For citizens, the taxpayers' contributions to the State budget are used to fund essential public services such as infrastructure development, social security, education, healthcare, public safety, and national defense. These are the benefits that the population enjoys as a whole.
I. What is personal income tax?
a) Definition
Personal income tax (PIT) is the amount that income earners are required to deduct from their salary or other sources of income and pay to the state budget, after all applicable deductions have been applied.
Key characteristics of PIT:
- Calculated monthly (for monthly earners) or at the time of payment (for seasonal workers)
- Deducted before income is paid out
- Declared monthly or quarterly (depending on the business's circumstances)
- Finalized on an annual basis
b) How PIT is calculated
There are three methods for calculating PIT on wages, depending on the taxpayer category:
- Category 1: Individuals with a labor contract of three months or longer — PIT is calculated using a progressive tax schedule.
- Category 2: Individuals with a labor contract of less than three months or without a labor contract — a flat rate of 10% is applied to total income.
- Category 3: Non-resident individuals (typically foreigners) — a flat tax rate of 20% applies.
c) Important notes
- Family deductions
- Personal deduction: From July 1, 2020, VND 11,000,000 per month is deductible.
- Dependent deduction: From July 1, 2020, VND 4,400,000 per dependent, per month (there is no limit on the number of dependents registered, but each dependent may only be claimed by one taxpayer).
- Deductions also apply to compulsory insurance contributions and donations for charitable, humanitarian, or educational purposes.
- PIT final settlement: required when additional tax liabilities arise or refund claims are made. Taxpayers may also authorize a third party to handle the PIT finalization on their behalf.
II. Why pay personal income tax?
PIT is the tax that individuals with a certain level of income must deduct and pay to the state. So why is paying personal income tax important? Let's take a closer look:
a) Increases revenue for the State budget
Paying personal income tax provides the state with additional revenue to fund prescribed welfare programs and invest in public infrastructure (electricity, roads, schools, public stations, and more) that meets the essential needs of people's daily lives.
b) Regulates income and reduces the gap between rich and poor
Paying personal income tax also contributes to social equity. Because PIT applies to those whose income exceeds the taxable threshold — individuals who can support themselves and their families — the tax helps balance the distribution of wealth across classes and limits the disparity between rich and poor.
c) Supports the country's economic growth
Paying personal income tax helps drive economic growth, attract human resources, and maintain regional competitiveness.
d) Verifies that individual income is legitimate
When carrying out personal income tax procedures, taxpayers must declare their income sources. This enables the state to verify whether an individual's revenue has been earned legitimately.
III. The latest Personal Income Tax Law
Under the current personal income tax law, the following types of income are subject to PIT:
- Income from business activities exceeding VND 100 million per year.
- Income from employment (wages and salaries), including allowances, bonuses, and benefits — whether paid in cash or in kind — as prescribed by law.
- Income from capital investments, such as loan interest, dividends, and shareholdings.
- Income from the transfer of capital in organizations or companies, or the transfer of corporate share ownership.
- Income from the sale or transfer of real estate, technology, or intellectual property rights.
- Income from gifts and winnings, such as lottery prizes or promotional rewards.
- Income received through inheritance of family property.
The information above outlines the key points regarding personal income tax payment in Vietnam. We hope this overview from Wacontre helps clarify the essentials and supports you in fulfilling your tax obligations.
