Vietnam: Are employees on probation subject to personal income tax payment?

According to Article 2 of the Law on Personal Income Tax 2007 of Vietnam, personal income taxpayers include residents who earn taxable incomes specified in Article 3 of this Law inside and outside the Vietnamese territory and non-residents who earn taxable incomes specified in Article 3 of this Law inside the Vietnamese territory.

According to Clause 2 Article 3 of the Law on Personal Income Tax 2007 of Vietnam, Clause 1 Article 1 of the Law on Personal Income Tax amended in 2012, taxable incomes include:

“2. Incomes from salaries and wages, including:

a) Salaries, wages and amounts of similar nature;

b) Allowances, subsidies, except for amounts: Those paid under legal provisions on preferential treatment of persons with meritorious services; defense or security allowances; hazard or danger allowances for persons working in branches, occupations or jobs at places where exist hazardous or dangerous elements; allowances for attraction of laborers to work in certain branches or in certain regions specified by law; allowances for sudden difficulties, allowances for laborers having labor accident or suffering from occupational disease, lump-sum maternity or child adoption allowances; allowances for working capacity loss, lump-sum retirement allowances, monthly survivorship allowances and other allowances as prescribed by law on social insurance; , severance and job-loss allowances specified in the Labor Code; subsidies of social relief nature and other allowances, subsidies without nature of salaries, wages as prescribed by the Government.”

Thus, salaries and wages employees received during the probationary period are also subject to personal income tax. PIT withholding for incomes from salary and wages for employees is specified in Point b Clause 1 Article 25 of the Circular No. 111/2013/TT-BTC of the Ministry of Finance of Vietnam as follows:

“b) Incomes from wages

b.1) The income payer shall deduct tax from incomes of residents that sign labor contracts for 03 months or longer according to the progressive tax table, including the persons that sign such contracts at various places.

b.2) The income payer shall still withhold tax from the incomes earned residents that sign labor contracts for 03 months but resign before such labor contracts expire according to the progressive tax table.

…”

Besides, according to Point i Clause 1 Article 25 of the Circular No. 111/2013/TT-BTC of the Ministry of Finance, the organization or person that pays a total income from 2 million VND to a resident that does not sign a labor contract 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 by 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 and send it to the tax authority.

Thus, according to the above regulations, it can be seen that:

- During the probationary period, the employer must withhold personal income tax at the rate of 10% on the income before paying the employee if this employee has a total income of 2,000,000 VND or more, unless the employee makes a commitment to have only one income at one company, but the estimate of the individual's total taxable income after deduction of family circumstances is not enough to pay tax, accordingly, employers will not withhold personal income tax when paying income to employees.

- If after the probationary period, the employee continues to sign a labor contract of 03 months or more with the employer, the employer is responsible for withholding personal income tax according to the Partial Progressive Tax Schedule before paying the employee including the probationary period.

Note: 

- The persons that make commitments shall obtain tax registration and have tax codes when the commitments are made.

- The persons are responsible for the commitments they made. Any deceit discovered shall be penalized in accordance with the Law on Tax administration of Vietnam.

Nguyen Trinh

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