What is the guidance on calculating the damage eligible for PIT reduction in Vietnam?

What are the cases of PIT reduction in Vietnam?

Under Article 5 of the PIT Law 2007:

Tax reduction

Taxpayers who face difficulties caused by natural disasters, fires, accidents or severe diseases and affecting their tax payment ability may be considered for tax reduction corresponding to the extent of damage they suffer from but not exceeding payable tax amounts.

Thus, taxpayers who face difficulties caused by natural disasters, fires, accidents or severe diseases and affecting their tax payment ability may be considered for tax reduction corresponding to the extent of damage they suffer from but not exceeding payable tax amounts.

What is the guidance on calculating the damage eligible for PIT reduction in Vietnam? (Image from the Internet)

What is the guidance on calculating the damage eligible for PIT reduction in Vietnam?

Under Article 4 of Circular 111/2013/TT-BTC:

Tax reduction

According to Article 5 of the Law on Personal income tax and Article 5 of the Decree No. 65/2013/ND-CP, the taxpayers facing difficulties in paying tax due to natural disasters, accidents, or fatal diseases shall receive a tax reduction in proportion to the damage. The reduction shall not exceed the tax payable. In particular:

1. Determination of reduced tax:

a) Tax reduction shall be considered in the tax year. The taxpayer shall receive tax reduction for the tax year in which the taxpayer suffers from natural disaster, fire, accident, or fatal disease.

b) The tax payable used for calculating tax reduction is the total personal income tax payable in the tax year, including:

b.1) The paid or withheld personal income tax on incomes from capital investment, incomes from capital transfer, incomes from real estate transfer, incomes from winning prizes, incomes from royalties, incomes from franchising, incomes from inheritance, and incomes from gifts.

b.2) The personal income tax payable on incomes from business and incomes from wages, remunerations.

c) The basis for calculating the damage eligible for tax reduction is the total expenditure for repairing damage minus the indemnities provided by insurers (if any) or compensations provided by the organization or individual that caused the accident (if any).

d) The reduced tax is determined as follows:

d.1) If the tax payable in the tax year is higher than the damage level, the reduced tax is equal to the damage level.

d.2) If the tax payable in the tax year is lower than the damage level, the reduced tax is equal to the tax payable.

2. The procedure and application for tax reduction shall comply with guiding documents on tax administration.

Taxpayers facing difficulties in paying tax due to natural disasters, accidents, or fatal diseases shall receive a tax reduction in proportion to the damage. The reduction shall not exceed the tax payable.

Damage eligible for tax reduction = the total expenditure for repairing damage - the indemnities provided by insurers (if any) or compensations provided by the organization or individual that caused the accident (if any).

Which entities are PIT payers in Vietnam?

Under Article 1 of Circular 111/2013/TT-BTC amended by Article 2 of Circular 119/2014/TT-BTC,:

Taxpayers

Taxpayers being residents and non-residents mentioned in Article 2 of the Law on Personal income tax, Article 2 of the Government's Decree No. 65/2013/NĐ-CP dated June 27, 2013 on guidelines for the Law on Personal income tax and the Law on amendments to the Law on Personal income tax (hereinafter referred to as Decree No. 65/2013/NĐ-CP) who earn taxable income as prescribed in Article 3 of the Law on Personal income tax and Article 3 of Decree No. 65/2013/NĐ-CP.

Taxable income is determined as follows:

Taxable income earned by a resident is the income earned within and beyond Vietnam’s territory regardless of the place where income is paid;

Any individual who is a citizen of a country or territory that has entered into an agreement on double taxation and prevention of tax avoidance with Vietnam, and also a resident in Vietnam shall calculate personal income tax from the month that individual arrives at Vietnam (if the individual goes to Vietnam for the first time) to the month in which the labor contract expires and the individual leaves Vietnam without following procedures for consular certification to avoid double taxation according to the double taxation agreement between the two countries.

Taxable income of a non-resident is income earned in Vietnam, regardless of the place where income is paid and received"

Thus, according to the above regulations, the following entities are subject to PIT: residents and non-residents with taxable income generated within and outside the territory of Vietnam according to the regulations. To be specific:

- Residents are individuals who meet one of the following conditions:

(1) Being present in Vietnam for 183 days or more within a calendar year or within 12 consecutive months from the first day of presence in Vietnam, with the arrival and departure date being counted as one day.

(2) Having a regular place of residence in Vietnam in one of the following cases:

+ Having a regular place of residence according to the regulations of the law on residence;

+ Having a leased house in Vietnam as per the housing law, with a lease term of 183 days or more in the tax year;

In cases where individuals have a regular place of residence in Vietnam according to the above regulations but are actually present in Vietnam for less than 183 days in the tax year and cannot prove their residence in another country, they are considered Vietnamese residents.

Proof of residence in another country is based on a Residence Certificate. In cases where individuals from countries or territories that have signed tax agreements with Vietnam do not have regulations for issuing Residence Certificates, they will provide a photocopy of their passport to prove their residence period.

- Non-residents are individuals who do not meet the above conditions.