PERSONAL INCOME TAX

Tax payment is the right and obligation of citizens, taxes are a major source of revenue for the State budget to implement social welfare and welfare policies for people. Mastering the provisions on personal income tax (PIT) is an important premise for properly implementing rights and obligations when paying taxes. The article below will summarize some of the personal income tax regulations.

1. . What is PIT? Who is the subject of PIT payment?

In the current legal documents, there is no specific concept of PIT. However, according to the Law on Personal Income Tax and some Decrees. The circular instructs, which can be understood that PIT is direct tax, calculated based on the income of the taxpayer after deducting tax-free incomes and family deductions.

Who is the person paying PIT? According to Article 2 of the Law on Personal Income Tax 2007 and amended in 2012, pit tax payers include:

– Individuals whose taxable income arises inside and outside vietnam, meeting the following conditions:

+ Be present in Vietnam for 183 days or more in a calendar year or in 12 consecutive months from the first day of presence in Vietnam.

+ Have regular residence in Vietnam, including in case of permanent residence registration or having a rental house in Vietnam under a term of lease.

– Non-resident individuals with taxable income incurred in the territory of Vietnam.

2. The role of personal income tax

– PIT contributes to increasing state budget revenue, which is one of the effective tools for the State to mobilize a part of the wealth in society to generate revenue for the budget.

The 2020 estimate shows that the revenue of the State budget from PIT is VND 130,000 billion, an increase of 9-10 times compared to 2019 and 2020.

– PIT helps reduce the division of rich and poor, contributing to ensuring social justice.

If other taxes such as value-added taxes hit everyone's expenses, pit tax only hits the income of people with incomes of a decent amount or more. The progressive nature of this tax helps to narrow the income gap of individuals.

– PIT contributes to helping the State control the source of income and detect illegal sources of revenue, such as bribery; trafficking in prohibited goods; tax evasion goods; Fraud of state property.

3. How to calculate personal income tax foreigners who are resident individuals

As a rule, foreigners working in Vietnam, regardless of whether the individual resides or does not reside, must pay personal income tax. However, in each case, there will be a different calculation. So how do you calculate foreign personal income tax?

How to calculate personal income tax foreigners who are resident individuals

In order to calculate personal income tax for foreigners who are resident individuals, it is necessary to clearly define the conditions for becoming a resident individual.

3.1. Conditions for becoming an individual resident

According to the provisions of Clause 1, Article 1, Circular No. 111/2013/TT-BTC, the resident individual is the person who meets one of the following requirements:

3.1.1. Be present in Vietnam for 183 days or more in the calendar year, or 12 consecutive months from the first day of arrival in Vietnam, in which the arrival and departure dates are counted as 1 day.

Note:

• Arrival and departure dates are based on the certification of the immigration authorities on the passport or passport of the individual upon arrival and departure from Vietnam.
• If entering and exiting on the same day, it will be counted as 1 day of residence.
• Foreign individuals present in Vietnam have a presence in the territory of Vietnam.

3.1.2. There is a regular place to live in Vietnam in one of two cases:

• Have regular residences in accordance with the law of residence. A permanent residence is a permanent residence listed in the permanent residence card or temporary residence when applying for temporary residence card issued by a competent authority of the Ministry of Public Security.
• There are rented houses in Vietnam in accordance with the law on housing. The term of the lease is 183 days or more in the tax year.

3.2. Scope of determination of taxable income of foreigners who are resident individuals

For foreigners who are individuals residing, taxable income is determined as income arising both inside and outside the territory of Vietnam, regardless of where the income is paid.

In fact, some countries and territories have signed agreements with Vietnam on avoiding tax twice and preventing tax evasion with taxes on income. For individuals who are citizens of these countries, who are also individuals residing in Vietnam, the time for calculating personal income tax payment will be calculated from the month to Vietnam (to the first time) to the month of the end of the labor contract and leave Vietnam, no consular confirmation procedure is required to be carried out without collecting duplicate tax twice. Under the agreement to avoid taxing between the two countries.

In summary, foreigners who are resident individuals must pay income tax on wages arising in Vietnam, including salaries incurred abroad.

3.3. How to calculate taxes for resident individuals

Payable PIT = Taxable income x Tax Rate

Of which:

Taxable income = Taxable income – Deductions

Taxable income = Total income – Tax-exempt items

4. Calculating personal income tax for non-resident foreigners

The way of calculating personal income tax for foreigners as non-resident individuals has many differences.

4.1. Conditions that the individual does not reside

Non-resident individuals are those who do not meet the conditions of the aforemented residentindividual.

4.2. How to calculate taxes for non-resident individuals

According to the provisions of Clause 1, Article 18, Circular 111/2013/TT-BTC, personal income tax of non-resident individuals will be calculated as follows:

Payable amount = Taxable income x 20%

In particular, taxable income from wages or salaries is determined by the total amount of salary, remuneration, remuneration, other incomes of the nature of wages and salaries received by taxpayers during the tax period.

Taxable income from non-resident individuals' salaries and wages is determined as taxable income of individuals from wages and wages of resident individuals. Specifically:

• The time of determining taxable income with income from wages and wages is the time when organizations and individuals pay income to taxpayers.
• The time of determining taxable income with accumulated insurance product purchases is the time when the insurance company or the retirement fund management company voluntarily pays the insurance premium.

Note: A 20% personal income tax deduction will be deducted for foreigners who are non-resident individuals.

Here's how to calculate foreigner's personal income tax. Hopefully, the article has provided useful information to readers, especially businesses that have signed labor contracts with foreigners.