Are bonuses from good completion of contracts subject to personal income tax in Vietnam?

Are bonuses from good completion of contracts subject to personal income tax in Vietnam?

Pursuant to Point e, Clause 2, Article 3 of Decree 65/2013/ND-CP, the taxable incomes include:

e) Monetary or non-monetary bonuses or rewards in any form, including also bonus securities, except for the following bonuses or rewards:

- Rewards accompanying honorary titles conferred by the State, including also those accompanying emulation titles and other commendation and reward forms under the law on emulation and commendation;

- Rewards accompanying international or national prizes recognized by the Vietnamese State;

- Rewards for technical renovations, innovations or inventions recognized by competent state agencies;

- Rewards for detection of and reporting on illegal acts to competent state agencies.

Pursuant to the provisions of law, the bonus that you may receive from the good performance of the contract does not fall under the tax exemptions on bonuses, so your bonus is taxable personal income in accordance with the law in Vietnam.

Do bonuses from good contract performance need to make invoices in Vietnam? 

Pursuant to Clause 1, Article 5 of Circular 219/2013/TT-BTC stipulating cases of exemption declaring and paying VAT are as follows:

1. An organization or individual receives a monetary compensation (including compensation for land and property on land that is withdrawn by a competent authority), bonus, allowance, or payment for transfer of emission permit, or other revenues.

Any taxpayer that receives a monetary compensation, bonus, allowance, payment for transfer of emission permits, or other revenues must make a receipt for such revenues. The taxpayer shall make receipts for spending according to the spending purposes.

If compensation is provided in the form of goods/services, the provider of compensation must issue an invoice, declare and pay VAT as if such goods/services are sold; the recipient of compensation shall declare and deduct tax as prescribed.

Any taxpayer that receives money from another entity to provide a service such as repair, warranty, sales promotion, or advertising must declare and pay tax as prescribed.

Example 10: Company P&C earns an interest from buying bonds and a dividend from buying shares of other companies. Company P&C is not required to declare and pay VAT on the interest buying bonds and the dividend.

Example 11: Company A receives a compensation of 50 million VND for contract termination from company B. Company A shall make a receipt and is not required to declare and pay VAT on such amount.

Example 12. Company X buys goods from company Y. Company X pays a deposit to company Y and is paid an interest on that deposit by company Y. Company X is not required to declare and pay VAT on such interest.

Example 13: Company X sells goods to company Z for totally 440 million VND. According to the contract, company Z shall pay in instalments for 03 months with an interest of 1% of the total payment per month. After 03 months, company X receives from company Z an amount that includes 440 million VND in price and 13.2 million VND in interest (440 million VND x 1% x 3 months). Company X is not required to declare and pay VAT on that 13.2 million VND.

Example 14: Insurer A and company B signs an insurance contract. When insurance is claimed, insurer A pays a compensation in cash to company B. Company B is not required to declare and pay VAT on this compensation.

Example 15: ABC is a milk company that pays its distributors to do a sales promotion (in accordance with the laws on trade promotion), marketing, and product display. When receiving the payment, the distributors that use credit-invoice method shall issue VAT invoices and calculate VAT at 10%, the distributors that use direct methods shall only use sale invoices and pay direct VAT at the prescribed rate.

Thus, based on the above provisions, in case there is a bonus payment due to good performance of contractual commitments, it is not necessary to issue a value-added invoice, but only need to make receipts and payments in Vietnam.

Best Regards!