Currently, the number of foreign employees and workers employed in Vietnam is on the rise due to the growing demands in management, administration, and economic development. The Vietnamese government has also been providing favorable conditions for these employees to work in Vietnam. So, the income of foreign workers arising in Vietnam must pay Personal Income Tax (“PIT”) to the state management agency in Vietnam or not? In this article, we will delve into this matter to provide a clear understanding.
1. Income subject to Personal Income Tax of foreign employees
According to the regulations in Circular No. 111/2013/TT-BTC and Circular No. 119/2014/TT-BTC, foreign employees who earn taxable income in Vietnam are required to pay taxes under Vietnamese law.
Accordingly, personal income tax of these employees includes income from:
- business activities;
- salary and wages;
- investment income;
- capital transfer;
- real estate transfer;
- lottery winnings;
- copyright income;
- income from transferring commercial rights;
- income from inheritance,
- and income from receiving gifts.
Foreign employees will be identified as either residents or non-residents. Accordingly, determination of taxable income of FWs is as follows:
- For resident individuals, taxable income is income generated inside and outside the territory of Vietnam, regardless of where the income is paid;
- For non-resident individuals, taxable income is income generated in Vietnam, regardless of where the income is paid and received.
Thus, foreign employees with taxable income arising in Vietnam are taxpayers under Vietnamese law regardless of where the income is paid, and regardless of whether they are present in Vietnam or not.
2. Determining whether foreign employees are residents or non-residents
To identify a foreign worker as an individual residing in Vietnam, one of the following conditions must be met:
Being present in Vietnam (present in the territory of Vietnam):
For 183 days or more in a calendar year or for 12 consecutive months from the first day of presence in Vietnam, in which the arrival and departure dates are counted as one (01) day. The date of arrival and departure is based on the certification of the immigration authority on the passport (or travel document) of the individual upon arrival and departure from Vietnam. In case of entry and exit on the same day, it will be counted as one day of residence.
Having a place of permanent residence in Vietnam:
The place of permanent residence is the place of permanent residence stated in the Permanent Residence Card or the temporary residence when applying for a Temporary Residence Card issued by a competent agency of the Ministry of Public Security.
Having a rented house to live in Vietnam:
According to the law on housing, with the term of the lease contract from 183 days or more in the tax year. In case an individual has a regular place of residence in Vietnam but is actually present in Vietnam for less than 183 days in a tax year and cannot prove that foreign employee is a resident of any country, that individual is an individual residing in Vietnam.
Foreign employees or workers who do not meet the conditions of a resident individual shall be determined as a non-resident individual.
3. Notes when calculating Personal Income Tax of foreign employees
Foreign employees who are resident individuals with taxable income arising in Vietnam are entitled to the same policies as Vietnamese employees.
Accordingly, foreign employees will be entitled to the following policies:
- Reduced scenario of 11 million VND/month (132 million/year);
- The deduction for each dependent is 4.4 million VND/month;
- Reduction of social insurance and health insurance contributions;
- Deductions for humanitarian, and study promotion contributions as prescribed by law.
For incomes from salaries and wages, income from business: Foreign employees are applied according to the partial progressive tax schedule, similar to employees who are Vietnamese citizens.
Foreign employees being non-resident individuals, the Personal Income Tax on their wages and salaries will be determined at a fixed tax rate of 20% as prescribed in Clause 1, Article 18 of Circular 111/2013/TT-BTC.
In addition:
To avoid double taxation on the income of foreign employees who are taxpayers in Vietnam and also taxpayers in the country of residence or nationality, the Vietnamese government and several countries such as Italy, Australia, UK, Poland, Laos, Malaysia, Japan, Hong Kong, India, Germany, Russia, Denmark, the Netherlands, Thailand, etc. have signed agreements to avoid double taxation.
However, it should be noted that foreign employees who are residents or nationals of these countries still have to make tax declarations and related procedures to be considered for personal income tax exemption and reduction in Vietnam.
4. Conclusion
Thus, the Vietnamese state has detailed regulations and guidelines for the payment of personal income tax to foreign employees generating taxable income in Vietnam along with the signing of agreements to avoid double taxation. This is to create conditions for businesses operating in Vietnam to be more favorable in recruiting these employees to perform jobs in Vietnam, attracting talents, and supporting economic development while ensuring management functions and revenue sources for the state budget.
