Personal Income Tax (PIT) is a specific tax levied on individuals who have taxable income. This tax obligation applies to Vietnamese citizens and does not exclude foreign workers employed in Vietnam.

Do Foreign Workers in Vietnam Have to Pay PIT?

As Vietnam opens up and integrates with the global economy, the influx of foreign workers seeking employment in the country has increased significantly. According to legal regulations, all individuals working in Vietnam are subject to PIT, regardless of their residency status. This means that whether they are residents or non-residents, foreign workers who earn income generated within Vietnam are required to pay PIT.

For foreign employees whose income is paid by Vietnamese entities, the obligation to declare and pay PIT is clear-cut and undisputed. However, a question arises regarding foreign workers who are compensated by foreign employers while working in Vietnam: Are they still liable to pay PIT in Vietnam?

Tax Obligations for Foreign Workers Paid by Foreign Employers

1. Income Generated in Vietnam: If a foreign employee performs work in Vietnam, the income derived from that work is considered taxable in Vietnam, irrespective of whether the employer is a Vietnamese or a foreign entity.

2. Tax Residency Status: The determination of tax residency can influence the taxation rate. Generally, an individual is considered a tax resident if they stay in Vietnam for 183 days or more in a calendar year. Residents may benefit from tax allowances and deductions, whereas non-residents are taxed at a flat rate.

3. Tax Treaties: Vietnam has signed double taxation agreements (DTAs) with several countries. These agreements are designed to prevent double taxation on the same income in both Vietnam and the foreign worker's home country. Foreign workers should consult the relevant DTA to understand their tax obligations and potential exemptions.

4. Tax Declaration: Foreign workers must ensure compliance with Vietnam’s tax declaration processes. They may need to register for a tax code and submit tax returns on a monthly or annual basis, depending on their income level.

In conclusion, foreign workers in Vietnam are generally required to pay PIT on income earned while working in the country, regardless of who pays their salary. Understanding the specific tax obligations and consulting with tax professionals can help foreign workers navigate their responsibilities in the Vietnamese tax system.

Personal Income Tax for Foreigners Who Are Resident Individuals

When is a foreigner considered a resident individual?

According to Clause 2, Article 2 of the 2007 Personal Income Tax Law, a foreigner is classified as a resident individual if they meet one of the following two conditions:

• The individual has been physically present in Vietnam for 183 days or more, either within a single calendar year or over a consecutive 12-month period from the date of their first entry into Vietnam.
• The individual has a permanent residence in Vietnam, which includes either having registered permanent residence or renting accommodation in Vietnam under a lease agreement of a specified duration (rented for living purposes). 

In either of these scenarios, the foreigner would be considered a tax resident for purposes of personal income tax.

See more:  Vietnam foreign investment laws

Income Subject to Personal Income Tax

Based on the provisions of Resolution 954/2020/UBTVQH14 and Article 9 of Circular 111/2013/TT-BTC, foreigners who have signed a labor contract with a duration of at least three months are required to pay personal income tax (PIT) only if their monthly salary or wage exceeds VND 11 million, provided they do not have any dependents.

In cases where the individual has one dependent, they will only be subject to PIT if their monthly income from salary or wages exceeds VND 15.4 million. For each additional dependent, the taxable threshold increases by VND 4.4 million per month.

How to Calculate Personal Income Tax for Foreigners

The method for calculating personal income tax for foreigners who have signed labor contracts of three months or longer is the same as that applied to Vietnamese individuals with similar contracts. Specifically, their income tax is calculated using the progressive tax rate system, where different portions of income are taxed at varying rates.

According to Article 7 of Circular 111/2013/TT-BTC, the amount of personal income tax payable is determined by the following formula:

Personal Income Tax Payable = Tax Rate x Taxable Income

Where:

(1) Taxable Income　is calculated as follows:

Taxable Income for Personal Income Tax = Taxable Income - Deductions

Taxable income is determined by:

Taxable Income = Total Income - Exempt Income

(2) Progressive Tax Rates

The tax rates applied to resident individuals with labor contracts of three months or more follow a seven-tiered progressive scale, with the corresponding rates as follows:

- Tier 1: 5%

- Tier 2: 10%

- Tier 3: 15%

- Tier 4: 20%

- Tier 5: 25%

- Tier 6: 30%

- Tier 7: 35%

These progressive tax rates ensure that higher income brackets are taxed at higher rates, while lower income brackets are taxed at lower rates.

Personal Income Tax for Foreigners Who Are Non-Resident Individuals

What is considered a non-resident individual?

A foreigner is classified as a non-resident individual if they do not meet the criteria required to be deemed a resident individual. 

Even though they are not considered residents, non-resident foreign individuals who earn income from salaries or wages within the territory of Vietnam are still obligated to pay personal income tax in accordance with Vietnamese tax laws. This means that any income they generate from employment in Vietnam will be subject to taxation under the specific regulations for non-residents.

See more:  Vietnam Intellectual Property Representative Organization

Income Threshold for Tax Payment

Non-resident individuals are not eligible for personal deductions, meaning that any taxable income, regardless of the amount, is subject to personal income tax (PIT). In other words, once a non-resident foreign individual has taxable income greater than zero, they are required to pay PIT.

Taxable income from salary and wages is defined as the total amount of salary or wages earned by the non-resident individual for performing work in Vietnam, regardless of the source or location of the income payer.

The tax on income from salary and wages for non-resident individuals is calculated by applying a flat tax rate of 20% to the total taxable income. However, contributions to charitable causes, educational funds, humanitarian initiatives, as well as payments towards insurance or voluntary pension funds, may be deducted from taxable income, as long as these contributions comply with the relevant regulations.

How to Calculate Personal Income Tax for Non-Resident Individuals

According to Clause 1, Article 18 of Circular 111/2013/TT-BTC, the personal income tax (PIT) payable by non-resident individuals is calculated using the following formula:

Personal Income Tax Payable = 20% x Taxable Income

Taxable income is determined as follows:

• Taxable income from salary, wages, remuneration, and other income of a similar nature is calculated as the total salary, wages, fees, and all other employment-related earnings that the taxpayer receives during the taxable period.

• The time at which taxable income is determined for salary and wages is the moment when the organization or individual paying the income issues the payment to the taxpayer.

• For income from insurance policies with accumulated savings, the taxable income is determined when the insurance company or voluntary pension fund management company pays out the insurance benefits to the taxpayer.

Sure! Here's a longer and more varied version of the two sections in English

See more:  trademark search in Vietnam

Conclusion

As Vietnam continues to draw both domestic and international professionals, comprehending the intricacies of the country’s tax requirements becomes an essential element of financial management. Individuals must be aware of the tax distinctions between residents and non-residents, as residents are subject to a progressive tax structure on their global earnings, while non-residents face a fixed rate on income generated within Vietnam. By engaging in thoughtful tax planning and staying informed of evolving tax laws, individuals can optimize their tax strategy and potentially realize substantial savings.

It is crucial to recognize that this guide serves as a foundational overview, but Vietnam’s tax regulations are layered and prone to amendments. Taxpayers should actively keep abreast of any changes in the legislation and seriously contemplate seeking advice from tax professionals to address their particular financial circumstances. Successfully managing one’s personal tax obligations in Vietnam hinges on timely tax finalization, diligent and precise income reporting, and a thorough grasp of the distinction between taxable and non-taxable income categories.

How NVCS Law Firm Can Help

Navigating the complexities of Vietnam’s personal income tax (PIT) system can be daunting, but NVCS Law Firm offers expert guidance to help ease the process. Our team provides customized assistance, ensuring you fully understand your tax residency status and how it impacts your tax responsibilities. Whether you are a tax resident facing global income taxation or a non-resident dealing with income sourced within Vietnam, we offer strategic advice to clarify your obligations and minimize risks. NVCS Law Firm can support you through every step of tax planning, from ensuring accurate tax calculations to assisting with the finalization process. We also work closely with you to identify eligible deductions and exemptions that can optimize your tax position. Reach out to NVCS Law Firm for professional, tailored assistance in managing your personal income tax commitments in Vietnam.

Lawyer: Mr. Tony

Phone: +84 919 195 939

Email: tuulawyer@nvcs.vn

Website: nvcs.vn