Vietnam has always managed to attract foreign investors because of its great geological location and it’s dynamic young workforce. That is why attracting foreign investors has been of key importance in Vietnam’s External Affairs Policy. It is one of the main reasons why Vietnam has various easier Tax and Compliance Laws to make it easier for investors to establish their offices and branches here. The government offers reductions and exemptions to foreign investors. It has helped the local industry boom in the region. For example, trade between Vietnam & the U.K. almost tripled from 2010 to 2020, when it reached about $6.6 billion (source).
What is Personal Income Tax?
Tax is one of the most important duties for each citizen to keep the government’s wheels going. The government is highly dependent on the tax of each person. Personal Income Tax in Vietnam is the deduction in the taxpayer’s income to pay the government. The tax is paid to the government once a year. The government of Vietnam has offered various exemptions to encourage the taxpayers in the country. It is to encourage the taxpayers to pay their taxes.
Income Tax Exemptions
To make things easier for taxpayers, the government has offered tax exemptions on various income sources. The first income that does not require the taxpayer to remit the tax is their foreign remittance. It may be in the form of educational support payment or some form of a retirement pension. Another income that does not require the worker to pay tax on them is the one that is earned on the night shift of the job. The condition for that is the salary for the overtime must be greater than the regular shift salary.
Another tax exemption is in real estate. If a person sells their house, they do not have to pay tax against their earned amount. The taxpayers also do not need to pay taxes against the income received under the flag of aid or charity. For a person earning from any of these sources, the law allows them not to pay the tax.
To attract foreign workers and investors to the country, the government has offered various tax exemptions for foreigners. They include a one-time tax exemption for the person when they move to Vietnam. It helps in making the transition of foreigners to the country much easier. If an employer pays for the round-trip airfare for their employee, that amount is exempt from the tax.
There are also various tax exemptions on the amount invested by the employers towards their employees. Such as if the employer is responsible for arranging the meal at the lunch break. For an employee’s training session, they do not have to remit any tax to the government against the training fee.
Income Tax Reductions
The government of Vietnam has introduced various reforms leading towards income tax reductions. The newly imposed laws show that the tax deduction increased to 192 USD, which was 152 USD earlier. But these income tax reductions are only for those who meet certain criteria.
A person whose annual income does not exceed 516 USD is eligible for this tax reduction. In addition to these, the dependents who cannot find a suitable job are also eligible for the tax reduction. This tax reduction requires a set of documents to be submitted to the General Department of Taxation Vietnam. These documents include National ID and certified documents showing the status of their job.
According to article 4 of Vietnam’s Personal income tax laws, there is a long list of tax-free sources of income in the country. These sources are:
- Income earned from real estate transfer between spouses, blood relatives, and adopted families is tax-free. Income earned from inherited real estate is also tax-free income.
- Income for the remittances that a person earns on the money sent by their foreign relatives, who are in another country to either work or study, is considered Tax Free Income.
- Pensions paid by the social insurance fund are also a source of tax-free income.
Income Tax Deductions
‘Article 9 of Vietnam’s Tax Law gives information about the income tax deductions in the country. The amount of money deducted from the taxpayer’s income before the tax calculation is the personal deduction. The deduction for each dependent is 4.4 Million VND/Month. And dependent deductions are also applicable to the foreign employees working in Vietnam.
If the Vietnamese person earns incomes from business or wages overseas and pays compulsory insurance premiums required by the country where the person holds the nationality or works similar to that in Vietnam. It includes social insurance, health insurance, unemployment insurance, professional liability insurance, and other compulsory insurance. Such premium insurance may be deducted from the taxable income from business and wages when calculating personal income tax.
The donations given by the taxpayer will also be deducted from the taxable income before the tax is calculated on the wages earned by the taxpayer. If the total amount is not deducted in one year, the remaining amount is deducted in the next tax year.
Tax Period for Foreigners
If a foreigner has been in Vietnam for less than 183 days in a calendar year but has spent more than 183 days in consecutive 12 months (of their arrival), then for the first year, they would pay the tax for 12 months starting from their arrival. And in upcoming years, the tax period will be the calendar year.
How can Cekindo help?
Keeping up with the tax laws can prove difficult for someone who does not have in-depth knowledge of the tax. That is why Cekindo’s Business Processes Outsourcing offers you our Income Tax Consultant Services. With Cekindo, you can be assured that you will always stay updated on all of Vietnam’s latest tax laws. Our professionals are here to ensure that you get to save as much as you can with the tax exemptions and reductions offered by the Government of Vietnam.