Saving Tax For Individuals: Deducting Foreign Personal Income Tax Already Paid

The issue of personal income tax (PIT) is always a concern for individuals working both overseas and in Vietnam. When their income is taxed in both countries, the financial burden becomes significant. To address this issue, the PIT law allows tax residents to deduct the tax already paid in a foreign country from the tax payable in Vietnam. 

 

To be eligible for this incentive, taxpayers must meet the following conditions:

1. Tax residency:

  • Must be a tax resident in Vietnam;
  • Have income from wages or salaries earned oversea;.
  • The income has been subject to foreign PIT according to the foreign law.

2. Double taxation avoidance agreement:

  • The foreign country where the individual receives income must have a Double Taxation Avoidance Agreement (DTAA) with Vietnam.
  • The DTAA should contain provisions on deducting the PIT already paid in the foreign country.

3. Documentation:

  • Copies of documents proving the deducted tax amount and the amount already paid during the year, tax paid in the foreign country (if any).
  • Copies of the Tax Deduction Certificate or bank documents for the tax already paid in the foreign country, with confirmation from the taxpayer if required by foreign law, as the foreign tax authority may not issue a tax payment confirmation.
  • Documents proving the amount paid by the entity or organization paying income overseas.
  • All documents must be legalized by the consulate as required.

4. Amount to deduct:

  • The deductible amount cannot exceed the PIT payable calculated according to the Vietnamese tax rates for the income earned abroad.
  • The allocation rate is determined by the ratio of income earned abroad to the total taxable income.

5. Procedure:

  • Tax residents complete the PIT declaration as required.
  • Submit the tax declaration along with supporting documents to the competent tax authority.

Note: The deduction of foreign tax paid is only applicable at the time of tax settlement and does not apply on a monthly or quarterly basis. Additionally, this deduction can only be made on the PIT declaration form No. 02/QTT-TNCN, which taxpayers directly settle with the tax authority.

If all of the above conditions are met, taxpayers will be permitted to deduct the amount of tax paid abroad from the amount of personal income tax (PIT) payable in Vietnam. This will help to reduce the amount of tax payable and ensure tax fairness. This is part of the government’s effort to support workers and promote fairness in the tax system.

For detailed information and specific instructions, taxpayers can contact us at the following information:

TPM Tax Agency & Consulting JSC

Website: www.tpm.com.vn

Hotline: 028 3505 1800

Thao Phung

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