What is settlement? What are the common settlement forms in Vietnam? Does interest from settlement of savings accounts incur personal income tax in Vietnam?
What is Settlement?
Currently, the law has not yet defined what settlement is. Settlement is a term commonly used in the financial and banking sector, meaning the conclusion or completion of a financial transaction, contract, or account. Upon settlement, all balance or related financial obligations are resolved, and no further transactions will arise from it.
Generally speaking, settlement can be understood as the action of terminating a transaction or contract between the bank and the customer. This means that the customer and the bank have fully repaid and settled all debts to each other.
The customer and the bank can settle at two points in time as follows:
- Early settlement: Terminating the transaction before the deadline stipulated in the contract. For early settlement, the requesting party will incur an additional fee, considered as a penalty fee.
- On-time settlement: Terminating the transaction according to the deadline stipulated in the contract.
What is settlement? What are the common settlement forms in Vietnam? Does interest from settlement of savings accounts incur personal income tax in Vietnam? (Image from the Internet)
What are the common settlement forms in Vietnam?
At present, the common settlement forms include:
(1) Settlement of savings accounts/savings books
Settlement of savings accounts/savings books is when the bank pays interest and principal for the savings account as per the customer's wishes. There are two forms of settlement for savings accounts, including:
- Settlement of term savings accounts: Term savings accounts have a certain term from 3 - 36 months. Upon maturity, settlement will be executed, and the customer receives both interest and principal back.
- Settlement of non-term savings accounts: For non-term savings accounts, the customer has the right to settle at any time. The process to close the account and perform settlement is also extremely simple and quick.
(2) Settlement of loans
Settlement of loans occurs when the customer has completed repayment of the debt in the loan contract with the bank, and the loan is then settled, terminating the obligations and rights among the parties involved. The customer has the right to settle on the due date or before the due date in the loan contract. In case of early settlement, there is usually an additional fee to be paid, which varies by bank and is stipulated in the original loan contract.
(3) Settlement of insurance contracts
Settlement of insurance contracts includes:
- Periodic settlement: Annual or contractual premium payments.
- Early settlement: Terminating the insurance contract before the due date and receiving the surrender value (amount may be less than the premiums paid).
Does interest from the settlement of savings accounts incur personal income tax in Vietnam?
Based on Article 3 of Circular 111/2013/TT-BTC regulating income exempted from personal income tax as follows:
Income exempted from tax
- Pursuant to the provisions in Article 4 of the Law on Personal Income Tax, Article 4 of Decree No. 65/2013/ND-CP, exempted income includes:
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g) Income from interest on deposits at credit institutions, foreign bank branches, interest from life insurance contracts; income from interest on bonds issued by the Government of Vietnam.
g.1) Interest on deposits exempted from tax as stipulated at this point is individual income received from interest on deposits in Vietnamese Dong, gold, foreign currency at credit institutions, foreign bank branches established and operating under the Law on Credit Institutions in the form of non-term, term deposits, savings accounts, certificates of deposit, promissory notes, treasury bills, and other forms of receiving deposits under the principle of full repayment of principal and interest to the depositor according to the agreement.
The basis for determining tax-exempt income for interest on deposits is the savings book (or savings card), certificate of deposit, promissory note, treasury bill, and other documents under the principle of full repayment of principal and interest to the depositor according to the agreement.
g.2) Interest from life insurance contracts is the interest that an individual receives under a life insurance purchase contract from insurers.
The basis for determining tax-exempt income for interest from life insurance contracts is the documentation of interest received from the life insurance contract.
g.3) Interest on bonds issued by the Government of Vietnam is the income an individual receives from purchasing Government of Vietnam bonds issued by the Ministry of Finance.
The basis for determining tax-exempt income for interest on bonds issued by the Government of Vietnam is the face value, interest rate, and term on the Government bond.
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According to the above provisions, interest from the settlement of savings accounts belongs to cases exempted from personal income tax.
Note: Interest from the settlement of savings accounts is money deposited by customers in Vietnamese Dong, gold, or foreign currency at credit institutions, or foreign bank branches established and operating under the Law on Credit Institutions.
