I. Current status of regulations on Personal Income Tax 

Personal Income Tax (PIT) is a compulsory contribution to the State budget, governed by specific legal provisions for different groups in society. Tax payment is a mandatory obligation in accordance with the law. Personal Income Tax is one of the significant taxes contributing to strengthening the State budget.

II. Legal provisions on Personal Income Tax

1. Taxpayers subject to Personal Income Tax

Personal Income Tax is the amount an individual must deduct and pay to the state budget from wages, salaries, or other sources of income after applicable deductions. Personal Income Tax does not apply to low-income individuals; therefore, it ensures fairness among taxpayers and helps narrow income disparities within society.

There are two categories of Personal Income Tax payers: resident individuals and non-resident individuals in Vietnam with taxable income.

  • For resident individuals: Taxable income includes income arising both inside and outside Vietnam (regardless of where income is paid).
  • For non-resident individuals: Taxable income includes income arising in Vietnam (regardless of where income is paid or received).

2. Personal Income Tax rates

Pursuant to Article 22 of the Personal Income Tax Law 2007, Decree No. 126/2020/ND-CP, and Circular No. 111/2013/TT-BTC, Personal Income Tax rates are divided into two main groups:

  • Income from wages and salaries: Progressive tax rates with 7 brackets ranging from 5% to 35%.
  • Income from business, capital investment, capital transfer, winnings, royalties, etc.: Subject to flat tax rates, for example:

+ 1% for trading goods;
+ 5% for leasing assets;
+ 20% for transferring capital.

3. Taxable income

Under Article 3 of the Personal Income Tax Law 2007 and Article 2 of Circular No. 111/2013/TT-BTC, taxable income includes:

  • Wages, salaries, and allowances (except certain exempted items);
  • Business and production activities;
  • Capital investment, capital transfer, real estate transfer;
  • Royalties and franchise fees;
  • Winnings, inheritance, and gifts.

III. Questions on Personal Income Tax 

1. What types of income are exempt from Personal Income Tax?

According to Article 4 of the Personal Income Tax Law 2007 and Article 3 of Circular No. 111/2013/TT-BTC, exempted incomes include:

  • Real estate transfers between certain relatives (such as, spouses; parents and children; grandparents and grandchildren; siblings; etc.).
  • Transfer of a sole residential house or land use right of an individual.
  • Land use rights allocated by the State.
  • Inheritance and gifts of real estate between specified family members as above.
  • Income of households and individuals directly engaged in agriculture, forestry, salt production, aquaculture, or fishing of unprocessed products or those that have only undergone conventional preliminary processing.
  • Conversion of agricultural land allocated by the State.
  • Interest from deposits at credit institutions, income from life insurance contracts.
  • Remittances.
  • Overtime or night-shift wages paid at higher rates than daytime or regular working hours as prescribed by law.
  • Retirement pensions paid by Social Insurance.
  • Scholarships.
  • Compensation from insurance contracts, labor accidents, state compensation, and other statutory compensations.
  • Charitable funds legally established or recognized by competent authorities.
  • Foreign aid for humanitarian or charitable purposes, approved by competent authorities.

2. Is Personal Income Tax payable if rental income is 100,000,000 VND or more per year?

According to Clause 3, Article 4 of Circular No. 40/2021/TT-BTC, if the total annual rental revenue (including VAT and  Personal Income Tax) is under 100,000,000 VND, the landlord is not subject to PIT.

3. How is the PIT tax period determined?

Pursuant to Articles 7 and 21 of the  Personal Income Tax Law 2007 and Article 6 of Circular No. 111/2013/TT-BTC:

  • For resident individuals: 
    + Annual tax period applies to business income, wages, and salaries.
    + Each occurrence applies to income from capital investment, capital transfer (except securities), real estate transfer, winnings, royalties, franchises, inheritance, and gifts.
    + For securities transfer (either per transfer or annually). Annual tax declaration must be registered at the beginning of the year at the tax authority.
  • For non-resident individuals:  Personal Income Tax is calculated per occurrence for all taxable incomes.

4. Family circumstance-based deductions for Personal Income Tax

According to Article 19 of the Personal Income Tax Law 2007 and Circular No. 111/2013/TT-BTC:

  • Deduction for the taxpayer: 9,000,000 VND/month (108,000,000 VND/year).
  • Deduction per dependent: 3,600,000 VND/month/dependent.

In case the Consumer Price Index (CPI) fluctuates by more than 20% compared to the time the Law takes effect or the time of the most recent adjustment of the family deduction level, the Government shall submit to the National Assembly Standing Committee an adjustment of the family deduction level prescribed in this clause in accordance with price fluctuations to apply to the next tax period.

Other allowable deductions include: compulsory insurance, charitable contributions, humanitarian or educational support.

5. How can Personal Income Tax be paid?

According to Article 16 of Circular No. 92/2015/TT-BTC, PIT can be paid through:

  • Direct payment at the State Treasury;
  • Through income-paying organizations (employers withholding and paying on behalf);
  • Through banks, the e-tax portal, or integrated e-wallets.

6. How is Personal Income Tax calculated for business individuals?

Pursuant to Circular No. 40/2021/TT-BTC and Decree No. 126/2020/ND-CP, business individuals pay Personal Income Tax under either presumptive tax or declaration method.

Formula: “Payable Personal Income Tax = Revenue × Personal Income Tax rate”

While:

  • Revenue subject to Personal Income Tax as guided under Clause 1 of this Circular.
  • Personal Income Tax rates under Appendix I of Circular 40/2021/TT-BTC:
    + Distribution/supply of goods: 0.5%
    + Services, construction without materials: 2%
    + Production, transportation, construction with materials: 2%
    + Other business activities: 1%

IV. Legal advisory services on Personal Income Tax

To ensure compliance with Personal Income Tax obligations and minimize legal risks, seeking professional legal advice is essential. NPLaw offers comprehensive advisory services ranging from contract drafting, clarification of legal provisions, to assistance during the tax compliance process. This support helps save time and ensures successful fulfillment of tax obligations.