PERSONAL INCOME TAX

Lecturer: Le Phuong Thao, MBA School of Business - International University

Objectives

After complete this lecture, you are able to

Determine the legal documents on Personal Income Tax Understand the nature and factions of the Personal Income Tax Understand the scope of Personal Income Tax Understand the tax bases and methods of tax computation for residents and non non-residents residents Understand tax registration, withholding, declaration, finalization and refund

Legal Documents on Personal Income Tax

Law No. No 04/2007/QH12 of November 21 21, 2007 on Personal Income Tax Decree No. No 100/2008/ND 100/2008/ND-CP CP of September 8 8, 2008 2008, detailing a number of articles of the Law on Personal Income Tax Circular no. 84/2008/TT-BTC of September 30, 2008, guiding the implementation of a number of articles of the law on PIT and guiding the implementation of the governments government s Decree no. no 100/2008/ND-CP 100/2008/ND CP

Legal Documents on Personal Income Tax

Circular no. 62/2009/TT-BTC 62/2009/TT BTC of Mar 27, 2009 Circular no. 02/2010/TT-BTC of Jan 11, 2010 Circular no no. 175/2010/TT 175/2010/TT-BTC BTC of Nov 5 5, 2010 Circular no. 12/2011/TT-BTC of Jan 26, 2011 Ci l no. 113/2011/TT Circular 113/2011/TT-BTC BTC of fA Aug 4 4, 2011

Nature of Personal Income Tax

Personal Income Tax (PIT) is a direct tax levied on income of a person for a certain period. period
Contribute Contribute C t ib t

to the Governments revenue t to social i l equity it

PIT Taxpayers p y
Individuals are liable to pay PIT

Resident individuals who have incomes earned inside and outside the Vietnamese territory territory, regardless of where their incomes are paid and received. Non-resident individuals who have incomes earned in Vietnam, regardless of where their co es a are e pa paid da and d received. ece ed incomes

Resident Individuals
A resident individual means a person who satisfies any of the 2 conditions:
1.

Being B i present ti in Vi Vietnam t f for 183 d days or more in a Western calendar year or 12 consecutive months counting from the first date of his/her presence in Vietnam, of which the date of arrival is counted as one day and p is also counted as one the date of departure day.

Resident Individuals
2 2.

Having a regular residential location in Vietnam in either of the following two cases:
Having H i a residential id ti l l location ti f for which hi h permanent t residence has been registered pursuant to the law on residence Having a leased residence to stay in Vietnam pursuant to the law on residential housing housing, where the lease contract has a term of 90 days or more within the tax year, , and specifically p y as follows: assessment y

Resident Individuals

An individual has a total number of leased days under a lease contract of 90 days or more within the tax assessment year shall be deemed to be a resident taxpayer, including a case where such person leases a number of residences. Leased residences to stay in Vietnam include hotels, boarding houses, rest houses, lodgings, working offices and office headquarters, regardless of whether th individual the i di id l concerned dl leases or th the employer l leases on behalf of the employee.

Non-resident individuals

Non-resident individual means a person not satisfying the conditions stipulated above

Illustration

John is a Canadian citizen. He arrived Ho Chi Minh City on Mar 2nd 2011, stayed in the city until May 25th 2011. He came back on Aug 1st 2011 and left on Dec 31st 2011. He is:
A. B. C. D.

Non-resident individuals Resident individuals None of these above Both a & b are correct

Taxable Income
1. Business Income 2. Income being salary 3. Income from capital investments 4. Income from capital transfers 5. Income from real property transfers 6 Income being winnings or prizes 6. 7. Income being royalties 8. Income from franchises 9. Income from inheritances 10. Income from receipt of a gift

Business Income

Business income means income derived from manufacturing and business activities:

Income from manufacture and business in g goods and services in all sectors and business lines Income from independent practice by individuals in sectors and business lines with licences or practising certificates Income from manufacturing and business activities in agriculture forestry, agriculture, forestry salt mining mining, aquaculture and fishing which do not satisfy all the conditions for tax exemption

Income Being g Salary y

Income being salary means income receivable by employees from employers in monetary or non-monetary forms, including
1. 2.

Salary and wages, and items in the nature of salary and wages. Allowances and subsidies including g living g allowances receivable by y employees Remuneration receivable in all forms such as brokerage commission, payment for participation in a scientific or technological research project; payment for participation in a plan or project; royalties for writing books or newspaper articles or for translating documents; payment for participation in teaching activities; cultural and artistic performances, sports and games; and payment receivable from advertising and other services services. Payments receivable as a result of participation in professional and business associations, on corporate boards of management and p committees, , on project p j management g boards, , on management g inspection and corporate councils and other organizations.

3.

4.

Income Being g Salary y

5.

Other monetary or non-monetary benefits other than salary to which an employee is entitled and which are paid to or on behalf of an employee by the employer as follows:

Residential housing rent, and payments for power and water and associated services. If an individual stays in a working office, then taxable income shall be based these above expenses allocated at a ratio between the area used by the individual over the total area of the working office. Premiums for non compulsory insurance such as life insurance Membership fees for individuals such as membership cards of gold clubs, tennis courts and cultural, artistic and sports clubs. Other services for individuals in healthcare activities, entertainment, sports and aesthetics.

Income Being g Salary y

6.

Other benefits which an employer pays for employees such as expenses for holidays including public holidays, expenses for use of consultancy services and tax declaration services; expenses for domestic workers such as drivers, cooks and people doing other domestic work pursuant to a contract, but excluding expenses for stationery and telephone, working expenses and uniforms. Monetary or non-monetary non monetary bonuses such as monthly monthly, quarterly quarterly, annual or one-off bonuses or thirteenth month Tet bonus (including bonuses in the form of securities) Where employees are entitled to bonuses in the form of share certificates, certificates market value shall be determined as the amount of the bonus recorded in the books of account of the entity paying the bonus. Uniform U if allowance ll paid id i in cash h and/or d/ i in ki kind d exceed d VND 5 5,000,000 000 000 per employee per year (Circular 18/2011/TT-BTC)

7 7.

8.

Income Being g Salary y

All the above-mentioned items of income to be used as the basis for determining taxable income mean income before personal income tax is deducted (before-tax income). If i income actually t ll received i dd does not ti include l d personal income tax (after-tax income), then it must be converted to before-tax income

Non-taxable income
Allowances and subsidies which are deductible from salary when determining taxable income

Allowances for people having contributed to the revolutionary cause in accordance with the law on preferential treatment for such people National defence and security allowances as stipulated by law. Allowances as stipulated in the Labour Code, comprising Allowances for toxicity y and danger g applicable to trades, lines of business or jobs at workplaces involving toxic or dangerous elements. Attraction allowances for new economic zones, economic establishments and remote islands with specially difficult living conditions. Regional allowances as stipulated by law for people working in remote or unfrequented areas with an unfavourable climate.

Non-taxable income

Allowances as stipulated p in the Law on Social Insurance and Labour Code Subsidies for one-off difficulties, subsidies for labour accidents and occupational diseases diseases. One-off subsidies on the birth or adoption of a child. Subsidies due to reduction in ability y to work. One-off subsidy on retirement, monthly widow's subsidies. (dd) Retrenchment or loss of work subsidies, unemployment subsidies. b idi Other subsidies paid by the Social Insurance Fund.

Non-taxable income

Allowances to resolve social evils in accordance with law. Bonuses which shall be deductible upon calculating taxable income from salary: M Monetary t awards d attached tt h d to t titles titl bestowed b t db by th the State St t Monetary awards attached to national and international awards recognized g by y the State of Vietnam. Monetary awards for technical improvements, inventions and innovations recognized by competent State authorities. Monetary M t awards d for f detecting d t ti and d reporting ti breaches b h of fl law to competent State authorities.

Non-taxable income

1.

Under Circular 62/2009/TT-BTC

Presumptive expenditures for stationery, working mission allowances, telephone charges and working outfits shall not be accounted as taxable incomes if they are compliant with the State's current regulations. One-off region transfer allowances for foreigners coming to reside in Vietnam. The deductible allowance level is based on labor contracts or agreements between employers and employees. Round trip air fares paid once a year by employers for their foreign employees who are on annual leave. Bases for determining the fares are labor contracts and air fare rates on air tickets from Vietnam to countries of which these employees are nationals or where their families live, and back. Schooling fees or tuitions for foreigners' children studying in Vietnam at general education schools (including elementary school, secondary school, high school) paid by employers for their employees, which are determined based on labor contracts and school fee or tuition receipts receipts.

2.

3.

4.

Kinder garden, college, university tuitions paid by employers for foreigners' children studying in Vietnam are taxable income of foreigners

Non-taxable income
Other benefits enjoyable by employees shall be accounted as taxable incomes only when beneficiaries are specified. These benefits will not be accounted as personal taxable incomes when beneficiaries are unspecified.

House rents paid by employers for their employees: These rents t shall h ll b be accounted t d as t taxable bl i incomes according di t to actually paid amounts but must not exceed 15% of total taxable incomes (exclusive of house rents). Expenses for vehicles to transport a collective of employees to work

Non-taxable income

Expenses p p paid for membership p cards without specific p names of any individuals or groups of individuals Charges for other services for individuals in healthcare, entertainment sports, entertainment, sports recreation and beauty care activities without specific names of any individuals or groups of individuals Expenses paid E id b by employers l f for th their i employees l for f skills kill training courses relevant to employees" professions or under employers" plans Mid-shift meal allowance will not be accounted as a taxable income of employees if employers directly cater mid-shift meals ea s for o their e e employees. p oyees

Non-taxable income

Expenses p p paid for membership p cards without specific p names of any individuals or groups of individuals Charges for other services for individuals in healthcare, entertainment sports, entertainment, sports recreation and beauty care activities without specific names of any individuals or groups of individuals Expenses paid E id b by employers l f for th their i employees l for f skills kill training courses relevant to employees" professions or under employers" plans Mid-shift meal allowance will not be accounted as a taxable income of employees if employers directly cater mid-shift meals ea s for o their e e employees. p oyees

Illustration
Ms. Lan Anh is a manager of JetBlue Co Ms Co. The company purchased California Fitness center membership for her under her name name. The purchase price of the membership is
A A. B. C C. D.

N t the Not th income i of f Ms. M Lan L Anh A h Ms. Lan Anhs income subject to PIT Ms Lan Anhs income but not subject to PIT Ms. None of these above

Tax Exempt p Income

Income from real property transfers as between husband and wife; as between parents t and d children hild i including l di adoptive d ti parents t and d adopted d t d children; hild as b between t parents-in-law and children-in-law; as between grandparents and grandchildren; and as between siblings Income from transfer of a residential house or right g to use residential land and the assets attached to the land by an individual who has only one sole residential house [and/or] residential land use right in Vietnam Income from the value of a land use right of an individual to whom the State allocated such land without payment of of, or with reduced land use fees in accordance with law Income being receipt of an inheritance or gift of real property as between husband and wife; as between parents and children including adoptive parents and adopted children; hild as b between t parents-in-law t i l and d children-in-law; hild i l as b between t grandparents d t and grandchildren; and as between siblings Income from conversion of agricultural land by a family household or individual to p whom the State allocated such land for production

Tax Exempt p Income

Income of a family household or individual directly engaged in agricultural production, forestry, salt mining, raising animals, cultivating crops, fishing or aquaculture where the produce has not yet been processed into other products or has only been preliminarily li i il processed d Income being interest on money deposited at a bank or credit institution, and income being interest from life insurance policies Income being foreign currency remitted by overseas Vietnamese Income being that part of night shift or overtime salary payable which is higher than the day shift or normal working hours salary stipulated by the Labour Code

Tax Exempt p Income

Income being pensions paid by the Social Insurance Fund pursuant to the Law on Social Insurance Income being scholarships Income being compensation payments from life and non-life insurance contracts, compensation for labour accidents, State compensation payments and other compensation payments payable pursuant to law shall be tax exempt income Income receivable I i bl f from charitable h it bl f funds d which hi h th the St State t authorities th iti permit it to be established or which they recognize, and which are for charitable, humanitarian, or study encouragement purposes and not for profit-making p p purposes Income receivable from foreign aid sources for charitable or humanitarian purposes in both Government and non-Government forms and approved by State authorities

Determining g Deductions

Deductions for family circumstances circumstances. Deductions for contributions to charitable, h humanitarian it i or study t d promotional ti lf funds d Compulsory insurance premiums

Deductions for Family y Circumstances

Deduction for family circumstances means the amount deductible from taxable income prior to assessing tax payable on business income and income from salary of a resident individual Noted: this deduction shall be made once time f from the th aggregate t total t t l of f both b th business b i income and income from salary

Level of deduction

Personal deduction: 4,000,000 VND per month and 48,000,000 VND per year

The level of 4 million dong per month is an average for the whole year and used to estimate monthly The level of 48 million dong per year is used in year end finalization

Dependent deduction: 1,600,000VND per month per dependent from the month when caring responsibility arises or ends

Level of deduction

Illustration

Ms. Anh is a single person. Assume she does not have any y dependent. p She was unemployed p y in the first 6 months of 2011. From July 1st 2011, she earned 12mil per month. Each month, her employer calculate h monthly her thl assessable bl i income as 12 12mil il 4mil 4 il = 8 8mil il But at the end of 2011, 2011 she finalized her PIT with yearly assessable income = 12mil x 6months 48 mil = 24 mil

Level of deduction

Illustration
Ms.

Ngoc Anh gave birth to her son on 31st Mar 2011 and registered her son as her dependent in Apr 2011. The dependent deduction for her son is calculated for 10 months (including March)

Principles for Assessing Deductibility for a Dependant

Each dependant p may y only y be assessed for deduction once in respect of one taxpayer within the tax assessment year. If a taxpayer has a dependant in common with other taxpayers then all such taxpayers must agree on taxpayers, registration of the dependant of only one taxpayer. A taxpayer shall be responsible to declare the number of his or her dependants, and shall be legally liable for the accuracy of the declaration. declaration

Requirements q of Dependants p

Children, including adopted and illegitimate children

Children under the age of 18 years (counting the full number of months).

For example, F l if A was b born i in J July l 1992 1992, A may be b a dependant d d t until til the end of June 2010. A child under the age of 18 years has the income of 1million per month Is she/he a dependent? month.

A child over 18 years of age who is handicapped and unable to work. A child currently studying at a university, college, specialized secondary school, vocational training establishment, graduate program and does not have income or has income which does not exceed the threshold (average 500.000 VND per month)

Requirements q of Dependants p

A spouse of the taxpayer taxpayer, parents of the taxpayer, or any other person whom the taxpayer must directly rear or care for
above

the working age (55 for women, 60 for men) and does not have income or has income which does not exceed the threshold (average 500.000 VND per ) month)

or

still of working age but handicapped, unable to work, and does not have income or has income which does not exceed the threshold (average 500.000 VND per month)

Requirements q of Dependants p

Parents of taxpayers p y including g

Parents Parents in law St parents Step t

Other persons whom the taxpayer must directly care for including

Brothers and sisters of the taxpayer. Grandparents, aunts, uncles of the taxpayer. Grandchildren, nephews and nieces of the taxpayer. Other p people p required q by y law to be directly y cared for.

Deductions for Contributions to Charitable, Humanitarian or Study Promotional Funds

Contributions to organizations and establishments caring for and raising children from an especially difficulty background, and disabled people and old and feeble people. Contributions to charitable funds established and operating under Decree 148 2007 ND CP of the Government dated 25 September 2007 on 148-2007-ND-CP organization and operation of funds for charitable, humanitarian or study promotional purposes and for non-profit making purposes, and in accordance with other relevant legal g instruments on management g and use of aid funds. Contributions to charitable funds arising in any one year shall be deductible from taxable income of that same year, and if not fully deducted within such year then they may not be carried forward to taxable income of the next tax assessment year. The maximum amount of deductions shall not exceed tax assessable income from business income and income being salary of the year in which such contributions where made.

Deductions for Compulsory Insurance Premiums

Compulsory insurance premiums payable under the Labor Code, the Law on Social Insurance and the Law on Medical Health Insurance, Insurance
Social Health Job etc

insurance insurance

loss insurance

Progressive PIT Rates vs Flat PIT Rates vs.

R id t Resident
Business Income Progressive tax rate in j with Income conjunction Being Salary

N Nonresident id t
1% applicable to business in goods, 5% applicable pp to business in services, , 2% applicable to manufacturing, construction, transportation, and other business activities Flat rate of 20%

Income Being Salary

Progressive tax rate in conjunction with Business Income

Progressive PIT Rates vs Flat PIT Rates vs.

Resident
Income from Capital Investment Income from Capital Transfers Flat rate of 5%

Non- resident
Flat rate of 5%

Income from Real Property Transfers Income from Royalties and Income from Franchises

Income from transfer of a capital contribution: ib i Flat l rate of f 20% on income Income from transfer of a securities: Flat rate of 20% on i income or 0.1% on transfer f price i Flat rate of 25% on income

Flat rate of 0.1% on amount received i d

Flat rate of 2% on amount received Flat rate of 5% (after deductions of VND 10m) Flat rate of 10% (after deductions of VND 10m) ( )

Flat rate of 5% (after deductions of VND 10m)

Income from Winnings or Prizes Flat rate of 10% p of an (after deductions of VND 10m) ( ) & Income from Receipt Inheritance or Gift

Progressive g PIT Rates

Apply to assessable income of resident individuals with taxable income from business and from salary after deducting for family circumstances, compulsory insurance premiums, and contributions to charitable funds

Tax Calculation
Personal income tax payable on business income and on income being salary shall be the total amount of tax assessed in accordance with each income bracket and the relevant tax rate in the progressive scale, in which the amount of tax assessed in accordance with each income bracket shall be the assessable income of that bracket multiplied by the appropriate tax rate. Assessable Income = Taxable Income Deductions Tax payable = Sum of (Assessable Income of each bracket x appropriate Tax Rate) The table in the next slide could be used as quick method for calculation

Tax Calculation
Quick method of calculation Q Grossbasis G<5,000,000 5,000,000<G<10,000,000 10,000,000<G<18,000,000 18,000,000<G<32,000,000 32,000,000<G<52,000,000 52,000,000<G<80,000,000 G>80,000,000 80 000 000 % 5% 10% 15% 20% 25% 30% 35% Tax T=5%G T=10%G250,000 T=15%G 750,000 T=20%G 1,650,000 T=25%G 3,250,000 T=30%G 5,850,000 T=35%G 9,850,000 9 850 000

G: gross income (before-tax income).

Illustration

Mr. A is a resident individual with income being Mr salary of 10 million dong per month. Mr. A has two children under 18 18, and within the month he pays compulsory insurance premiums of five (5) per cent t of f his hi salary l f for social i li insurance and one (1) per cent of his salary for medical insurance; and during the month he did not make any contributions to charitable funds.

Illustration

Mr. A has the following g deductions from taxable income

+ For relatives: 4 million + For dependent children: 1.6 million x 2 = 3.2 million + Social insurance and medical insurance : 10 million x by 6% = 0.6 million Total deductions are: 4 + 3.2 + 0.6 = 7.8 million

Assessable income is 10 million 7.8 million = 2.2 million Tax payable in the month is 2.2 million x 5% = 0.11 million

Illustration

Mr. B has income being salary of 90 million d dong per month th ( (after ft deducting d d ti compulsory l insurance premiums). Mr. B raises two children under 18, and during the month he did not make any contributions to charitable funds.

Illustration

Mr. B has the following deductions

F relatives: For l ti 4 million illi For 2 dependent children: 1.6 million x 2 = 3.2 million Assessable income is 90 million - 4 - 3.2 million = 82.8 million

Tax payable in the month is 82.8 million x 35% - 9.850 million = 19.13 million

Tax assessment period p

Applicable to taxpayers being resident individuals

Types of income Business income and income being salary All except for Business income and Income from salary Income from transfer of security

Assessment period Annual Each occasion (transaction) Either annual (with registration) or transaction (no need registration)

Applicable pp to taxpayers p y being g non-resident individuals

Each occasion (transaction) Except: p having g fixed business location ( (a store or counter) ) apply tax assessment period as resident individuals having income from business

Business Income
1.

Business individuals who do not implement the accounting system on invoices and vouchers

Taxable income = Fixed level of turnover x Fixed taxable income ratio

Fixed level of turnover shall be based on the declaration of the business individual, the results of investigation by the tax office, and the opinion of the commune or ward level tax consultancy council.

Business Income
2.

Business individual who is only able to account for turnover from the sale of goods and services but not for expenses

Taxable income = Turnover to calculate x taxable income

Fixed taxable income ratio

Turnover to calculate taxable income shall be determined in accordance with the accounting g books and appropriate invoices and vouchers

Business Income
3.

Business individual who fully y implements p the accounting system on invoices and vouchers
- Reasonable expenses + Other taxable income

Taxable income = Turnover to calculate taxable income

Turnover and expenses shall be determined on the basis of the accounting books books, invoices and vouchers. vouchers Other business income means other income arising during the business process such as fines [received] for contractual breaches; fines [received] for late payment; bank interest, etc

Turnover to calculate taxable income

Tax point: The time for fixing turnover to calculate taxable income

In respect of goods, goods the time when ownership of the goods was transferred or the time when the goods' sale invoice was issued. In the case of services, the time when provision of the services was completed or the time when the invoice for provision of the services was issued. Tax point will be the date of invoice if issuance before the time of ownership transferred or service complete

Turnover to calculate taxable income

1.

Specific cases
Turnover on goods sold on installments = the selling price of the goods as for a one-off payment [lump sum price], excluding interest on late payments Turnover on goods sold on deferred payment (credit sales) = the selling price of the goods as for a one one-off off payment [lump sum price], excluding interest on deferred payments

2.

Illustration: Lump sum price = 10m, Payments made in 12 installments, 1m each Total payment =12m Turnover to calculate taxable income = 10m

Turnover to calculate taxable income

3.

Goods or services used as exchange, g ,ag gift, , or to outfit employees or to reward employees: turnover shall be fixed as the market price of the same or similar goods or services i at the h time i of f transaction i Goods and services used during the manufacturing or business process: turnover shall be the costs of producing such product, goods or services.

4.

Illustration: The products of the business, tables, are p y Selling gp price is 3m each, , used to reward employees. and cost is 2m each. Turnover to calculate taxable income is 3m

Turnover to calculate taxable income

5 5.

Processing: turnover shall be the total fees including charges for labour, fuel, power, subsidiary y materials and other expenses p of processing. Agent or consignee to sell goods at listed price and earn commission: turnover shall be the commission receivable pursuant to the agency or consignment contract.

6.

Turnover to calculate taxable income

7.

Activities being g leasing g out assets

If the lessee pays rent in advance for a number of years:

Turnover to calculate taxable income allocated to the number of years for which rent was paid in advance OR fixed as turnover on a lump sum payment.

If the lessee pays rent in advance for a number of years but bears all the expenses arising during use of the assets:

Turnover to T t calculate l l t taxable t bl i income allocated over the number of years for which rent was paid in advance AND calculation must be made of the amount of tax payable for each year and payable for the entire period for which advance payment was accepted.

Turnover to calculate taxable income

7.

Activities being leasing out assets Illustration: Mr. Trung leases his house for 5 years (2012-2016), VND100million per year. The lessee pays VND500m in advance. If the lessee pays VND500m in advance, Mr. Trung could declare his turnover to calculate taxable income

VND500m in 2012 and pay tax in 2012 with corresponding tax rate OR VND100m each year from 2012 -2016 and pays tax each year

If the lessee pays VND500m in advance and bears all the expenses arising during the time of contract, Mr. Trung must declare his turnover to calculate taxable income

VND100m each year from 2012 -2016 AND calculate the tax for each year AND pay tax in 2012

Turnover to calculate taxable income

8 8.

Construction and installation installation, turnover shall be the value of the works or items of work or the value of the entire project works which were tested, accepted and handed over Transportation, turnover shall be the total monies receivable from transportation of passengers, luggage and cargo.

9.

Deductible expenses p

Expenses
actually directly di tl

arise

related l t dt to creation ti of f th the t turnover and d taxable income in the tax assessment period, adequate invoices and vouchers as required by law.

have

Deductible expenses p

Expenses being salaries and wages wages, allowances

not

include salaries and wages of the head of a business household or of a member whose name is included in the business registration of a business group. allowance > 5mil per annum

Uniforms

Deductible expenses p

Cost of raw materials, supplies, fuel, power and goods

Actually used in manufacture and business In accordance with reasonable levels of wear and tear and actual ex-warehouse prices fixed by the business individual or business household itself, and for which such individual or household shall be liable. Not include the value of the loss of supplies, assets, capital monies or g goods unless such loss was due to a natural disaster, , fire, epidemic or other event of force majeure for which compensation is not receivable. Supplies and goods are used both for private consumption and for business purposes: include only that part of the expenses representing the business use

Deductible expenses p

Depreciation of, of and costs for maintaining and servicing fixed assets
used

in manufacturing and business

adequate

invoices, vouchers and legal papers proving that the fixed assets are owned by the business individual. monitored o to ed and a d accou accounted ted for o in t the e accounting books of the business individual in accordance with current regulations

managed, a aged,

Deductible expenses p
The

amount or level of depreciation of fixed assets shall be as stipulated in the regulations on management, use and depreciation of fixed assets.

For

fully depreciated assets, depreciation shall not be allowable assets are used for business and other purposes: depreciated as usage portion for each purpose

Fixed

Deductible expenses p

Expenses being payment of interest on loans borrowed for manufacture and business
actual

interest rate pursuant to the loan contract with the bank or credit institution

the

loan from an entity other than a bank or credit institution: maximum interest rate may not exceed 1.5 times the basic interest rate announced by the State Bank at the time of the loan include payment of interest on loans in order to contribute capital to establish the business premises

not

Deductible expenses p

Expenses being payment of interest on loans borrowed for manufacture and business

Illustration:

Borrowings VND300 million from a bank at the interest rate 10% per year. Is the interest expense VND 30 million per year deductible? Borrowings B i VND300 million illi f from a person at t th the i interest t t rate 15% per year. The basic interest rate announced by the State Bank at the time of the loan is 8%. How much of interest expense is deductible?

Deductible expenses p

Expenses being payment of interest on loans borrowed for manufacture and business

Illustration:
Registered R i d

capital i l VND500 million. illi capital VND200 million.

Contributed Borrowings

from a bank for funding the lack of contributed capital: VND300 million, interest expense VND 30 million per year. the interest expense deductible?

Is

Deductible expenses p

Taxes, , fees and charges g and land rent which are mandatory by law and which relate to the manufacturing, business or service activities, Allowances for employees' business trips (excluding travelling and residential allowances) at a maximum of twice the amount permitted pursuant to guidelines of the Ministry of Finance applicable to State officials and employees Other expenses directly related to creation of turnover and taxable income, and which have adequate invoices and vouchers as required by law

Taxable income being g salary y

Tax point: The time for determining taxable income being salary l shall h ll b be th the ti time when h th the employer l pays such salary to the employee.
Illustration: us a o Employees p oyees received ece ed sa salary ayo of Dec ec 2011 0 in Feb 2012. The salary is declared as taxable income of Feb 2012

Group p of business individuals

In a case where a number of people are jointly named in the business registration, including a case of leasing out housing and land with co coowners named in the certificate of ownership or certificate of land use right (hereinafter referred to as a group of business individuals), the t taxable bl i income shall h ll be b allocated ll t d to t each h individual by one of the following methods

Group p of business individuals

1 1.

In accordance with the capital contribution ratio of each individual as recorded in the business registration Pursuant to an agreement between the individuals concerned Average g amount of income p per p person if 2 above methods are inapplicable

2.

3.

Group p of business individuals

Mr. A, Mr. B and Mr. C are all jointly named in the business registration and each participates in the business (group of business individuals). The business registration specifies the capital contribution ratio of each of these individuals as 50% f for M Mr. A A, 30% f for M Mr. B and d 20% f for M Mr. C C; and suppose that the taxable income in year X is 300 million. million Calculate taxable income for each person.
Mr. A = 300 x 50% = 150 million Mr. B = 300 x 30% = 90 million Mr. C = 300 x 20% = 60 million

NON-RESIDENT INDIVIDUALS

Business Income Tax rate

1% applicable to business in goods 5% applicable to business in services 2% applicable to manufacturing, construction, transportation and other business activities

If unable to separate turnover from each sector sector, the highest tax rate applicable shall be applied to the entire turnover

NON-RESIDENT INDIVIDUALS

Income being Salary

Taxable

income from salary are receivable by the nonresident individual in money or kind as a result of working in Vietnam, irrespective of the place were the income is paid tax rate of 20%

Flat

TAX REGISTRATION

Taxpayers who must conduct tax registration

Income Income-paying paying Individuals

entities

with taxable income

File for tax registration

Income-paying

entities : follow the circular 80/2012/TT-BTC with taxable income: Tax registration form no. 01/DK-TNCN and a copy of ID or passport

Individuals

TAX REGISTRATION

Location for lodging file for tax registration

An

individual with taxable income being salary

income paying entity or the tax office directly managing income-paying such entity

Individuals

with other taxable income with a number of income sources

the Tax Department where they reside

Individuals

may select the place, either at the income-paying entity or body, or at the Tax Department in the locality where they conduct business.

Tax Deduction Withholding g Tax

Tax deduction [deduction at the source] means the income-paying entity calculates and deducts tax payable from the income of the taxpayer before paying such income

Tax Deduction Withholding g Tax

Types of income from which deductions must be made

Income Income

of non non-resident resident individuals of resident individuals

Income being salary; Income from capital investments Income from capital transfers and from transfers of securities Income from all types of prizes I Income from f copyright i ht [royalties] [ lti ] Income from copyright [royalties]

Tax Deduction Withholding g Tax

Specific cases Tax deduction in the case of income being salary of an individual with a labour contract and who was employed on a long term and stable basis

d d t d on a monthly deducted thl b basis i conduct provisional deduction for family circumstances and registered eg s e ed depe dependents de s o of the e taxpayer, a paye , a and d then e o on the e basis of the residual income and the scale of progressive tax tariff, such entity shall deduct the amount of tax calculated l l t di in order d t to pay it t to th the St State t budget b d t

Tax Deduction Withholding g Tax

other cases :
where

the total income to be paid is 1 million dong or more on each occasion occasion, then such income-paying entity must deduct personal income tax before paying such sums to the individual as follows
By

deducting 10% of the income in the case of an individual who already has a tax code number. deducting 20% of the income in the case of any individual who does not yet have a tax code number number.

By

Double Tax Treaties

If a foreign company / individual is the tax tax resident / resident establishment in both Vietnam and the foreign country, they may / will be taxed on income in both countries (i.e. Double Tax) Double tax treaties are applied to subjects which are tax residents/resident establishments of Vietnam or of the Contracting State to an Agreement g concluded with Vietnam or of both

Double Tax Treaties

A resident of the Contracting State means any person who, under the laws of that state is liable to tax therein by reason of: state,

That person has an home home, a period of residence in that State or any other criterion of similar nature, in the case of an individual; or That Th t person has h a place l of f management, t a registered i t d office, or is established in that State or has any other criterion of similar nature, in the case of an organization

Double Tax Treaties

Vietnam is a signatory to a Treaty for the Prevention of Double Taxation with many countries all over the world world. Draft agreements with additional countries are at t the th discussion di i stages. t

Double Tax Treaties

Principles for Double Tax Treaties

In

cases where there are disparities between the provisions of the Agreements and those of domestic laws, the provisions of the Agreements shall apply shall not create new tax obligations or tax obligations that are different from or heavier than those prescribed by the domestic tax laws

The Agreements

Double Tax Treaties

Vietnams Vietnam s right to tax Personal Income Tax

Income for working in Vietnam earned by a resident individual of a foreign country having DTT with Vietnam: Vietnam has the right to tax However, Vietnam will exempt for the individuals salary if h / h satisfies he/she ti fi all ll the th f following ll i conditions: diti

The individual is present in Vietnam for less than 183 days in year in question 12 months which starts or ends in the tax y The employer is not resident taxpayer in Vietnam (regardless whether the salary is paid directly by the employer or a representative) The salary is not borne / paid by a P/E of the employer in Vietnam

Double Tax Treaties

NTB Co., a Japanese p company, p y set up p a Joint Venture in Vietnam with a Vietnamese company. The JVs name is NTB Vitco. In 2009, NTB appointed Mr. Nagakawa to represent it in negotiating with the JV whereby NTB will transfer know-how know-how to the JV. The negotiation happened from 1 November 2009 to 31 December 2009. Salary of Mr. Nagakawa during 2009 will be paid by NTB in Japan Can Mr. Nagakawa be exempted from PIT in 2009 ? Mr. Nagakawa g can be exempted p from PIT in 2009 because:

He spent only 61 days in Vietnam in 2009 NTB (employer) is not resident in Vietnam His salary is not paid / borne by any P/E of NTB in Vietnam (the JV is not considered P/E of NTB in Vietnam)

Double Tax Treaties

In 2011, Mr. Nagakawa g was appointed pp by y NTB to work in NTB Vitco (the JV) from 1/1/2011 to 27/3/2011 for training and implementation of the know-how in the JV. His salary will be paid by NTB in Japan Japan, and NTB will then charge back this costs to the JV Can Mr. Nagakawa be exempted from PIT in 2011 ?

NO- Mr. NO M Nagakawa N k spent t 86 d days for f this thi new j job bi in Vi Vietnam t in the year 2011. He will still satisfy the 183 days condition. However the 3rd condition (salary not paid / borne by a P/E of th company i the in Vi Vietnam) t )i is not t satisfied ti fi d b because actually t ll th the JV will have to bear such costs. Therefore Mr. Nagakawa will not be exempted in Vietnam in 2011.

Double Tax Treaties

Assuming in 2011, Mr. Nagakawa was appointed by NTB to work in NTB Vitco f from 10/2/2011 / / to 10/7/2011 / / for f implementation of f the know-how to a client of f NTB Vitco. His activities will be under management of NTB Vitco. All housing/accommodation for Mr. Nagakawa during his time in Vietnam will be borne by NTB Vitco. As the JV is newly established and is running a loss, NTB agreed that they will bear all the salary of Mr. Nagakawa during the 5 months period he is in Vietnam. This favour will give NTB a right to receive more dividends di id d f from the h JV i in the h f future Can Mr. Nagakawa be exempted from PIT in 2011 ?

NO - Mr. Nagakawa satisfies all 3 conditions in form. However, the real question is who is actually the employer of Mr. Nagakawa?. Although his salary is borne by NTB (and not the JV), he is actually employed by the JV (because he works for the JV in providing the know-how to the client, the beneficiary of his activity is the JV, and his salary is ultimately borne by the JV (NTB agree to bear this costs but this is in exchange for a right for more dividends later)

Double Tax Treaties Calculation

If a tax resident in Vietnam paid tax in a foreign country having DTT with Vietnam, the income received overseas will be included in the taxable income of that tax resident in Vi t Vietnam , but b t the th t tax paid id overseas will ill be b credited against tax payable in Vietnam The tax credit should not exceed the tax y in Vietnam attributable to that income liability

Double Tax Treaties Calculation

Mr. Antoine, , a tax resident in Vietnam, , has no dependent has the following income in Vietnam in year 2009:

Salary S l f for working ki i in F France (i (in J July l October) O t b ) equivalent i l t VND 120,000,000 Salary for working in Vietnam (for other months in the year) received i di in Vi Vietnam t VND 240 240,000,000 000 000 Gross interest for bank deposits in France (US$1000) = VND 17,000,000 Tax on individual income in France (applicable on both employment and interest income) is 20%

Required: calculate final tax liabilities of Mr. Antonie in Vietnam

Double Tax Treaties Calculation

As a resident, Mr. Antonie will be subject to tax on global income (120m for working overseas + 240m for working in Vietnam (regardless of where to receive) + 17m interest) p taxable income of Mr. However, as bank interest is exempted, Antonie in 2009 is 120 + 240 = 360m

Average taxable income = 360m / 12 months = 30m / month Average Assessable income = 30m 4m = 26m VND

Annual tax liabilities = 3,550,000 * 12 months = 42,600,000 Tax paid overseas:

On employment income (120m*20%) On interest (17m*20%)

VND VND

24,000,000 3,400,000

Double Tax Treaties Calculation

The tax paid overseas for employment income will be creditable to tax liabilities of Mr. Antonie up to the Vietnamese tax on that income. The tax paid overseas for interest will not be credited because bank interest is exempted from PIT in Vietnam (therefore no credit dit / deduction d d ti available il bl f for exempted t di income) ) Vietnamese tax on employment income:

= Total Vietnamese tax on total income * Overseas income / Total income = 42,600,000 * (120,000,000 / 360,000,000) = VND14,200,000

Tax credit = Min(24,000,000 Min(24 000 000 and 14 14,200,000) 200 000) = 14 14,200,000 200 000 Mr. Antonies tax liabilities = 42,600,000 14,200,000 = VND 28,400,000

E d of End f part t2