Paying taxes to the state has always been the duty of every citizen because tax revenue is a major source of revenue for the state budget to ensure social welfare regimes for the people. However, paying personal income tax sometimes becomes burdensome due to the lack of legal understanding of the regulations on personal income tax. Many people, when participating in a job, do not know whether they have to pay personal income tax or not. So, in this article LSX legal firm would like to answer the question: “Who does not have to pay personal income tax in Vietnam?”
Legal ground
- Law on Personal Income Tax 2007
Personal Income Tax (PIT)
Personal income tax known as a direct tax. The tax calculation based on the taxpayer’s income after deducting the income that included in the tax exemption and the deductions according to the provisions of the Law on Personal Income Tax as well as relevant documents and instructions.
Who has to pay personal income tax (PIT)?
Article 2 of the Law on Personal Income Tax 2007 (amended and supplemented in 2012) stipulates on taxpayers:
“Article 2. Taxpayers
1. Personal income taxpayers include residents who earn taxable incomes specified in Article 3 of this Law inside and outside the Vietnamese territory and non-residents who earn taxable incomes specified in Article 3 of this Law inside the Vietnamese territory.
2. Resident means a person who satisfies one of the following conditions:
a/ Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months counting from the first date of their presence in Vietnam;
b/ Having a place of habitual residence in Vietnam, which is a registered place of permanent residence or a rented house for dwelling in Vietnam under a term rent contract.
3. Non-resident means a person who does not satisfy any of the conditions specified in Clause 2 of this Article.”
Thus, for resident as individuals, personal income tax will calculated based on income earned worldwide (both in Vietnam and abroad). In contrast, as a non-resident individual, personal income tax only calculated on income earned in the territory of Vietnam.
A resident means a person who meets one of the following conditions
- The person has been present in Vietnam for 183 days or longer in a calendar year, or for 12 consecutive months from the day on which that person arrives in Vietnam (the date of arrival and date of departure are considered 01 day). The date of arrival and date of departure depends on the certification of the immigration agency on the passport (or laissez-passers) when that person enters and leaves Vietnam. If the person enters and leaves Vietnam within one day, its considered a day of residence.
- A person in Vietnam defined in this Point is the presence of that person in Vietnam’s territory.
- The person has a regular residence in Vietnam in one of two cases below:
1. The person has a regular residence according to legislation on the residence:
- For Vietnamese citizens: the regular residence is the place where that person regularly; stably; and indefinitely lives and has been registered as a permanent residence as prescribed by legislation on the residence.
- For foreigners: the regular residence means the permanent written in the permanent residence card; or the temporary residence when applying for the temporary residence card issued by competent authorities affiliated with the Ministry of Public Security.
2. The person rents a house in Vietnam according to legislation on housing under a contract that lasts 183 days or longer in the tax year; in particular:
- The person who has no regular residence as guided in Point b.1 Clause 1 of this Article; but has rented the house for a total of 183 days in the tax year is also considered a resident; even if that person rents houses in various areas.
- The rented houses include hotels, guesthouses, motels, offices, etc. whether they are rented by the person or their employer.
In case the person has no regular residence in Vietnam
If the person has no regular residence in Vietnam according to this Clause but actually present in Vietnam for fewer than 183 days in the tax year; and fails to prove his or her residence in any country. Then that that person shall be considered a resident of Vietnam.
The residency in another country shall be proved by the Certificate of residence. If the person belongs to a country or territory that signs tax agreements with Vietnam and does not issue the Certificate of residence; that person shall present a photocopy of the passport to prove the period of residence.
A non-resident individual is a person who does not meet the above conditions.
Who does not have to pay personal income tax?
According to Point d, Clause 6, Article 8 of Decree 126/2020/ND-CP and Official Letter 636/TCT-DNNCN, if you fall into one of the following cases, you do not have to finalize personal income tax:
(1) Organizations and individuals that pay incomes from salaries and wages that do not generate income not required to make personal income tax finalization declarations.
That means, in the personal income tax period, if you do not pay wages or salaries to employees, you do not declare and finalize personal income tax.
Besides, in cases where salaries and wages are paid but no personal income tax withholding is incurred; they must still declare tax finalization according to regulations (Paying salaries and wages but not yet to the extent that tax is payable. However, organizations and individuals must still make tax finalization declarations according to regulations).
(2) Individuals who have a personal income tax amount to pay after the final settlement of each year of 50,000 VND or less.
Tax-exempt individuals in this case determine the exempted tax amounts themselves; not required to submit personal income tax finalization dossiers, and not required to submit tax exemption dossiers.
In case the settlement period from 2019 and earlier settled before December 5, 2020; it will not be processed retroactively.
(4) Individuals earning incomes from wages and salaries, signing labor contracts for 3 months or more at a unit, and at the same time earning a monthly average income of not more than VND 10 million in other places in a year, have deducted personal income tax at the rate of 10%, if having no request, then no tax finalization required.
(5) Individuals whose employer buys life insurance (except for voluntary retirement insurance)
Individuals whose employer buys life insurance (except for voluntary retirement insurance), or other optional insurance with accumulated premiums that the employer or insurance enterprises have withheld personal income tax at the rate of 10% on the premium amount corresponding to the part purchased or contributed by the employer to the employee, the employee may not required to finalize this income.
In addition to the above 5 cases, organizations and individuals that pay salaries and wages; individuals who directly finalize with tax authorities; and individuals who authorize personal income tax finalization must declare and submit tax finalization dossiers according to regulations of the law within the deadline specified in the Tax Administration Law 2019 as follows:
- For income-paying organizations; the deadline for submitting tax finalization declarations is the last day of the third month from the end of the calendar year or fiscal year.
- For individuals who directly settle with tax authorities; The deadline for submitting tax finalization dossiers is the last day of the fourth month from the end of the calendar year.
Note: In case the deadline for submitting tax finalization documents coincides with a prescribed holiday, the deadline for submitting tax finalization dossiers delayed to the next working day (according to Official Letter 636/TCT-DNNCN).
Additionally, if an individual has a personal income tax refund but late in submitting a tax finalization declaration as prescribed; no penalty applied for administrative violations in filing tax finalization overtime.
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Related articles
- Instructions for declaring personal income tax for foreigners in Vietnam
- Who must pay personal income tax in Vietnam 2022?
- The latest personal tax code registration service in 2022 in Vietnam
Related questions
Tax on income from salary or wage of a non-resident is determined to be equal to his/her income from salary or wage specified in Clause 2 of this Article multiplied by the tax rate of 20%.
Firstly, personal income tax is a direct tax.
Personal income tax subjects to each individual’s income.
Thirdly, personal income tax usually applied according to the principle of a partial progressive tax rate.
Fourthly, the stability of PIT is not high and complicated.
Lastly, sources of law governing the PIT relationship include national and international legal documents.
For non-residents, the tax period counted upon each time of income generation is applicable to all their taxable incomes.
Contact LSX
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