Does the government direct the adjustment of the deduction threshold for personal income tax in Vietnam?

Does the government direct the adjustment of the deduction threshold for personal income tax in Vietnam?

On February 5, 2024, the Government issued Resolution 20/NQ-CP in 2024 on the regular Government meeting in January 2024.

In the Annex specifying the specific tasks assigned to ministries, agencies, and localities in February 2024, attached to Resolution 20/NQ-CP in 2024, it is explicitly stated that the Government assigns the task to the Ministry of Finance to lead and coordinate with relevant agencies and localities in studying and proposing to the Government the adjustment of the deduction threshold for personal income tax to support and alleviate difficulties in people's lives.

At the same time, it is necessary to implement synchronized and effective measures regarding taxes, fees, and charges that have been authorized to be issued; promptly propose and report to the authorized authorities on the policies of exemptions, reductions, and extensions that need to be applied in the near future.

Does the government direct the adjustment of the deduction threshold for personal income tax in Vietnam? - image from internet

What is the reduction based on family circumstances in Vietnam?

Pursuant to Article 19 of the Law on Personal Income Tax in 2007 (amended by Clause 4 Article 1 of the Law on amenments to the Law on Personal Income Tax in 2012 and Article 1 of the Resolution 954/2020/UBTVQH14) stipulating reduction based on family circumstances as follows:

Reduction based on family circumstances

1. Reduction based on family circumstances means a sum of money deductible from pre-tax income from business, salary or wage of a resident taxpayer. Reduction based on family circumstances consists of the following two parts:

a) Personal exemption: 11 million VND/month (132 million VND/year);

b) Dependent exemption: 4,4 million VND/dependent/month.

In case the Consumer Price Index (CPI) changes over 20% compared to the effective time of the Law or the latest time point of adjusting the reduction based on family circumstances, the Government submits to the Standing committee of the National Assembly for adjustment of the reduction based on family circumstances specified in this clause in conformity with changes of price in order to apply for the next tax term.

2. The level of reduction based on family circumstances applicable to dependants is determined on the principle that each dependant may be counted only once for tax reduction for a taxpayer.

3. Dependants of a taxpayer means persons a taxpayer is responsible for nurturing or taking care of, including:

a/ His/her minor children or disabled children who are incapable of working;

b/ Individuals who have no income or have incomes not exceeding the prescribed level, including adult children who are studying at a university, college, professional secondary school or job-training establishment; his/her spouse who is incapable of working; his/her parents who are beyond the working age or incapable of working; other supportless persons whom the taxpayer has to directly nurture.

The Government shall specify the income level and declaration for identification of dependants to be counted for reduction based on family circumstances.

Pursuant to Article 1 of the Resolution 954/2020/UBTVQH14 stipulating reduction based on family circumstances in Vietnam as follows:

Exemptions

The exemptions specified in Clause 1 Article 19 of the Law on Personal Income Tax No. 04/2007/QH12, amended by Law No. 26/2012/QH13, are changed as follows:

1. Personal exemption: 11 million VND/month (132 million VND/year);

2. Dependent exemption: 4,4 million VND/dependent/month.

As regulations above, if the taxpayer is a resident, the rate of reduction based on family circumstances in Vietnam is as follows:

- Personal exemption: 11 million VND/month (132 million VND/year);

- Dependent exemption: 4,4 million VND/dependent/month.

Note: The amount of family deduction is subtracted from taxable income before calculating taxes on income from business, wages, and salaries.

Who are dependents of taxpayers in Vietnam?

Pursuant to Clause 1.d Article 9 of the Circular 111/2013/TT-BTC stipulating dependents of taxpayers in Vietnam as follows:

- Children, legitimate adopted children, illegitimate children, stepchildren. To be specific:

+ Children under 18 years of age.

+ Children from 18 years of age and over that are disabled and incapable of work.

+ Children studying in Vietnam or overseas in universities, college, vocational schools, including children from 18 years of age and over in high schools (including the period awaiting university enrolment result from June to September in 12th grade) that have no income or have the average monthly income of ≤ 1.000.000 VND in the year from all sources.

- The taxpayer's spouse that meets the conditions as prexcribed by law.

- The taxpayer’s parents, parents-in-law, stepparents, legitimate adoptive parents.

- Other dependants that the taxpayer has to provide for, who meet the conditions as prescribed by law, including:

+ The taxpayer’s brothers and sisters.

+ The taxpayer’s grandparents, aunts, uncles.

+ The taxpayer’s nieces and nephews.

+ Other people to provide for as prescribed by law.

A person that meets the conditions below shall be considered a dependant:

- The person of working age must meet all conditions below:

+ The person is disabled and incapable of work.

+ The person has no income or his average monthly income from all sources does not exceed 1,000,000 VND.

- The people outside working age shall have no income or their average monthly income from all sources shall not exceed 1,000,000 VND.

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