How to calculate PIT for locals and foreigners in Vietnam?

Vietnam’s personal income tax (PIT) is a crucial source of revenue for the government. It is a tax on the income earned by individuals and is applicable to both locals and foreigners. PIT is levied based on the concept of worldwide income taxation, which means that individuals are taxed on their global income, regardless of where they earned it.

In this article, we will discuss the personal income tax in Vietnam, including its rates, examples, and how it applies to locals and foreigners.

Personal Income Tax Rates in Vietnam

Vietnam’s PIT rates vary based on the income earned by an individual. For the tax year 2023, the following tax rates apply:

  • For individuals with a monthly taxable income of up to VND 5 million (approximately USD 220), the tax rate is 5%.
  • For individuals with a monthly taxable income of between VND 5 million and VND 10 million (approximately USD 220 to USD 440), the tax rate is 10%.
  • For individuals with a monthly taxable income of between VND 10 million and VND 18 million (approximately USD 440 to USD 790), the tax rate is 15%.
  • For individuals with a monthly taxable income of between VND 18 million and VND 32 million (approximately USD 790 to USD 1,410), the tax rate is 20%.
  • For individuals with a monthly taxable income of between VND 32 million and VND 52 million (approximately USD 1,410 to USD 2,290), the tax rate is 25%.
  • For individuals with a monthly taxable income of between VND 52 million and VND 80 million (approximately USD 2,290 to USD 3,520), the tax rate is 30%.
  • For individuals with a monthly taxable income of over VND 80 million, the tax rate is 35%.

It is important to note that these rates apply to monthly taxable income, which is calculated as gross income minus allowable deductions and exemptions. Allowable deductions and exemptions include items such as social insurance, health insurance, and mandatory contributions to a pension fund.

Example of Personal Income Tax Calculation for Locals

Let us take an example of a local employee who earns a gross monthly income of VND 30 million and has a VND 4 million deduction for social insurance, health insurance, and mandatory pension fund contribution. The taxable income for this employee would be VND 26 million.

To calculate the PIT for this employee, we would need to follow these steps:

  • Determine the tax rate applicable to the taxable income. In this case, the tax rate would be 15%.
  • Multiply the taxable income by the applicable tax rate. In this case, the PIT would be VND 3.9 million (VND 26 million x 15%).
  • Subtract any allowable deductions or exemptions from the PIT amount. In this case, let us assume that the employee has a VND 1 million monthly personal allowance. Therefore, the final PIT amount would be VND 2.9 million (VND 3.9 million – VND 1 million).

It is worth noting that in Vietnam, employers are responsible for withholding and remitting PIT on behalf of their employees to the tax authorities.

Personal Income Tax for Foreigners in Vietnam

Foreigners who work in Vietnam are also subject to PIT, but there are some differences in how it is calculated and paid compared to locals. Foreigners are subject to PIT on income earned in Vietnam, as well as income earned outside of Vietnam but received in Vietnam.

For foreigners, the PIT rate is a flat rate of 20% on all income earned in Vietnam, regardless of the amount. However, for foreigners who earn income both in Vietnam and outside of Vietnam, the worldwide income taxation concept applies. This means that they are also subject to PIT on their income earned outside of Vietnam but received in Vietnam.

Foreigners in Vietnam are also eligible for some deductions and exemptions that are applicable to locals, such as social insurance, health insurance, and mandatory pension fund contributions. However, they may not be eligible for certain allowances and deductions, such as the personal allowance, depending on their visa status.

Example of Personal Income Tax Calculation for Foreigners

Let us take an example of a foreigner who works in Vietnam and earns a monthly gross income of VND 60 million. This foreigner has a VND 10 million deduction for social insurance, health insurance, and mandatory pension fund contribution. The taxable income for this foreigner would be VND 50 million.

To calculate the PIT for this foreigner, we would need to follow these steps:

  • Determine the tax rate applicable to the taxable income. In this case, the tax rate would be 20%.
  • Multiply the taxable income by the applicable tax rate. In this case, the PIT would be VND 10 million (VND 50 million x 20%).
  • Subtract any allowable deductions or exemptions from the PIT amount. In this case, let us assume that the foreigner is eligible for a VND 3 million deduction for social insurance, health insurance, and mandatory pension fund contribution. Therefore, the final PIT amount would be VND 7 million (VND 10 million – VND 3 million).

It is important to note that unlike locals, foreigners are responsible for filing and paying their own PIT to the tax authorities. Failure to comply with PIT obligations can result in fines and penalties.

Conclusion

In conclusion, Vietnam’s personal income tax is an essential source of revenue for the government and is applicable to both locals and foreigners. The PIT rates vary based on the taxable income earned by an individual, and worldwide income taxation concept applies to both locals and foreigners. Employers are responsible for withholding and remitting PIT on behalf of their employees for locals, while foreigners are responsible for filing and paying their own PIT to the tax authorities. Understanding the PIT rates, deductions, and exemptions can help individuals to plan their finances effectively and avoid potential fines and penalties.

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