount of tax to be withheld is determined as guided in Clause 2, Article 14 of Circular 92/2015/TT-BTC.

Organizations or individuals paying income are responsible for withholding tax on the insurance premium amount paid or contributed before paying wages to employees for life insurance, other non-mandatory insurance with premium accumulation of insurers not established and operating under Vietnamese law but permitted to sell insurance in Vietnam purchased by the income-paying organization or individual for employees. The amount of tax to be withheld is determined as per Clause 2, Article 14 of Circular 92/2015/TT-BTC.

+ The amount of tax to be withheld for income from wages and salaries of resident individuals is determined as per Article 7 of Circular 111/2013/TT-BTC; for non-resident individuals, it is determined as per Article 18 of Circular 111/2013/TT-BTC.

- Income from insurance agency, lottery agency, and multi-level marketing; Income from leasing assets to enterprises and economic organizations.

Lottery companies, insurers, multi-level marketing enterprises paying commissions to individuals acting as lottery agents, insurance agents, and participating in multi-level marketing networks with commission-money payments exceeding 100 million VND/year are responsible for withholding personal income tax prior to disbursement. The amount of tax to be withheld is determined as per Clause 2, Article 9 of Circular 92/2015/TT-BTC (amended by Clause 6, Article 20 of Circular 40/2021/TT-BTC).

Enterprises and economic organizations renting assets from individuals are responsible for withholding VAT and personal income tax prior to disbursing over 100 million VND/year to individuals renting assets if the rental contract stipulates that the lessee is the tax payer. The amount of tax to be withheld is determined as per Clause 2, Article 8 of Circular 92/2015/TT-BTC.

- Income from capital investment

Organizations and individuals paying income from capital investment as guided in Clause 3, Article 2 of Circular 111/2013/TT-BTC are responsible for withholding personal income tax before disbursing income to individuals except in cases where individuals self-declare tax as guided in Clause 9, Article 26 of Circular 111/2013/TT-BTC. The amount of tax to be withheld is determined as per Article 10 of Circular 111/2013/TT-BTC.

- Income from the transfer of securities

In all cases of transferring securities, tax must be withheld at the rate of 0.1% on the transfer price before payment is made to the transferor. To be specific: tax withholding is conducted as follows:

+ For securities traded on the Stock Exchange:

++ Securities companies and commercial banks where individuals have securities depository accounts are responsible for withholding personal income tax at the rate of 0.1% on the transfer price before disbursing payments to individuals. The amount of tax to be withheld is determined as per point b.2, Clause 2, Article 11 of Circular 111/2013/TT-BTC.

++ Fund management companies where individuals mandate securities portfolio management are responsible for withholding personal income tax at the rate of 0.1% on the transfer price of securities per the portfolio allocation scheme sent to the depository bank where the company opens a depository account.

+ For securities transferred outside of the Stock Exchange trading system:

++ For securities of public companies already registered centrally at the Securities Depository Center:

Securities companies and commercial banks where individuals have securities depository accounts are responsible for withholding personal income tax at the rate of 0.1% on the transfer price before executing the procedure for the transfer of securities ownership at the Securities Depository Center.

++ For securities of joint-stock companies not yet public but where the issuer authorizes a securities company to manage the shareholder list:

The authorized securities company managing the shareholder list is responsible for withholding personal income tax at the rate of 0.1% on the transfer price before executing the procedure for the transfer of securities ownership.

Individuals transferring securities must present a transfer contract to the securities company when executing the transfer of securities ownership.

-Income from transferring capital contributions of non-resident individuals

Organizations and individuals receiving the transfer of capital contributions from non-resident individuals are responsible for withholding personal income tax at the rate of 0.1% on the transfer price of capital contributions.

- Income from winnings

Organizations paying winnings are responsible for withholding personal income tax before disbursing winnings to individuals. The amount of tax to be withheld is determined as per Article 15 of Circular 111/2013/TT-BTC.

- Income from royalties and franchise fees

Organizations and individuals paying income from royalties and franchise fees are responsible for withholding personal income tax before disbursing income to individuals. The amount of withholding tax is determined by the excess of income over 10 million VND per contract, multiplied by the tax rate of 5%. In cases where the contract value is large and paid in installments, the first payment installment, the organization or individual paying income deducts 10 million VND from the payment value, the remaining amount must be multiplied by the tax rate of 5% to withhold tax. For subsequent payments, tax withholding is calculated based on the total payment amount of each installment.

- Tax withholding in some other cases

Organizations and individuals paying salaries, wages, and other payments to resident individuals without labor contracts (according to point c and d, Clause 2, Article 2 of Circular 111/2013/TT-BTC) or with labor contracts under three (03) months with a total payment from two million VND or more per time must withhold tax at the rate of 10% on income before payment to individuals.

In cases where individuals have only a single income subject to the abovementioned withholding tax rate but estimate that their total taxable income after deducting family circumstances is not subject to tax payment, the income-receiving individuals can make a commitment (per the form issued with tax management guidance documents) and send it to the paying organization to temporarily suspend the withholding of personal income tax.

Based on the individual's commitment, the paying organization does not withhold tax. At the end of the tax year, the paying organization must still compile a list and income of individuals who did not reach the tax withholding level (on the form issued with tax management guidance documents) and submit it to the tax authority. Individuals making the commitment are responsible for their own commitment; in case of fraud, they will be handled according to the provisions of the 2019 Tax Administration Law.

Individuals making commitments per point i, Clause 1, Article 25 of Circular 111/2013/TT-BTC must have a taxpayer registration and tax code at the time of making the commitment.

What is personal exemptions in Vietnam? (Image from the Internet)

What is the certificate of tax withheld at source in Vietnam?

Based on Clause 2, Article 25 of Circular 111/2013/TT-BTC, the provisions on certificate of tax withheld at source are as follows:

- Organizations and individuals paying income that have withheld tax under the guidance of Clause 1, Article 25 of Circular 111/2013/TT-BTC must issue withholding tax certificates on the individual's request. In cases where individuals authorize tax finalization, withholding certificates are not issued.

- Issuing withholding certificates in some specific cases:

+ For individuals without labor contracts or with labor contracts under three (03) months: individuals have the right to request organizations or individuals paying income to issue withholding tax certificates for each tax withholding or for multiple tax withholdings in a tax period.

+ For individuals with labor contracts of three (03) months or more: organizations or individuals paying income shall issue only one withholding tax certificate per tax period.

Vietnam: Are income payers required to declare and finalize tax for individuals who authorize them if no tax withholding arises?

Based on point d.1, Clause 6, Article 8 of Decree 126/2020/ND-CP, the regulations are as follows:

Types of taxes declared monthly, quarterly, annually, by each tax obligation arising, and annual tax finalization

...

6. Types of taxes, fees declared annually and finalized to the point of dissolution, bankruptcy, termination of activity, termination of contracts, or reorganization of the enterprise. In cases of conversion of the enterprise type (excluding the equitization of state enterprises) where the converting enterprise inherits all tax obligations of the converted enterprise, no tax finalization is required to the point of decision on conversion; the enterprise declares finalization at the end of the year. To be specific:

...

d.1) Organizations and individuals paying income from wages and salaries are responsible for declaring and finalizing tax on behalf of individuals who authorize them, regardless of whether tax withholding arises or not. In cases where organizations or individuals do not have payment arising, no personal income tax declaration is required. In cases where employees are transferred from the old organization to the new organization due to mergers, consolidations, splits, divisions, conversion of enterprise types, or if the old and new organization are in the same system, the new organization is responsible for finalizing tax on behalf of the individual for both the income paid by the old organization and retrieving the individual income tax withholding certificates issued by the old organization (if any).

...

Thus, income payers are responsible for declaring and finalizing tax on behalf of individuals who authorize them, regardless of whether tax withholding arises or not.