TAX SETTLEMENT GUIDELINE FOR PERSONAL INCOME TAX (PIT) FOR FOREIGNERS WORKING IN VIETNAM BEFORE RETURNING HOME

by Admin

24/06/2024

Documentation & Knowledge

TAX SETTLEMENT GUIDELINE FOR PERSONAL INCOME TAX (PIT) FOR FOREIGNERS WORKING IN VIETNAM BEFORE RETURNING HOME

Vietnam has been actively embracing global integration and development, leading to an influx of foreign workers seeking employment opportunities in the country. However, not all of these expatriates are fully aware of the personal income tax (PIT) requirements they must fulfill while working in Vietnam. This lack of understanding can result in these individuals facing undesirable fees and penalties.

To address this issue, Dai Ha Thanh Law Firm (DHT) has prepared this newsletter to guide foreign workers in Vietnam through the process of finalizing their PIT obligations before returning to their home countries. By providing this valuable information, DHT aims to help these individuals ensure a smooth tax compliance process and avoid any unfortunate financial consequences.

I.              PIT calculation for foreigners working in Vietnam

1. For foreigners who are resident individuals

1.1.         Conditions

Clause 2, Article 2 of the Law on Personal Income Tax 2007 stipulates that a resident individual is a person who meets one of the following two conditions:

-   Being present in Vietnam for 183 days or more in 01 calendar year or counting for 12 consecutive months from the first day of presence in Vietnam.

-   Having a permanent residence in Vietnam, including having a place to live under permanent registration or having a house rented in Vietnam under a fixed-term lease (rent-to-live).

1.2.         PIT payable salary

Pursuant to Article 1 of Resolution 954/2020/UBTVQH14 and Article 9 of Circular 111/2013/TT-BTC, foreigners who sign labor contracts for 03 months or more are only required to pay personal income tax if they have income from wages and wages exceeding VND 11 million/month provided that there are no dependents.

In case the individual has 1 dependent, personal income tax must only be paid if the income from salary and wages is over VND 15.4 million/month. For each additional dependent, the income threshold to be subject to personal income tax increases by VND 4.4 million/month.

The tax calculation of foreign individuals signing labor contracts of 03 months or more applies the same as for Vietnamese people signing labor contracts of 03 months or more. In other words, when this is the case, the tax will be calculated according to the partial progressive schedule (tax calculated according to the tax tier and each tier has a different tax rate).

1.3.         PIT payable calculation

Pursuant to Article 7 of Circular 111/2013/TT-BTC, the amount of personal income tax payable is calculated according to the following formula:

PIT payable

=

Tax rate

x

Taxable income

Whereas:

-   Taxable income is determined as follows:

Personal Income Taxable Income = Taxable Income - Deductions

-   Taxable income is determined as follows:

Personal Income Taxable Income = Gross Income – Tax-exempt earning

- Partial progressive tax rates

+ Foreigners residing in Vietnam who sign labor contracts for 3 months or more, the tax rate shall apply to resident individuals who sign labor contracts for 03 months or more according to the partial progressive method including 07 different tax levels:

Tax tier

Taxable income per year

(million VNĐ)

Taxable income/month

(million VNĐ)

Tax rate (%)

1

To 60

To 5

5

2

Above 60 to 120

Above 5 to 10

10

3

Above 120 to 216

Above 10 to 18

15

4

Above 216 to 384

Above 18 to 32

20

5

Above 384 to 624

Above 32 to 52

25

6

Above 624 to 960

Above 52 to 80

30

7

Above 960

Above 80

35

2. For foreigners who are non-resident individuals

2.1.                Conditions

Foreigners who do not meet the conditions of a resident individual shall be identified as a non-resident individual.

Foreign individuals who are non-resident individuals with income from wages and wages arising within the territory of Vietnam must pay personal income tax according to regulations.

2.2.                  PIT payable salary

Non-resident individuals are not counted as family deductions, so as long as they have taxable income, they will have to pay personal income tax (taxable income > 0 will have to pay tax).

In other words, as long as there is income from wages, wages will have to pay tax at the rate of 20%/taxable income; In case of charitable, educational, humanitarian contributions, insurance contributions, voluntary pension funds as prescribed, this amount shall be deducted.

2.3.                  PIT payable calculation

Non-resident individuals are not eligible for personal deductions based on family status. As a result, they are required to pay personal income tax on any taxable income (i.e. taxable income greater than zero).

In other words, as long as there is income from wages, wages will have to pay tax at the rate of 20%/taxable income; In case of charitable, educational, humanitarian contributions, insurance contributions, voluntary pension funds as prescribed, this amount shall be deducted.

 

For foreigners not present in Vietnam

  

Total income generated in Vietnam

  

=

Number of working days for work in Vietnam

  

x

Income from global wages and wages (before tax)

  

+

Other taxable income (before tax) arising in Vietnam)

Total number of working days in the year
 

For foreigners present in Vietnam

  

Total income generated in Vietnam

 

=

Days in Vietnam

 

x

Income from global wages and wages (before tax)

 

+

Other taxable income (before tax) arising in Vietnam

365 days

Note:

-   The total number of working days in the year is calculated according to the regime prescribed in the Labor Code of Vietnam

-   Other taxable income (pre-tax income) arising in Vietnam mentioned above is other monetary or non-monetary benefits that the employee is entitled to in addition to wages and wages paid by the employer or on behalf of the employee.

II.            PIT finalization for foreigners

1. Conditions

The requirements for foreigners to finalize their personal income tax (PIT) include:

(1)  The resident must have income from wages and wages; income from production and business activities must finalize PIT. In particular, the amount of tax payable is greater than the tax withheld and there must be a request to refund the overpaid or offset tax in the next tax filing period.

(2)  Individuals who are foreigners residing after the end of the labor contract in Vietnam also need to finalize personal income tax before leaving the country.

2. Implementation procedure

PIT finalization procedures for foreigners

Tax finalization declaration

The dossier is divided into 3 specific cases. Each case will have a different declaration form, namely:

(1)  In case an individual is a foreigner who receives income from an international organization or receives income from a foreign country, proof or confirmation of the amount paid is required. Enclosed is the income confirmation letter according to form No. 20/TXN-TNCN issued together with Circular 156/2013/TT-BTC.

(2)  In case an individual is a foreigner subject to tax arising outside the territory of Vietnam, they will have to submit other relevant documents required in the finalization declaration.

(3)  In fact, if the overseas tax authority does not issue a certificate of the amount of tax paid, the individual must take an image of the tax withholding certificate or a copy of a bank document clearly showing the amount of tax paid abroad. All such scans must be committed by the individual and are responsible for their authenticity.

Location of tax finalization dossier submission

- Apply at the Tax Department if the foreigner only receives income from wages and salaries and he or she is eligible for direct tax return in 2019.

- Submit the application at the agency directly managing the organization that paid the final income in case the foreigner receives income from 02 places or more and that person is subject to self-settlement.

- Apply at the tax department of the place of residence if the foreigner changes his place of work but does not include the family deduction at the last working organization. In addition, for some cases such as foreigners who do not sign labor contracts or sign contracts for less than 3 months or receive income from many places but at the time of settlement, they do not work anywhere, it is necessary to submit the settlement dossier at the place where the foreigner resides.

- Apply at the Tax Department of the place of business if it falls into the following cases:

·  Foreigners who are individuals or groups of individuals doing business at a place shall submit tax finalization dossiers directly at the Branch of that place.

·  Foreigners are agents with business registration licenses.

- Apply at the place of issuance of the first tax code if the individual is a foreigner doing business in more than one place.

Application deadline

According to Point a, Point b, Clause 2, Article 44 of the Law on Tax Administration 2019, the time limit for tax finalization for foreigners is as follows:

- For income-paying organizations: The deadline to file a tax return is no later than the last day of the fiscal year or calendar year.

- For individuals directly performing PIT finalization: The deadline for submitting tax finalization returns is at least the end of the calendar year.

III.         Conclusion

Above is a guide to PIT finalization for foreigners working in Vietnam to return home. Enterprises employing foreign workers and foreign individuals working in Vietnam should pay attention to fulfill tax finalization obligations in accordance with regulations.