Proposal to supplement regulations on personal income tax exemption for income paid by the voluntary pension fund in Vietnam?
- Are retirement pensions paid by social insurance exempt from personal income tax in Vietnam?
- If an employee withdraws money once before retirement, is he or she exempt from personal income tax in Vietnam?
- Proposal to supplement regulations on PIT exemption for income paid by the voluntary pension fund in Vietnam?
Are retirement pensions paid by social insurance exempt from personal income tax in Vietnam?
According to the provisions of Clause 10, Article 4 of the 2007 Law on Personal Income Tax of Vietnam (amended and supplemented by Clause 2, Article 1 of the 2012 Law amending and supplementing a number of articles of the Law on Personal Income Tax) stipulating this issue as follows:
Tax exempt incomes
...
10. Retirement pensions paid by the Social Insurance Fund; retirement pensions paid monthly by the Voluntary Retirement Fund.
11. Incomes from scholarships, including:
a/ Scholarships granted from the state budget;
b/ Scholarships granted by domestic and foreign organizations under their study promotion programs.
12. Incomes from indemnities paid under life insurance policies, non-life insurance policies, compensations for labor accidents, compensations paid by the State and other compensations as provided for by law.
13. Incomes received from charity funds licensed or recognized by competent state agencies and operating for charity, humanitarian or non-profit purposes.
14. Incomes received from governmental or non-governmental foreign aid for charity or humanitarian purposes approved by competent state agencies.
Thus, the law now stipulates that retirement pensions paid by the Social Insurance Fund; retirement pensions paid monthly by the Voluntary Retirement Fund is exempt from personal income tax.
Proposal to supplement regulations on personal income tax exemption for income paid by the voluntary pension fund in Vietnam?
If an employee withdraws money once before retirement, is he or she exempt from personal income tax in Vietnam?
Pursuant to the provisions of Clause 10, Article 4 of the 2007 Law on Personal Income Tax of Vietnam and in Section 2.2, Subsection 2, Section II, Appendix 2, the Draft Government's Proposal on the Law and Ordinance Development Program in 2024; Adjusting the Law and Ordinance Development Program in 2023, the Ministry of Justice commented as follows:
Clause 10, Article 4 of the 2007 Law on Personal Income Tax of Vietnam stipulates: “retirement pensions paid by the Social Insurance Fund; retirement pensions paid monthly by the Voluntary Retirement Fund” are PIT-exempt incomes.
Clause 1, Article 21 of the 2007 Law on Personal Income Tax of Vietnam stipulates that individuals are entitled to deduct compulsory insurance contributions as prescribed, contributions to the voluntary retirement fund before PIT calculation. The government sets a maximum deduction for voluntary pension fund contributions.
Also in Decree 12/2015/ND-CP dated February 12, 2015 of the Government, stipulating the level of contribution to the voluntary pension fund, the purchase of voluntary pension insurance shall be deducted from income when determining calculated income. Personal income tax must not exceed 01 million VND/month, including the amount paid by the employer to the employee and the amount paid by the employee himself (if any).
In practice, the problems that arise are:
According to the provisions of the Law, individuals are only entitled to PIT exemption for the monthly pension paid by the voluntary pension fund.
So, in case an employee withdraws money once before retirement, will he or she be exempt from PIT? If not exempt from tax, how to collect PIT?
Regarding the PIT policy for income from retirement savings, international experience research shows that there are two common methods applied by countries today. The first method is: "tax exempt - tax exempt - taxed" or "taxed - tax exempt - tax exempt".
Under the first method, both the income used to contribute to the fund and the interest earned from the fund are exempt from tax, but tax is collected on the benefits enjoyed when the money is withdrawn from the fund.
The second method is "taxable - tax exempt - tax exempt", whereby contributions are not deductible when determining taxable income, but interest and personal benefits are enjoyed when withdrawing money from the fund are tax exempt.
Compared with the current form of social insurance, both when contributing and receiving pensions and benefits, individuals are exempt from tax.
Meanwhile, individuals who contribute to the voluntary retirement fund are only allowed to subtract from their income up to 1 million VND/month according to the State's incentive policies, while the higher contributions must be aggregated into their taxable incomes, which means that voluntary retirement contributions are earnings after PIT has been paid.
Until an individual receives a payment from the Fund if only the monthly pension income is exempt, the individual is not exempt from tax on the lump-sum receipt.
The Ministry of Justice believes that this regulation is not really appropriate, especially in promoting the development of voluntary retirement programs according to the guidelines and orientations of the Party and State.
Proposal to supplement regulations on PIT exemption for income paid by the voluntary pension fund in Vietnam?
In Item 2.2, subsection 2, Section II, Appendix 2, Draft Government's Proposal on Law and Ordinance Development Program in 2024; Adjusting the Law and Ordinance Development Program in 2023 proposes orientations to amend and supplement regulations on PIT exemption for income paid by the voluntary pension fund as follows:
To encourage individuals to participate in voluntary retirement programs, thereby contributing to promoting the development of voluntary retirement, voluntary supplementary retirement, and proposed tax exemption for pensions paid by voluntary pension funds, regardless of lump-sum payment or monthly payment.
Thus, research to amend Clause 10, Article 4 of the Law on Personal Income Tax to cover the cases arising in practice (including the cases of monthly payment).
This proposal will ensure fairness between the two forms of insurance participation, which are compulsory social insurance and voluntary pension insurance in the form of monthly payment and one-time payment; encourage individuals to participate in voluntary retirement programs, voluntary supplemental retirement to supplement their income when they retire.
The provision of PIT exemption for pensions paid by voluntary pension funds is extremely urgent and contributes to building a more sustainable social security system.
See the entire Appendix 2 to the Government's Draft Proposal on the Law and Ordinance Development Program in 2024; Adjust the program for developing laws and ordinances in 2023: here
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