1. Introduction to the Vietnamese Tax System for Foreigners
a. Overview of the Legal Tax Framework in Vietnam
Vietnam applies a complex and stringent tax system to all individuals and businesses, including foreigners working in Vietnam. The legal tax framework in Vietnam is regulated by laws, decrees, circulars, and guidelines from authorities such as the Ministry of Finance and the General Department of Taxation. These regulations clearly define the types of taxes that individuals and organizations must pay, including:
- Personal income tax (PIT)
- Value-added tax (VAT)
- Corporate income tax (CIT)
- Other types of taxes
Foreigners working in Vietnam need to comply with these regulations to avoid legal and financial consequences.
b. Importance of Understanding Tax Obligations
Understanding tax obligations is crucial for foreigners working in Vietnam. This not only helps them comply with legal regulations but also avoids unnecessary penalties due to tax violations. Additionally, being well-versed in tax regulations helps foreign workers optimize tax deductions and benefit from any available incentives. Understanding tax obligations also contributes to effective personal financial planning, ensuring that all financial obligations are fulfilled on time.
2. Types of Taxes Applicable to Foreign Workers
a. Personal Income Tax (PIT)
Foreign workers in Vietnam are required to pay personal income tax (PIT) based on their worldwide income:
- Residents: If they reside in Vietnam for 183 days or more in a year.
- Non-residents: Only on income earned in Vietnam.
The personal income tax for residents is calculated on their worldwide income, meaning all their income, regardless of its source, is taxable in Vietnam.
b. Social Insurance Contributions
Foreigners must contribute to compulsory social insurance as specified in Decree 143/2018/ND-CP, specifically:
- Holding a work permit or professional certificate issued by a competent Vietnamese authority.
- Having an indefinite-term contract or a labor contract of at least one year with an employer in Vietnam.
- Not being a manager, executive, expert, or technical worker of a foreign enterprise that has established a commercial presence in Vietnam and has been temporarily transferred within the company to this presence for less than 12 months.
- Not being an employee who has reached retirement age (men aged 60 and women aged 55).
From January 1, 2022, employees contribute 8% of their monthly salary to the retirement and survivorship fund. Employees who do not work and do not receive a salary for 14 working days or more in a month are not required to contribute to social insurance for that month. This time is not counted towards social insurance benefits, except in cases of maternity leave.
c. Other Related Taxes
- Corporate Income Tax (CIT): If the foreign worker conducts business in Vietnam.
- Value-Added Tax (VAT): If they buy or sell goods or services in Vietnam.
- Special Consumption Tax (SCT): If related to special items such as tobacco, alcoholic beverages, and petroleum.
- Real Estate Transfer Tax: If a foreigner transfers ownership or usage rights of real estate in Vietnam, they must pay tax on the income from the transfer.
- Import-Export Tax: If a foreign worker imports or exports personal or commercial goods in Vietnam.
3. Determining Tax Residency Status
a. Criteria to be Considered a Tax Resident
- A resident individual is someone who is present in Vietnam for 183 days or more or has a permanent residence in Vietnam and is subject to income tax on income generated both within and outside of Vietnam, regardless of where the income is paid.
- A non-resident individual is someone who does not meet the criteria for residency and is only subject to tax on income generated in Vietnam, regardless of where the income is paid or received.
b. Impact of Tax Residency Status on Tax Obligations
Non-residents do not benefit from personal deductions as residents do. Additionally, resident taxpayers are subject to progressive tax rates, while non-residents are taxed at a fixed rate on taxable income.
4. Income Tax Rates and Tax Brackets
a. Current Income Tax Rates for Residents and Non-residents
- Resident Individuals: A progressive tax rate ranging from 5% to 35%, depending on the level of income.
- Non-resident Individuals: Pay a 20% tax on total income from salaries and wages in Vietnam.
b. Tax Bracket and Application for Different Income Levels
| Tax Bracket | Taxable Income/Month (Million VND) | Tax Rate (%) | Calculation of Tax Payable (Million VND) |
| 1 | Up to 5 | 5 | 0 million + 5% of taxable income |
| 2 | 5 to 10 | 10 | 0.25 million + 10% of taxable income over 5 million |
| 3 | 10 to 18 | 15 | 0.75 million + 15% of taxable income over 10 million |
| 4 | 18 to 32 | 20 | 1.95 million + 20% of taxable income over 18 million |
| 5 | 32 to 52 | 25 | 4.75 million + 25% of taxable income over 32 million |
| 6 | 52 to 80 | 30 | 9.75 million + 30% of taxable income over 52 million |
| 7 | Over 80 | 35 | 18.15 million + 35% of taxable income over 80 million |
5. Filing Tax Returns in Vietnam.
a. Annual Tax Filing Requirements and Deadlines
Typically, personal income tax is declared and paid monthly. Taxpayers may opt to file quarterly if they meet certain criteria. The deadline for filing tax returns is:
- Monthly Filings: 20th of the following month.
- Quarterly Filings: Last day of the first month of the next quarter.
b. Required Documents and Forms
Below is a summary of the necessary forms for personal income tax filing for foreigners earning salaries and wages as per Circular 80/2021/TT-BTC:
- 02/KK-TNCN: Personal income tax return (applies to residents and non-residents with income from salaries and wages filing directly with the tax authorities).
- 02/QTT-TNCN: Personal income tax finalization return (applies to individuals with income from salaries and wages).
- 02-1/BK-QTT-TNCN: Annex for personal deductions for dependents.
- 05-1/PBT-KK-TNCN: Annex for determining the personal income tax payable from salaries and wages and prizes.
- 05-3/BK-QTT-TNCN: Annex for detailing dependents for personal deductions.
- 07/XN-NPT-TNCN: Annex for declaring dependents.
- 08/CK-TNCN: Commitment letter.
6. Common Deductions and Benefits
Tax Deductions Available for Foreigners
Deductions for Resident Individuals:
- Personal Deductions Include:
- Personal deduction: 11,000,000 VND/month
- Dependent deduction: 4,400,000 VND/month
- Deductions for Social Insurance Contributions, Contributions to Voluntary Retirement Funds.
For Non-resident Individuals:
- Non-residents do not benefit from personal deductions, so any taxable income will be subject to personal income tax (taxable income > 0 will be taxed).
- No deductions for contributions made by employers for life insurance, non-mandatory insurance with accumulated premiums; purchasing voluntary retirement insurance or contributing to voluntary retirement funds for employees.
7. Tax Treaties and Double Taxation Agreements
a. Overview of Vietnam’s Tax Treaties with Other Countries
Double Taxation Agreement (DTA): A double taxation agreement is an international treaty signed between two subjects of international law (mainly countries) to avoid double taxation and prevent tax evasion and avoidance concerning income and property taxes.
ASEAN-China Free Trade Agreement (ACFTA): Decree 118/2022/ND-CP was issued on December 30, 2022, to continue implementing commitments regarding preferential import duties if certain conditions are met under the ACFTA for the period 2022-2027.
Multilateral Tax Agreement with Lesotho and Thailand: Vietnam’s commitment to implementing international standards, particularly measures against base erosion and profit shifting (BEPS) from the Global BEPS Forum.
b. Methods to Avoid Double Taxation
Vietnam applies one or a combination of three methods to eliminate double taxation according to signed treaties:
- Tax Deduction Method: Vietnamese residents who have income taxed in the contracting country can deduct the tax paid from their tax liability in Vietnam when filing taxes.
- Fixed Tax Deduction Method: Residents in Vietnam with income taxed in the contracting country will have a fixed tax amount deducted from their tax liability in Vietnam when filing taxes.
- Indirect Tax Credit Method: Vietnamese residents with income from a company in the contracting country can deduct the indirect taxes paid in that country from their tax liabilities in Vietnam. However, the amount deducted cannot exceed the tax owed in Vietnam.
If a treaty does not provide for an indirect tax credit method, but Vietnamese law stipulates indirect deductions for foreign income, this regulation will still apply.
8. Penalties for Non-Compliance
a. Potential Penalties for Tax Non-Compliance
According to Article 13 of Decree 125/2020/ND-CP, the penalties for late filing of personal income tax returns are as follows:
1. Warning Penalty: If the tax return is submitted late by 1-5 days with mitigating circumstances.
2. Monetary Penalty: A fine ranging from 2 to 25 million VND, depending on the duration of the delay.
In addition to these penalties, taxpayers must pay the full tax amount and late fees incurred due to the delay in tax payment.
b. Importance of Timely and Accurate Tax Filing
Filing taxes on time and accurately is crucial for individuals as it ensures legal compliance, avoids penalties and interest for late payment, and reduces the risk of tax audits. It also helps individuals maintain financial credibility and contributes to the national budget, supporting socio-economic development.
9. Practical Tax Management Advice for Foreigners
a. Maintain Accurate Financial Records
- Complete Record Keeping: Track all financial transactions, including income, expenses, and tax deductions.
- Organize Documents: Systematically store invoices, receipts, and tax-related documents for easy retrieval when needed.
- Use Accounting Software: Consider using accounting software to manage financial records and automate the tax reporting process.
b. Seek Professional Tax Advice
- Consult Tax Professionals: Work with experienced tax advisors, especially those knowledgeable about tax regulations in both the home and host countries.
- Stay Informed: Monitor changes in tax regulations to ensure compliance with current requirements.
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