When must foreign residents who are employees working in Vietnam pay personal income tax?

When must foreign residents who are employees working in Vietnam pay personal income tax?

Based on Article 1 Circular 111/2013/TT-BTC, amended by Article 2 Circular 119/2014/TT-BTC, the regulations are as follows:

Taxpayers

Taxpayers are residents and non-residents as prescribed in Article 2 of the Personal Income Tax Law, Article 2 of Decree No. 65/2013/ND-CP dated June 27, 2013 of the Government of Vietnam detailing several articles of the Personal Income Tax Law and the Law amending and supplementing several articles of the Personal Income Tax Law (hereinafter referred to as Decree No. 65/2013/ND-CP), with taxable income as prescribed in Article 3 of the Personal Income Tax Law and Article 3 of Decree No. 65/2013/ND-CP.

The scope of determining taxable income for taxpayers is as follows:

For residents, taxable income is income arising both within and outside the territory of Vietnam, regardless of the place of payment;

For individuals who are citizens of a country or territory that has concluded an Agreement with Vietnam to avoid double taxation and prevent tax evasion on income taxes and is a resident in Vietnam, personal income tax obligations are calculated from the month they enter Vietnam for the first time until the end of the labor contract and departure from Vietnam. The tax calculation is done on a monthly basis, and consular certification procedures to implement double tax avoidance agreements between two countries are not required.

For non-residents, taxable income is income arising in Vietnam, regardless of the place of payment and receipt of income.

1. A resident is a person who meets one of the following conditions:

a) Present in Vietnam for 183 days or more within a calendar year or for 12 consecutive months from the first day of presence in Vietnam, in which the arrival and departure days are counted as one (01) day. The arrival and departure days are based on the certification of the immigration management agency on the individual’s passport (or laissez-passer). If the individual enters and exits on the same day, it is counted as one (01) day of residence.

An individual is present in Vietnam as guided in this point means the individual's presence on the territory of Vietnam.

b) Having a regular residence in Vietnam according to one of the following cases:

b.1) Having a regular residence in accordance with the provisions of the law on residence:

b.1.1) For Vietnamese citizens: the regular residence is where the individual regularly, stably lives without a fixed term at a particular place of residence and has registered permanent residence according to the provisions of the law on residence.

b.1.2) For foreigners: the regular residence is the place of permanent residence written in the Permanent Residence Card or temporary residence when registering for a Temporary Residence Card issued by a competent authority of the Ministry of Public Security.

b.2) Having rented a house to live in Vietnam according to the provisions of the law on housing, with rental contracts lasting 183 days or more in the tax year. Specifically:

b.2.1) An individual who does not have or has not had a regular residence according to the guidance in point b.1, clause 1, this Article but has a total number of rental days for living according to rental contracts from 183 days or more in the tax year is also determined as a resident, even in the case of renting houses in different places.

b.2.2) Rented houses for living include staying in hotels, guest houses, inns, workplaces, offices, etc., regardless of whether the individual rents them or the employer rents them for the employee.

In the case where an individual has a regular residence in Vietnam as stipulated in this clause but is actually present in Vietnam for less than 183 days in the tax year and cannot prove to be a resident of any other country, that individual is considered a resident of Vietnam.

Proof of being a resident of another country is based on a Residency Certificate. If the country or territory that has concluded a tax agreement with Vietnam does not stipulate the issuance of Residency Certificates, the individual must provide a photocopy of their Passport to substantiate their residence duration.

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Thus, in cases where foreign residents who are employees working in Vietnam earn income both within and outside the territory of Vietnam, regardless of the place of payment and receipt of the income, they will have to pay personal income tax according to Vietnamese law.

When must foreign residents who are employees working in Vietnam pay personal income tax? (Image from the Internet)

Should salary payments for foreign employees be made in Vietnamese Dong or foreign currency?

Based on Article 95 Labor Code 2019 the regulations are as follows:

Salary payments

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2. The salary stated in the labor contract and salary paid to employees shall be in Vietnamese Dong. In the case of foreign employees in Vietnam, the salary can be in foreign currency.

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Therefore, the use of Vietnamese Dong or foreign currency to pay salaries for foreign employees is subject to the agreement between the parties.

How is personal income tax declared on a quarterly basis in Vietnam?

Based on point b clause 1, clause 2 Article 9 Decree 126/2020/ND-CP the regulations are as follows:

- Quarterly personal income tax declarations are as follows:

+ Taxpayers who are required to declare personal income tax monthly as stipulated in point a clause 1 Article 8 Decree 126/2020/ND-CP and meet the conditions for quarterly VAT declarations may choose to declare personal income tax quarterly.

+ The quarterly declaration shall be determined once from the first quarter when the tax declaration obligation arises and shall remain stable throughout the calendar year.

- Taxpayers are responsible for self-determining eligibility for quarterly declarations to declare tax in accordance with regulations.

+ Taxpayers who meet the quarterly declaration criteria may choose stable monthly or quarterly declarations throughout the calendar year.

+ If taxpayers who are currently making monthly declarations and meet the quarterly declaration criteria choose to switch to quarterly declarations, they must send a written request according to Appendix I issued together with Decree 126/2020/ND-CP to request a change in the tax period to the directly managing tax authority no later than January 31 of the year starting the quarterly declaration. If taxpayers do not send the written request to the tax authority within this timeframe, they must continue with stable monthly declarations throughout the calendar year.

+ If taxpayers discover that they do not meet the criteria for quarterly declarations, they must declare monthly from the first month of the next quarter. Taxpayers do not need to submit the monthly declaration files for the previous quarters but must submit the Determination Form for Additional Monthly Tax Payment compared to the declared quarterly amount as stipulated in Appendix I issued together with Decree 126/2020/ND-CP and must calculate late payment interest according to regulations.

+ If tax authorities discover that taxpayers do not meet the criteria for quarterly declarations, they must determine the additional monthly tax payment compared to the declared quarterly amount and calculate late payment interest according to regulations. Taxpayers must make monthly declarations from the time they receive the written notice from the tax authority.