Payroll calculation

What is personal income tax? Legal concepts and regulations

Personal income tax (PIT) is one of the extremely important sources of revenue of the State budget. This is also one of the obligations and rights of each citizen with the purpose of contributing to the development of the country. Let's explore the concept as well as the legal provisions on this issue right below!

Personal Income Tax (PIT) – Concepts and regulations to know

Personal income tax is defined in the most understandable way is the amount of tax that the income earner must deduct part of his/her salary or other sources of income from outside to pay into the state budget after the deductions are calculated.

Accordingly, it is clearly visible the principle of fairness and the ability to pay taxes from the way of understanding what PIT is. Individuals who have low incomes and are only enough to feed themselves and their families at the necessary level are not taxed personally. Therefore, paying personal taxes is also seen as a way to reduce the disparity between the current population classes.

Subjects who need to pay PIT

Currently, in Vietnam, there are 2 subjects that need to pay PIT: Those who meet the conditions for taxable income – in and outside the territory of Vietnam (note: i.e. the place of income payment) is essential when individuals who do not reside in Vietnam need to pay PIT. In addition, individuals residing in Vietnam are also another subject who needs to pay PIT.

Personal income taxable income

Personal income taxable income includes the following types of income, excluding tax-exempt income, including:

1. Business subject to PIT

2. Salaries and wages subject to PIT

3. Capital investment subject to PIT

4. Transfer of capital subject to personal income tax

5. Transfer of real estate subject to PIT

6. Winners are subject to PIT

7. copyright

8. Franchises

9. Inheritance, gifts

Cases of PIT exemption

According to Article 4 of the Law on PIT in Vietnam, there are many incomes not subject to this tax, namely:

  • Income from the transfer of real estate between related individuals such as spouses, natural parents – biological children,…
  • Incomes related to residential land use rights, properties and from housing transfers
  • When the State assigns land, the income from the value of personal land use rights will be exempt from PIT
  • Income from gifts and inheritance of real estate between husband and wife; offspring with natural parents,..
  • Wages when working overtime at night or overtime after work. Calculated higher than the salary in shifts and daytime as prescribed by law
  • Income from the interest from the insurance contract (Life Insurance) or from the interest of the deposit at the credit institutions

Role – functions of PIT

  • PIT plays an important role in increasing revenue sources for the State budget: Because it must be said that nowadays, the growing Vietnamese economy means that the per capita income also increases.
  • One of the revenues to help implement social justice: As a rule, PIT only focuses and mainly on income levels higher than the starting level of taxable income as well as not taxing individuals who only have enough money to take care of their families and themselves at the necessary level. The income of each person in each working position is different so the difference in income is very clearly recognizable. Therefore, the regulation of paying PIT will help people's incomes be more balanced.

PIT period

The calculation of PIT in accordance with current regulations in Vietnam is applied to 3 different subjects:

  • For individuals residing under labor contracts with a term of more than 3 months, PIT will be calculated according to the component accumulated tax schedule
  • Individuals who do not sign an employment contract or have less than 3 months will calculate the tax rate of 10%
  • For individuals who are foreigners or do not reside, the tax rate is 20%

1. According to current laws in Vietnam, resident individuals need to comply with the tax period as follows:

a) For incomes from business; wages and salaries shall apply the annual tax period;

b) Incomes from capital investment; real estate transfer; income coming from the transfer of capital (except for securities transfers); gifts; winning prizes; franchises; copyright; inheritance, the tax period will comply with each income insation;

c) Tax period according to each transfer or annually for income from securities transfer. Must register from the beginning of the year with the relevant tax authorities in case the individual applies the tax period

2. For non-resident individuals, the tax period will be calculated on a each income in which they are in development and applicable to all taxable incomes.

How is PIT calculated?

For general personal income tax as follows:

PIT payable = Tax rate x Taxable income portion

Taxable income:

Taxable income = Tax collection – Needs/deductions

Taxable income:

Taxable income = Total income – tax exemptions/non-taxable

The fees above are information on how PIT is calculated that we would like to recommend to you. PIT is a form of tax that you need to pay a lot of attention to avoid confusion as well as "miss" when too many other busy things take up your whole time so try to pay attention to it! Hope that the above article helps you with the concepts and regulations of PIT!