It is common knowledge that tax is the main source of the state budge. An income tax is defined as a tax levied on the income of individuals or business, including corporations or other legal entities. On 20th November 2007, the first law on personal income tax (PIT) of Vietnam was introduced and after many debates and postponement, the new law finally took effect on July 1st 2009.
The law aims at controlling the economy and personal income via tariffs and tax. If applied effectively, income tax certainly contribute greatly to the state budget. As a result, our state budget deficit and derived issues such as infrastructure, welfare, healthcare services and the likes would be dealt with. There is a firm belief that the wide gap between the haves and the have-nots would be reduced considerably if social property is allocated more properly.
Yet the fact remains that the implementation of PIT is sluggish. Perplexing problems such as tax evasion and issues related to radical methods to ensure equality in the process have drawn much social concerns.
Below are some main points put forward in the law on personal tax income that are related to foreigners living and working in Vietnam. The question of how foreigners working in Vietnam pay income tax remains an acute puzzle for the majority of expats. So, among foreigners coming to Vietnam, who are obliged to pay income tax in Vietnam? The answer is all foreigners earning income in Vietnam, as a rule, are subject to taxation.
The second issue is related to the taxable income and the tax rates applicable in different circumstances. According to the 2007 Law on Personal Income Tax and other legal documents that explain how to pay PIT, including Circular No.84/2008/TT-BTC, Decree N0. 100/2008/ND-CP, the taxable income and the applicable tax rates depend on the respective length of stay in Vietnam.
Based on the length of stay in Vietnam, authorities could indentify 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. A foreigner is a resident of Vietnam if he stays in Vietnam for 183 days or more within a consecutive 12 month period starting from the date of the first entry; or he has a permanent accommodation in Vietnam. This can be a registered permanent resident address or a house lease contract of more than 90 days in a year. Other cases are categorized as non-resident of Vietnam.
In the case that foreigners are classified as residents in Vietnam, the same tax rates are applicable to both Vietnamese and foreign residents.
|Tax bracket||Portion of Annual Assessable Income (million VND)||Portion of Monthly Assessable Income (million VND)||Tax Rate (%)|
|1||Up to 60||Up to 5||5|
|2||Over 60 to 120||Over 5 to 10||10|
|3||Over 120 to 216||Over 10 to 18||15|
|4||Over 216 to 384||Over 18 to 32||20|
|5||Over 384 to 624||Over 32 to 52||25|
|6||Over 624 to 960||Over 52 to 80||30|
|7||Over 960||Over 80||35|
Source: Law on Personal Income Tax (2007)
The taxable income of foreigners who are categorized as a Vietnam resident earning more than 5 million per month is their remaining income after deducting 4 million VND and 1.6 million VND for each dependant of the employee.
For a taxpayer who has two children as his dependants, if he earns 20 million VND, the taxable income and the tax he has to pay are calculated as follows: Taxable income= 20 million- (4 million + 1,6 million * 2 )= 12,8 million
PIT= 5 million x 5%+ 5 million x 10% + 2,8 million x 15%= 1,17 million VND
If he or she does not have any dependant, PIT = 5 million * 5%+ 5 million * 10% + 8 million * 15% + 2 million * 20% = 2.35 million VND
In the case that foreigners are classified as non residents in Vietnam, the flat tax rate is 20%. In the above-mentioned example, he will have to pay 4 million VND in tax.