Which fiscal year is the 13th month salary settled in in Vietnam? When is the personal income tax on the 13th month salary calculated in Vietnam?

Which fiscal year is the 13th month salary settled in in Vietnam?

Based on Official Dispatch 3620/CT-TTHT in 2017 guiding the corporate income tax policy issued by the Ho Chi Minh City Tax Department as follows:

According to the aforementioned regulation, in principle, the 13th month salary of 2016 paid by the Company to employees before the deadline for submitting the corporate income tax finalization report for the year 2016 (March 31, 2017) shall be counted as deductible expenses when determining the taxable corporate income for the year 2016*, provided that these 13th month salaries are specifically recorded with conditions and levels of entitlement in the Labor contract; Collective labor agreement; Financial regulation of the Company; Reward policy set by the Chairman of the Board, General Director of the Company in accordance with the financial regulations of the Company.*

In case the Company has submitted the annual financial report and the tax finalization declaration for the year 2016 to the Tax authority but later discovers a mistake, the Company should resubmit the financial report and corporate income tax finalization declaration for the year 2016, along with the Supplementary Explanation Table, adjustment (Form 01/KHBS) as stipulated in Clause 5, Article 10 of Circular No. 156/2013/TT-BTC of the Ministry of Finance to the Tax authority.

And based on Official Dispatch 512/CT-TTHT in 2017 guiding deductible expenses for annual bonuses to employees issued by the Ho Chi Minh City Tax Department:

In the case presented by the Company regarding the payment of the 13th month salary and "annual bonus" to employees, these expenses, if specifically recorded with conditions and levels of entitlement in any of the documents mentioned in Clause 2.6, Article 4 of Circular No. 96/2015/TT-BTC, are considered deductible expenses when determining taxable corporate income, specifically:

+ The 13th month salary of 2015, actually paid in December 2015, is counted as a deductible expense when determining taxable corporate income for the year 2015.

+ The "annual bonus" determined by the General Director based on the business results and employee performance, actually paid in April 2016, is counted as deductible expenses when determining taxable corporate income for the year 2016.

Thus, based on the above regulations, the settlement of the 13th month salary for tax purposes depends on the time the enterprise pays the salary, specifically:

- If paid to employees before the deadline for submitting the annual tax finalization dossier, it is accounted as the expense of that year.

- If the 13th month salary is paid after the deadline for submitting the annual tax finalization dossier, it is only counted as the expense of the following year.

Note: For the 13th month salary to be accounted, there must be specific provisions regarding the entitlement conditions and levels in any of the documents: (Labor contract, Collective labor agreement, Financial regulations, or Reward policy)

Which fiscal year is the 13th month salary settled in in Vietnam? When is the personal income tax on the 13th month salary calculated in Vietnam? (Image from the Internet)

When is the personal income tax on the 13th month salary calculated in Vietnam?

According to point e, clause 2, Article 2 of Circular 111/2013/TT-BTC, the regulation is as follows:

Taxable incomes

According to Article 3 of the Law on Personal Income Tax and Article 3 of Decree No. 65/2013/ND-CP, taxable incomes from personal income tax include:

...

2. Income from salary, wages

Income from salary, wages is the income that employees receive from employers, including:

...

e) Bonuses in cash or in kind in any form, including bonuses in securities*, except for the following bonuses:*

e.1) Bonuses attached to titles awarded by the State, including bonuses attached to emulation titles and forms of commendation according to the law on emulation and commendation, specifically:

e.1.1) Bonuses attached to emulation titles such as National Emulation Warrior; Emulation Warrior of Ministries, Sectors; Central mass organizations, provinces, centrally-run cities; grassroots Emulation Warrior, Advanced Labor, Advanced Warrior.

...

And based on clause 2, Article 8 of Circular 111/2013/TT-BTC, it provides the provision:

Determination of taxable income from business, salary, wages

...

2. Taxable income from salary, wages

a) Taxable income from salary, wages is determined by the total salary, wages, remuneration, and other income of similar nature received by the taxpayer during the tax period as guided in Clause 2, Article 2 of this Circular.

b) Time of determining taxable income.

The time of determining taxable income for income from salary, wages is the time when the organization or individual pays income to the taxpayer.

Only for the time of determining taxable income for the fee to purchase cumulative insurance products as guided at point đ.2, clause 2, Article 2 of this Circular, is the time when the insurer or voluntary pension fund management company pays the insurance money.

Hence, the 13th month salary does not fall under the exemptions of personal income tax. Therefore, the 13th month salary is identified as taxable personal income.

Thus, the time for calculating personal income tax on the 13th month salary is when the organization or individual pays the income to the employee.

Which incomes are exempted from personal income tax in Vietnam?

According to clause 1, Article 3 of Circular 111/2013/TT-BTC (supplemented by clauses 4 and 5, Article 12 of Circular 92/2015/TT-BTC), the specific exempted income includes:

- Income from real estate transfer (including housing and construction works formed in the future according to the real estate business law) between: spouses; biological parents to biological children; adoptive parents to adopted children; parents-in-law to daughters-in-law; parents-in-law to sons-in-law; grandparents to grandchildren; siblings to each other.

In the case of real estate (including housing and constructions that will be formed in the future according to the real estate business law) which is jointly created by spouses during marriage and identified as joint property, upon divorce, it is divided according to agreement or court judgment, such property division is exempt from tax.

- Income from transferring a house, homestead land rights, and attached property of an individual in cases where the transferor only has one house, homestead land right in Vietnam.

- Income from the value of land use rights assigned by the State without land levy or with reduced land levy as stipulated by the law.

In the case of an individual being exempt from or receiving a land levy reduction when assigned land, if transferring the area of land exempted or reduced, tax is declared and paid on the income from real estate transfer guided in Article 12 of this Circular.

- Income from inheritance, gifts being real estate (including housing and constructions that will be formed in the future according to the real estate business law) between: spouses; biological parents and children; adoptive parents and adopted children; parents-in-law and daughters-in-law; parents-in-law and sons-in-law; grandparents and grandchildren; siblings.

- Income from exchange of agricultural land to rationalize agricultural production but not changing the land use purpose of households, individuals directly producing agriculture, assigned by the State for production.

- Income of households and individuals directly engaging in agricultural, forestry, salt production, aquaculture, fishing activities not processed or only through rudimentary processing and not turned into other products.

- Income from interest on deposits at credit institutions, foreign bank branches, interest from life insurance contracts; income from interest on bonds of the Government of Vietnam.

- Income from remittances exempted from tax is the money individuals receive from overseas provided by relatives, being Vietnamese residing abroad, Vietnamese working, studying abroad.

In cases where individuals receive money from abroad sent by foreign relatives and meeting the conditions for encouraging remittance as per State Bank of Vietnam regulations, it is also exempt from tax under this point.

Basis for identifying tax-exempt income is documents proving the source of money received from overseas and records of disbursing organizations (if any).

- Income from night work or overtime wages paid higher than daytime or working hour rates as stipulated in the Labor Code.

- Pension paid from the Social Insurance Fund according to the Social Insurance Law; monthly pension received from a voluntary pension fund.

Individuals living and working in Vietnam are exempt from tax on pensions paid from abroad.

- Income from scholarships.

- Income from compensation of life insurance policies, non-life insurance, health insurance; compensation for accident; compensation, support according to the law on compensation, support, resettlement; state compensation and other compensations as per law.

- Income received from charitable funds permitted or recognized to be established by competent State Authorities, operating for charity, humanity, study promotion not for profit purposes.

- Income received from foreign aid sources for charitable, humanitarian purposes both Government and non-Government approved by competent State Authorities.

Basis for identifying tax-exempt income is the document from the competent State Authority to approve aid reception.

- Income from wages and salaries of Vietnamese crew working for foreign shipping companies or Vietnamese shipping companies in international transport.

- Income of individuals as ship owners, individuals having rights to use ships and individuals working on ships gained from directly supplying goods, services for off-shore fishery activities.