What are the cases where personal income tax is not deductable from salaries and wages for Vietnamese residents?

What incomes from salaries and wages are taxable income in Vietnam?

Pursuant to Clause 2, Article 3 of the Personal Income Tax Law 2007 (amended by Clause 1, Article 1 of the Amended Personal Income Tax Law 2012), Taxable income from salaries and wages includes:

- Salaries, wages, and amounts of a salary or wage nature;

- Allowances and subsidies, except for:

+ Allowances and subsidies as per the legal provisions regarding preferential treatment for individuals with meritorious services;

+ Defense and security allowances;

+ Hazardous and dangerous job allowances for sectors, occupations, or work in locations with hazardous and dangerous factors;

+ Attraction allowances and regional allowances as prescribed by law;

+ Extraordinary difficulty subsidies, accident subsidies, occupational disease allowances, one-time childbirth or adoption allowances, disability reduction allowances, one-time retirement allowances, monthly survivor allowances, and other subsidies as per social insurance law;

+ Severance and unemployment benefits as prescribed by the Labor Code;

+ Social protection subsidies and other allowances and subsidies not of a salary or wage nature according to the regulations of the Government of Vietnam.

What are the cases where personal income tax is not deductable from salaries and wages for Vietnamese residents? (Image from the Internet)

Shall salary payers deduct payable tax amounts from incomes of taxpayers in Vietnam?

According to Article 28 of Decree 65/2013/ND-CP, the following is specified:

Tax Deduction

1. Tax deduction is the practice where the organization or individual paying income calculates and deducts the taxable amount from the income of the taxpayer before paying the income.

2. Types of income that must be deducted for tax:

a) Income of non-Vietnamese residents, including cases without presence in Vietnam;

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

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

d) Income from capital investment;

đ) Income from capital transfer by non-Vietnamese residents, securities transfer;

e) Income from winning prizes;

g) Income from copyrights;

h) Income from franchise transactions.

The employer is responsible for deducting personal income tax (PIT) from the income from salaries and wages before paying the salary to the employees, except for instances where employees have non-taxable income or have a commitment for exemption from deduction (in accordance with the legal provisions).

What are the cases where personal income tax is not deductable from salaries and wages for Vietnamese residents?

According to point b, point i, clause 1, Article 25 of Circular 111/2013/TT-BTC, the following is prescribed:

Tax Deduction and Tax Deduction Certificates

1. Tax deduction

Tax deduction is where the organization or individual paying income calculates and deducts the taxable amount from the taxpayer’s income before paying the income. To be specific:

..

b) Income from salary, wages

b.1) For Vietnamese residents with labor contracts of three (03) months or more, the organization or individual paying such income conducts tax deduction according to the progressive tax rate schedule, even for individuals contracting for three (03) months or more at multiple places.

b.2) For Vietnamese residents with contracts of three (03) months or more but quit before the contract expiration, the income-paying organization or individual still conducts tax deduction according to the progressive tax rate schedule.

...

b.5) The amount of tax to be deducted for income from salaries and wages of Vietnamese residents is determined according to guidelines in Article 7 of this Circular; for non-Vietnamese residents, it is determined according to Article 18 of this Circular.

...

i) Tax deduction for some other cases

Organizations or individuals paying wages, remuneration, or other pay to Vietnamese residents without labor contracts (according to guidelines at point c, d, clause 2, Article 2 of this Circular) or with labor contracts under three (03) months paying a total of two million (2,000,000) VND or more each time must deduct tax at a rate of 10% on the income before payment.

In cases where an individual only has the sole income subject to tax deduction at the above-stipulated rate but estimates that their total taxable income after family deductions is below the taxable threshold, the individual can make a commitment (using a form issued with the guidance document on tax management) and submit it to the income-paying organization to avoid temporary tax deduction.

Based on the income receiver’s commitment, the income-paying organization does not deduct tax. At the end of the tax year, the income-paying organization must still compile a list and the income of individuals not reaching the tax deduction threshold (using a form issued with the guidance document on tax management) and submit it to the tax authority. Individuals making commitments must take responsibility for their commitment's content, and fraud cases will be handled according to the Law on Tax Management.

Individuals making a commitment as per this guidance must have taxpayer registration and a tax identification number at the commitment time.

To determine the amount of tax to be deducted from wages and salaries for Vietnamese residents, reference Clause 1, Article 7 of Circular 111/2013/TT-BTC, which prescribes as follows:

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

The basis for calculating tax on income from business and income from salaries and wages is taxable income and tax rate. To be specific:

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

a) Family deductions following the guidance from clause 1, Article 9 of this Circular.

b) Contributions to insurance, voluntary retirement funds according to the guidance from clause 2, Article 9 of this Circular.

c) Charitable, humanitarian, and educational promotion contributions according to the guidance from clause 3, Article 9 of this Circular.

Additionally, based on Article 1 of Resolution 954/2020/UBTVQH14, the family deduction levels are specified as follows:

Family Deduction Levels

Adjust the family deduction levels prescribed in clause 1, Article 19 of the Personal Income Tax Law 04/2007/QH12, amended and supplemented by Law 26/2012/QH13, as follows:

1. The deduction level for taxpayers is 11 million VND/month (132 million VND/year);

2. The deduction level for each dependent is 4.4 million VND/month.

Based on the aforementioned regulations, cases not subject to personal income tax deduction from salaries and wages include:

- Employees with labor contracts of 03 months or more with income below the taxable level:

Under the above regulations, individuals with contracts of 03 months or more are subject to PIT deduction according to progressive tax rates, based on taxable income.

Wherein: Taxable income = Taxable income - Deductions.

Thus, if an employee's total income after family deductions and obligatory insurance and charitable, humanitarian, and educational contributions does not exceed the taxable threshold, they will not be subject to deductions (Below 11 million VND/month for the taxpayer, if having dependents, additional 4.4 million VND/month per dependent).

- Individuals with labor contracts under 3 months or without labor contracts are exempt from deduction due to valid commitments.

To be specific, individuals in the aforementioned case with only sole income subject to a 10% withholding tax but estimate that their total income after family deductions does not reach the taxable threshold can make a commitment not to deduct tax (using the issued form). Conditions include:

+ Individuals have registered for taxpayer status and possess a tax code.

+ Individuals must be responsible for the content of their commitments.

- Individuals with labor contracts under 3 months or without labor contracts with a total income under two million (2,000,000) VND per occurrence.