PERSONAL INCOME TAX FOR FOREIGNERS IN VIETNAM: HOW TO CALCULATE?

PERSONAL INCOME TAX FOR FOREIGNERS IN VIETNAM: HOW TO CALCULATE?

 

 

Currently, more and more foreign individuals come to Vietnam with purpose of living and working. As other Vietnamese employees, such foreigners have to pay Personal Income Tax (PIT). However, not many foreigners are aware of the regulations on their personal income tax obligations. So how to calculate Personal income tax of foreigners, what are differences between PIT of foreigners and Vietnamese employees?

The following Newsletter will clarify how to calculate the Personal Income Tax (PIT) of foreigners from wages and remunerations in Vietnam.

Firstly, authorities could identify whether or not a foreigner is a resident of Vietnam. The taxable income and the tax rates applicable to residents and non residents are different.

 

I. Residents and Non-residents

The conditions to identify residents and non-residents are spectified in Article 1 of Circular No. 111/2013/TT-BTC. Accordingly:

1. Residents

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

 

2. Non-residents

A non-resident is a person who fails to meet any of the conditions specified above.

 

II. Calculation of PIT of foreigners from wages and remunerations

After determining whether a foreigner is a resident or a non-resident individual, PIT from wages and remunerations is calculated as follows:

1. PIT calculation of a resident

If a foreigner is consider as a resident, PIT is calculated same as Vietnamese employees.

Taxable incomes earned by residents are the incomes earned within or outside Vietnam’s territory, regardless of locations or payment and receipt.

Case 1: The foreigner signs a employment contract with a duration of more than 3 months: the PIT shall apply the progressive tax table.

• The total income from wages and remunerations are specified on Article 2.2 of the Circular 111/2013/TT-BTC and Article 11 of the Circular 92/2015/TT-BTC.
• The tax-free incomes include incomes from the additional payments for working at night or working overtime in excess of wages according to the Labor Code (specified on Article 3.1(i) of the Circular 111/2013/TT-BTC).
• Deductions include:

• Personal deductions:

• Deduction for the taxpayer: 11 million VND/month, 132 million VND/year.

• Deduction for each dependant: 4.4 million VND/month.

• Deductions for insurance premiums and contributions to the voluntary pension fund according to Article 9.2 of the Circular 111/2013/TT-BTC.
• Deductible charitable donations according to Article 9.3 of the Circular 111/2013/TT-BTC.

 

 

Case 2: The foreigner sign either no the employment contract or employment contract with duration of less than 3 months: withholding 10% tax on the income

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. 

In which, the total incomes include:

• Remunerations in the forms of agent commission, brokerage commission, payments for participation in science and technology researches, payments for participation in projects and schemes, royalties according to regulations of law on royalties, payments for teaching, payments for participation in artistic performance, sports, payments for advertising, payments for other services, and other remunerations.
• Payments for participation in business associations, Boards of Directors, Control Boards, project management boards, management councils, professional associations, and other organizations.

2. PIT calculation of a non-resident

According to Article 18.1 of the Circular 111/2013/TT-BTC, PIT of a non-resident is calculated as follows:

 

“2. Taxable income from wages

a) The taxable income from wages equals the sum of wages, remunerations and other incomes considered wages received by the taxpayer in the tax period as guided in Clause 2 Article 2 of this Circular.

b) Time to calculate taxable income:

Taxable income from wages and remuneration shall be calculated when the income is paid to the taxpayer.

The taxable income from accrued insurance premium guided in Point dd.2 Clause 2 Article 2 of this Circular shall be calculated when the insurer or the voluntary pension fund pays the insurance money.”

The taxable income from wages earned in by a non-resident that works both in Vietnam and overseas without being able to separate the income earned in Vietnam shall be calculated as follows:

Other pre-tax taxable incomes earned in Vietnam mentioned above are other benefits in cash or not in cash apart from wages that are provided for the employee or paid on the employee’s behalf by the employer.

The regulations about PIT of foreigners are complicated and specified in different legal documents. Hence, please liaise DHT Law Firm for professional legal and tax services.