1. Classification of Residents and Non-Residents

PIT regulations in Vietnam categorize taxpayers into two main groups: Residents and Non-residents, with differing tax rates and calculation methods.

• Residents: Individuals who live in Vietnam for 183 days or more in a calendar year or 12 consecutive months from their first day of arrival are considered residents. Additionally, those with a permanent residence in Vietnam (e.g., a lease agreement of 183 days or more) are also deemed residents. Residents are taxed on their worldwide income, including income earned in Vietnam and abroad.
• Non-Residents: Foreigners living in Vietnam for less than 183 days in a calendar year and without a permanent residence are classified as non-residents. Non-residents are taxed only on income generated within Vietnam.

2. Tax Rates

• For Residents: PIT is calculated based on a progressive tax scale, with rates ranging from 5% to 35%, depending on income levels. Higher income levels are subject to higher tax rates. Income from investments, such as dividends or interest, may have separate tax rates.
• For Non-Residents: A flat tax rate of 20% is applied to total income earned in Vietnam, regardless of income levels..

3. Tax Deductions and Exemptions

Foreigners classified as residents are eligible for deductions and exemptions, provided they meet the necessary conditions. These include:

• Personal deductions: 11 million VND/month for the taxpayer.
• Dependent deductions: 4.4 million VND/month per dependent, provided they are registered and approved by the tax authority/

Mandatory insurance contributions: Effective from 2024, mandatory insurance payments made in the foreigner’s home country (equivalent to Vietnam’s mandatory insurance requirements) can be deducted when determining taxable income in Vietnam..

4. Tax Declaration and Finalization Procedures

Foreigners working in Vietnam must comply with PIT declaration and finalization processes similar to Vietnamese citizens:

• Tax Declaration: Employers in Vietnam typically assist foreign employees with their tax declarations. However, individuals with income from multiple sources (both domestic and overseas) must independently declare all income to the tax authority.
• Tax Finalization: At the end of the fiscal year, foreigners are required to finalize their taxes with the tax authority. This includes reconciling overpaid taxes or additional income that arises during the year to ensure accurate tax payments.

5. Double Taxation Avoidance Agreements (DTAs)

Vietnam has signed DTAs with over 80 countries, which help reduce tax obligations for foreigners earning income in two jurisdictions. These agreements allow exemptions or reductions of PIT in Vietnam for income already taxed in another country.

Conclusion

Complying with PIT regulations is an essential obligation for foreigners working in Vietnam. Understanding tax classifications, rates, and available deductions can help minimize tax burdens and ensure compliance with Vietnam’s tax laws.

For assistance with complex income situations or tax support, please contact TPM through our website or directly via our hotline at (+84) 28 3505 1800 for prompt assistance.

Quyen Nguyen