Organisations and individual taxpayers in Vietnam should be aware of the guidance outlined by the Vietnam Ministry of Finance and General Department of Taxation when completing annual finalisations.

In Vietnam, the tax system can be at times confusing and tedious, involving procedures and calculations that sometimes are complicated and hard to comprehend, particularly for expatriates and foreign individuals that have no technical knowledge on the Personal Income Tax rules and regulations that apply to salaries, wages and other income sources.

In this article, we delineate the provisions and procedures for Personal Income Tax (PIT) finalisations in Vietnam, covering important circulars and decrees which regulate the implementation and reporting schedule.

Guide and regulatory basis for 2022 PIT finalisation

Process, forms of returns, and required documents are to follow regulations in Circular 80/2021/TT-BTC dated 29^th September 2021, issued by the Ministry of Finance, and took effect from January 2022.

Further regulations regarding PIT finalisation are also stipulated in Decree 126/2020/ND-CP dated 19^th October 2020, provides guidance on the implementation of the Tax Administration Law 38/2019/QH14 dated 19^th June 2019.

Individuals subject to direct (personal) finalisation

• Tax residents receiving income from overseas entities
• Individuals receiving income from international organisations, embassies, consulates in Vietnam where PIT has not been withheld by these entities
• Individuals who participated in overseas share schemes with taxable income to ｄｅｃｌａｒｅ
• Expatriates staying for less than 183 days in their first calendar year in Vietnam but more than 182 days in their first 12 consecutive months period counting from their arrival date, are subject to the first annual PIT finalisation covering the first 12 consecutive months.
• Expatriates terminating their working period in Vietnam are required to file annual PIT return before their departure.
• Individual having employment income and are subject to tax reduction due to disaster, fatal disease, etc.

Income paying organisations subject to withholding finalisation

Employers are required to file an annual PIT finalisation for any year incurring income paid to individual employees. The PIT finalisation of the company will consolidate the incomes, deductions and PIT of all staff in details and for the whole year. For the employees who authorise their employer to do PIT finalisation for them, their tax underpayment or overpayment will be calculated and processed through the entity; otherwise, they will need to process PIT self-finalisation with the income papers (Income Confirmation Letter and PIT withholding certificate) issued by their employer.

If the individuals are transferred from an old organisation to a new one due to an event of merger, consolidation, spin-off or conversion, inter-transfer between two entities among a group company, the new organisation is responsible to finalise the PIT for the authorised employees on both the income received from the old and new organisation and recollect the PIT withholding certificate issued by the old organisation, if any.

Individuals and organisations not required to complete PIT finalisations

• Individual taxpayers whose additional PIT payable after finalisation is VND50,000 or below. The above PIT exempted amount is self-assessed by the individual. Neither the PIT finalisation applications or the exemption application are required to be submitted to the tax authority
• Individual taxpayers who have final PIT payable less than the PIT paid/withheld during the year and do not wish to apply for a refund or offset
• Organisations which did not pay income to employees are not required to submit the annual PIT finalisation

Notes on types of incomes which are not subject to PIT finalisation

• Individual taxpayers having labour contracts with term of 3 months or more with one organisation and who concurrently earn irregular income from other organisation(s) with average monthly income not exceeding VND10 million on which 10% PIT has been withheld, can choose not to conduct the finalisation for such irregular income
• Individual taxpayers having life insurance premiums contributed by the employer on which 10% PIT on such income has been withheld are not required to finalise for this type of income

Amendments for PIT finalisation dossiers and relevant circumstances

• If there is no change in the tax obligation, the taxpayer is not required to submit an amended tax return, however they are required to submit an explanation for supplementary declaration as well as relevant supporting documents
• If the annual PIT finalisation has not been submitted, the taxpayer is required to amend the relevant monthly/quarterly PIT returns and then consolidate the updated information into the annual PIT finalisation
• For individuals submitting the tax return directly to the tax authorities: only the amendment of annual PIT finalisation return is required
• For the income paying organisations: the amendments of both annual PIT finalisation return and relevant monthly/quarterly PIT returns are required

Tax exemptions under Double Taxation Agreements (DTA)

Expatriate employees are able to seek tax exemptions under double taxation agreements (DTA) to avoid double taxation, provided that an effective DTA signed between their home country and Vietnam is available.

Prior to 1^st January 2022, the tax office in Vietnam did not issue any DTA confirmation notice after a DTA application was submitted by the taxpayer. Circular 80/2021/TT-BTC (“Circular 80”) dated 29^th September 2021, issued by the Ministry of Finance introduces new tax declaration forms which take effect from January 2022. These include notifications, conditions, and other relevant supporting documents:

• Pursuant to Circular 80, an individual who is a resident of a contracting state to a tax treaty concluded with Vietnam and derives income from his/her employment in Vietnam, will pay PIT in Vietnam in accordance with Vietnam PIT regulations.
• If an individual concurrently and fully satisfies the following conditions, his/her remuneration from the employment in Vietnam shall be exempt from PIT in Vietnam:
  • Individual has a certificate of tax residence in his/her home country
  • Individual is present in Vietnam for less than 183 days in a 12-month period starting or ending within the taxable year concerned
  • Employer is not a resident of Vietnam, regardless of whether that remuneration is directly paid by the employer or through the employer’s representative
  • The remuneration is not borne and paid by the Vietnam-based permanent establishment (PE) set up by the employer
• Pursuant to Circular 80, tax authorities are required to issue a notice to the taxpayer claiming PIT exemption under a relevant DTA signed with Vietnam. The DTA confirmation notice shall be issued within 30 days (or 40 days in case of a tax audit) of submission of the DTA application.

Nevertheless, it is worth mentioning that the fourth condition above should be carefully considered and justified, i.e., whether the foreign company which employs and pays income for the assigned foreign employees has a PE in Vietnam or not. The tax authorities are taking a strict approach in reviewing the DTA application and the related supporting documents before accepting the application and issuing the confirmation notice.

Submission deadline for the annual PIT finalisation

• For income paying organizations, the deadline for submission of their annual PIT finalisation return is the last day of the 3^rd month from the end of the calendar year or financial year (for 2022 PIT finalisation, the deadline is 31^st March 2023)
• For individuals submitting their PIT return directly to the tax authorities, the deadline for submission of annual PIT finalisation return is the last day of the 4th month from the end of the calendar year. If the deadline falls on the National Holiday or weekend, the deadline is the next day (for 2022 PIT finalisation, the deadline is 4^th May 2023).

If your organisation needs any support with personal income tax finalisations or any other tax compliance matters, our experts are ready support with further information on managing labour and HR compliance in Vietnam.

Huynh Thi Bao Tran– Head of Payroll and HR Consulting – tran.huynh@Vieter.com

Matthew Lourey – Managing Partner – m.lourey@Vieter.com