What is taxable income? How to distinguish taxable income and income subject to tax in Vietnam?
What is taxable income? How to distinguish taxable income and income subject to tax in Vietnam?
Currently, there is no official document defining taxable income. However, the definition of income subject to tax can be understood as follows:
Taxable income is the actual income that an individual or organization must pay tax on, after deducting deductions as prescribed by law. This is an important basis for the tax authorities to calculate the amount of tax the taxpayer has to pay.
In the field of personal income tax, the two concepts "income subject to tax" and "taxable income" are often mentioned, but not everyone understands the difference between these two concepts as well as how they are applied in practice. However, these two concepts can be distinguished based on the following criteria:
| Criteria | Income Subject to Tax | Taxable Income |
| Definition | The total income that is legally subject to tax. | The remainder of the income after deducting legitimate deductions. |
| Scope | Includes all income that is subject to taxation. | Only includes income after deductions. |
| Role | The initial basis for determining taxable income. | The final basis for calculating the tax payable. |
From the above definitions, it can be seen that income subject to tax forms the basis for determining taxable income.
Note: Information is for reference purposes only!
What is taxable income? How to distinguish taxable income and income subject to tax in Vietnam? (Image from Internet)
What are the 10 types of personal income taxable in Vietnam?
Based on Article 3 of the Personal Income Tax Law 2007 (as amended by Clause 1, Article 1 of the Amended Personal Income Tax Law 2012 and Article 2 of the Law on Amending Tax Laws 2014), taxable personal income is defined as follows:
(1) Income from business:
- Income from the production, business activities of goods, services;
- Income from practicing independently by individuals with licenses or practicing certificates as prescribed by law.
Business income as defined above does not include income from individuals with business revenue of 100 million Vietnamese Dong per year or less.
(2) Income from wages and salaries:
- Wages, salaries, and other amounts of wage or salary nature;
- Allowances, assistances, except for those per regulations on preferential treatment for meritorious people, defense, security allowances, hazardous, dangerous allowances for jobs in hazardous, dangerous environments, location-based allowances as prescribed by law, unexpected difficulty allowances, labor accident, occupational disease allowances, one-time allowance for childbirth or adoption, labor capacity reduction allowance, one-time pension allowance, monthly death gratuity, severance allowance, job loss allowance under the Labor Code, other social insurance benefits, allowances for addressing social evils;
- Remunerations in various forms;
- Income from participating in business associations, boards of directors, supervisory boards, management councils, and organizations;
- Other benefits received, in cash or not;
- Bonuses, except bonuses accompanied by State accolades, national/international awards, bonuses for technical innovations, inventions recognized by competent state authorities, bonuses for detecting/reporting legal violations to competent state authorities.
(3) Income from capital investment:
- Interest from loans;
- Profits earned from shareholding;
- Income from other forms of capital investment, excluding income earned from bonds by the Government of Vietnam.
(4) Income from capital transfer:
- Income from transferring stakes in economic organizations;
- Income from securities transfer;
- Income from capital transfer in other forms.
(5) Income from real estate transfer:
- Income from transferring land usage rights and assets attached to the land;
- Income from transferring ownership or usage rights of real estate;
- Income from leasing rights of land, water surfaces;
- Other income from real estate transfer.
(6) Income from winning prizes:
- Lottery winnings;
- Prizes from promotional schemes;
- Winnings from betting;
- Prizes from contests and games with awards and other forms of prizes.
(7) Income from royalties:
- Income from transferring, assigning intellectual property rights;
- Income from technology transfer.
(8) Income from franchising
(9) Income from inheritance:
Inheritance of securities, stakes in organizations, business establishments, real estate, and other assets requiring ownership or usage registration.
(10) Income from gifts:
Gifts in securities, stakes in organizations, business establishments, real estate, and other assets requiring ownership or usage registration.
What are formulas for calculating personal income tax from various income sources in Vietnam?
Based on Circular 111/2013/TT-BTC (amended and supplemented by Circular 92/2015/TT-BTC), the formulas for calculating tax from various income sources are as follows:
| Types of taxable personal income | Personal income tax calculation formula | Legal basis |
| From business, wages, and salaries | Article 7 Circular 111/2013/TT-BTC | |
| - For resident individuals signing labor contracts of 03 months or more | Tax payable = (Income subject to tax - Deductions) x Tax rate | |
| - For resident individuals not signing labor contracts/ signing contracts under 03 months | Tax payable = Total income before payment * Tax rate 10% | |
| - For non-resident individuals | Tax payable = Income subject to tax * Tax rate 20% | |
| From capital investment | Tax payable = Taxable income x Tax rate 5% | Article 10 Circular 111/2013/TT-BTC |
| From capital transfer | Article 11 Circular 111/2013/TT-BTC | |
| - For income from transferring stakes | Tax payable = Transfer price x Tax rate 20% | |
| - For income from securities transfer | Tax payable = Securities transfer price per transaction x Tax rate 0.1% | |
| From real estate transfer | Tax payable = Transfer price x Tax rate 2% + In cases of jointly owned real estate, tax obligations are determined separately for each taxpayer according to the ownership ratio. The basis for determining the ownership ratio includes legal documents such as initial capital contribution agreements, wills, or court decisions for distribution, etc. + In the absence of legal documents, each taxpayer's tax obligation is determined based on the average proportion. |
Article 12 Circular 111/2013/TT-BTC |
| Personal income tax from royalties | Tax payable = Taxable income x Tax rate 5% | Article 13 Circular 111/2013/TT-BTC |
| Personal income tax from franchising | Tax payable = Taxable income x Tax rate 5% | Article 14 Circular 111/2013/TT-BTC |
| Personal income tax from winning prizes | Tax payable = Taxable income x Tax rate 5% | Article 15 Circular 111/2013/TT-BTC |
| Personal income tax from inheritance, gifts | Tax payable = Taxable income x Tax rate 10% | Article 16 Circular 111/2013/TT-BTC |
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