Question:
May I inquire about the scenario where an employee is laid off due to restructuring reasons, and the employer voluntarily provides severance pay? Does the employee have to pay PIT on this severance pay? If PIT is applicable to this severance pay, how is it calculated? Please provide specific guidance.
Answer:
Based on Circular No. 111/2013/TT-BTC dated August 15, 2013, issued by the Ministry of Finance, which provides guidance on personal income tax (PIT), the following applies:
- In the case of an individual employee who is laid off, and the employer provides severance pay in accordance with the provisions of the Social Insurance Law and the Labor Code, this severance pay is not considered as taxable income from the employee’s salary or wages.
- However, in cases where a business pays severance pay to an employee (beyond what is required by the Labor Code and Social Insurance Law) after terminating the labor contract, and if this additional payment exceeds two million Vietnamese dong (VND 2,000,000), the company must deduct PIT at a rate of 10% from the total amount of the additional payment.
