The majority of people start thinking about a life insurance policy when they reach the age of 30. The reasons are clear: many people decide to start a family at this age or already have a small child or children. However, when buying life insurance, people often have a lot of questions about them. In this article, LSX legal firm would like to answer the most typical question arising nowadays: “Does buying life insurance in Vietnam deduct PIT?”
Legal grounds
- Law on Insurance Business 2010 amended and supplemented 2019
- Law on Personal Income Tax 2007
- Circular 111/2013/TT-BTC
Life insurance
According to Clause 12, Article 3 of the Law on Insurance Business:
- Life insurance: a type of insurance business in case the insured person lives or dies.
Currently, in Vietnam, life insurance has many types:
- Firstly, lifetime insurance;
- Secondly, death insurance;
- Thirdly, live insurance;
- Fourthly, mixed insurance;
- Fifthly, periodic payment insurance;
- Investment-linked insurance;
- Lastly, pension insurance.
Personal Income Tax (PIT)
Currently, there is no exact and specific definition of what personal income tax (PIT) is. However, based on the legal provisions recorded in the Personal Income Tax Law, Decrees, and guiding circulars, you can understand personal income tax as:
” A direct tax, calculated on the income of the taxpayer after deducting tax-free income and deductions for family circumstances.”
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.
Which income is subject to personal income tax?
Except for tax-exempt income specified in the Law, personal income taxable income includes the following types of income:
Income from business
- Firstly, income from the production and trading of goods and services;
- Secondly, incomes from independent practice activities of individuals who have licenses or practice certificates as prescribed by law.
- Thirdly, income from a business in this regulation does not include the income of business individuals with a turnover of 100 million VND/year or less.
Income from salary, wages
- Wages, wages and amounts of salary and wage nature;
- Allowances and subsidies, except for allowances and subsidies in accordance with the law on incentives for people with meritorious services; defense and security allowances; toxic or dangerous allowances for industries, occupations, or jobs at workplaces with toxic or dangerous elements; attraction allowance, regional allowance as prescribed by law;
- Unexpected hardship allowance, work accident allowance, occupational disease allowance, one-time allowance for childbirth or child adoption, allowance for the working capacity decline, one-time retirement allowance, survivorship allowance, and other allowances in accordance with the law on social insurance; severance allowance, job loss allowance according to the provisions of the Labor Code; allowances of the nature of social protection and other allowances and subsidies not of the nature of salary or wages according to the Government’s regulations.
Income from capital investment
- Loan interest;
- Stock dividends;
- Income from capital investment in other forms, except income from government bond interest.
Income from capital transfer
- Firstly, income from the transfer of capital in economic organizations;
- Secondly, income from securities transfer;
Income from capital transfer in other forms.
Income from real estate transfer
- Firstly, Income from the transfer of land use rights and properties attached to land;
- Secondly, Income from transfer of ownership or use of housing;
- Thirdly, Incomes from the transfer of the right to rent land, the right to rent water surface;
- Other incomes received from the transfer of real estate in any form.
Earnings from winning prizes
- Winning lottery prizes;
- Winning prizes in the form of promotions;
- Also, winning in the form of betting;
- Winning prizes in games, contests, and other forms of winning.
Copyright income
- Incomes from the transfer or transfer of the right to use objects of intellectual property rights;
- Income from technology transfer.
- Franchise income.
- Besides, income from inheritance is securities, capital in economic organizations, business establishments, real estate, and other assets subject to registration of ownership or registration of use.
Does buying life insurance in Vietnam deduct PIT?
Article 4 of the Law on Personal Income Tax
Under Article 4 of the Law on Personal Income Tax, the subjects who will be exempt from personal income tax are:
“7. Income from interest on deposits at credit institutions, interests from life insurance contracts.
- Income from an indemnification for life and non-life insurance contracts, compensation for occupational accidents, state compensation, and other compensations as prescribed by law.”
Article 3 of Circular 111/2013/BTC
According to Article 3 of Circular 111/2013/BTC, the subjects who will be exempt from personal income tax are:
Article 3
g.1) Tax-exempt deposit interests specified at this Point are personal income received from interests of VND, gold, or foreign currency deposits at established credit institutions and foreign bank branches. and operate under the provisions of the Law on Credit Institutions in the forms of demand deposit, time deposit, savings deposit, certificate of deposit, promissory note, treasury bill, and other forms of deposit receipt. The principle has to fully refund the principal and interest to the sender as agreed.
The basis for determining tax-free income for income from deposit interests is a savings book (or savings card), certificates of deposit, promissory notes, bills, and other papers on the principle of full refund. have enough principal and interest for the sender as agreed.
g.2) Interest from a life insurance contract is the interest an individual receives under the life insurance purchase contract of the insurance enterprises.
The basis for determining tax-free income for income from interest on life insurance contracts is the voucher of interest payment from the life insurance contract.
n) Incomes from compensation from life insurance, non-life insurance, and health insurance policies; compensation for labor accidents; compensation and support money according to the provisions of the law on compensation, support, and resettlement; compensations to the State and other compensations in accordance with the law on State compensation. As follows:
n.1) Income from compensation for life insurance, non-life insurance, and health insurance is money that an individual receives paid for by life insurance, non-life insurance organization, or health insurance. the insured as agreed in the signed insurance contract. The basis for determining this indemnity is the written or indemnity decision of the insurance organization or court and the indemnity payment voucher.
Article 9 of Circular 111/2013/BTC
Also, according to Clause 2, Article 9 of Circular 111/2013/BTC:
“2. Deductions for insurance premiums, Voluntary pension fund
a) Insurance premiums include: social insurance, health insurance, unemployment insurance, and occupational liability insurance for a number of occupations requiring compulsory insurance.”
So, buying life insurance will not be subject to PIT deduction because it does not belong to the deductible cases. However, as we stated above, the indemnified expenses from life insurance or the interest from life insurance policy will be deducted.
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Related articles
- Do business suspensions have to file tax returns in Vietnam?
- Instructions for declaring personal income tax for foreigners in Vietnam
- Distinguish Special Consumption tax and value added tax in Vietnam
Related questions
In many cases (although not all) you won’t need to keep term life insurance in retirement. This insurance is temporary and will expire at some point. But if you have a permanent life insurance policy, it can continue to provide you with important benefits through your retirement.
Firstly, compulsory social insurance covers the following regimes:
a/ Sickness;
b/ Maternity;
c/ labour accident and occupational disease;
d/ Retirement;
dd/ Survivor allowance.
Secondly, voluntary social insurance covers the following regimes:
a/ Retirement;
b/ Survivor allowance.
Thirdly, the supplementary retirement scheme shall be stipulated by the
Government.
Business operations of an insurance Joint-stock company include:
Firstly, Insurance business, reinsurance business;
Secondly, Preventing and limiting risks and losses;
Thirdly, Damage assessment;
Fourthly, Loss assessment agency, considering compensation settlement, requesting a third party to reimburse;
Also, Fund management and capital investment;
Lastly, Others operations prescribed by the law.
Besides, an insurance joint-stock company is not allowed to conduct business in life insurance and non-life insurance at the same time. Except for the case of a life insurance joint-stock company providing health insurance business; and personal accident insurance to support life insurance.
Contact LSX
Finally, hope this article is useful for you to answer the question about “Does buying life insurance in Vietnam deduct PIT?”. If you need any further information, please contact LSX Law firm: +84846175333 or Email: [email protected]
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