Is it possible to sue the company for breach of contract because the company withholds 10% to pay personal income tax in Vietnam?

Is it possible to sue the company for breach of contract because the company withholds 10% to pay personal income tax in Vietnam?

Pursuant to Point i, Clause 1, Article 25 of Circular 111/2013/TT-BTC providing for tax deductions as follows:

i) Withholding tax in other cases

The organization or person that pays a total income from 2 million VND to a resident that does not sign a labor contract (as guided in Point c and Point d Clause 2 Article 2 of this Circular) or that signs a labor contract for less than 03 months shall withhold 10% tax on the income before it is paid to the person.

For the person that earns only a taxable income as stated above but the total taxable income estimated after personal deductions are made does not reach the taxable level, the person shall make and send a commitment (the form is provided in the guiding documents on tax administration) to the income payer as the basis for temporarily exempting the income from personal income tax.

Based on the commitment made the income earner, the income payer shall not withhold tax. At the end of the tax year, the income payer shall make a list of persons that earn incomes below that taxable level (the form is provided in the guiding documents on tax administration) and send it to the tax authority. The persons are responsible for the commitments they made. Any deceit discovered shall be penalized in accordance with the Law on Tax administration.

The persons that make commitments as guided in this Point shall obtain tax registration and have tax codes when the commitments are made.

B did not make a commitment, so it is correct that company A retains 10% to pay tax. B cannot sue A because company A does it for a legitimate purpose to protect its personal income tax liability in Vietnam.

Who are personal income taxpayers in Vietnam? 

Pursuant to Article 1 of Circular 111/2013/TT-BTC on personal income tax payers as follows:

1. A resident is a person that meets one of the conditions below:

a) He/she has been present in Vietnam for at least 183 days in a calendar year or for 12 consecutive months from the first day of his/her presence in Vietnam (the date of arrival and date of departure are considered 01 day). The date of arrival and date of departure depends on the certification of the immigration agency on the passport (or laissez-passers) when that person enters and leaves Vietnam. If the person enters and leaves Vietnam within one day, it will be considered a day of residence.

A person in Vietnam defined in this Point is the presence of that person in Vietnam’s territory.

b) He/she has a regular residence in Vietnam in one of the following cases:

b.1) He/she has a regular residence according to regulations of law on residence:

b.1.1) For Vietnamese citizens: a place where that person regularly, stably and indefinitely lives and has been registered as a permanent residence as prescribed by regulations of law on residence.

b.1.2) For foreigners: the permanent residence written in the permanent residence card or the temporary residence when applying for the temporary residence card issued by a competent authority affiliated to the Ministry of Public Security.

b.2) He/she rents a house in Vietnam according to regulations of law on housing under a contract that has a term of at least 183 days in the tax year. To be specific:

b.2.1) A person who has no regular residence defined in Point b.1 Clause 1 of this Article will be considered a resident if he/she has a total house lease period of at least 183 days in the tax year under various lease contracts, even if a he/she rents houses in different locations.

b.2.2) The rented houses can be hotels, guesthouses, motels, offices, etc. whether they are rented by the person or their employer.

If the person has a regular residence in Vietnam according to this Clause but his/her actual presence in Vietnam is shorter than 183 days in the tax year and he/she fails to prove his/her residency in any country, that person will be considered a resident of Vietnam.

The residency in another country shall be proved by the Certificate of residence. If the person is a citizen of a country or territory that has signed a tax agreement with Vietnam and does not issue the Certificate of residence, that person shall present a photocopy of the passport to prove the period of residence.

2. A non-resident is a person who fails to meet any of the conditions specified in Clause 1 of this Article.

3. Taxpayers in some specific cases are identified as follows:

a) For the person that earns incomes from business:

a.1) If only one person is registered in the Certificate of Business, the taxpayer is person whose name is registered in the Certificate of Business registration.

a.2) If multiple people are registered in the Certificate of Business registration and participate in the business, the taxpayers are the persons whose names are registered in the Certificate of Business registration.

a.3) If multiple members of a household participate in the business but only one person is registered in the Certificate of Business registration, the taxpayer is the person whose name is registered in the Certificate of Business registration.

a.4) If the person or household does business without the Certificate of Business registration (or practice certificate), the taxpayer is the person doing business.

a.5) When leasing a house, the right to use land, water surface, and other property without business registration, the taxpayer is the person that owns the house, the right to use land, water surface and other property. If the house, the right to use land, water surface, and other property is under the ownership of multiple persons, the taxpayers are all the owners.

b) Other individuals that earn taxable incomes.

b.1) When transferring real estate under a co-ownership, taxpayers are the co-owners of such real estate.

b.2) If the person delegated to manage real estate has the right to transfer real estate or similar rights to those the real estate owner, the taxpayer is the delegating person.

b.3) If the person that transfers the ownership, the right to use protected entities according to the Law on Intellectual property and the Law on Technology transfers is the co-owner or co-author, the taxpayer is co-owner and co-author that earn incomes from such transfer.

b.4) If multiple persons participate in a franchise according to the Law on Commerce, the taxpayers are all persons that earn incomes from the franchise.

4. The taxpayers defined in Clause 1 and Clause 2 of this Article include:

a) The persons that hold Vietnamese nationality, including the persons sent to work or study overseas, and earn taxable incomes.

b) The persons that do not hold Vietnamese nationality but earn taxable income, including: foreigners working in Vietnam, foreigners that are not present in Vietnam but earn taxable incomes from Vietnam.

Best Regards!