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On 20 November, the Vietnamese National Assembly finally passed what is Vietnam's first ever law on personal income tax ("PIT"). (Previously the highest regulation on PIT was an ordinance, passed by the Standing Committee of the National Assembly).
This new law has been under discussion for many years, and represents the outcome of detailed debate in the National Assembly and Ministry of Finance. It aims to address certain of the perceived shortcomings of the existing PIT ordinance, notably the dual rate system for Vietnamese and expats, the high marginal rates and the relatively narrow PIT base.
The new Law will be effected 1 January 2009. As ever, the Law itself is quite brief and the exact details of how its new provisions will be implemented will only be known once the implementing decree and circulars are issued in 2008.
However we have prepared for our readers a brief overview of some of the key changes made in this new Law. Please click on the links below to view more:
1. Who is liable to PIT? 
- As before, tax payers are split into residents and non residents.
- Residents are those in Vietnam for 183 days or more in a 12 month period. This is the same definition as previously, in respect of expatriates. However, previously all Vietnamese nationals were resident, regardless of the number of days spent in Vietnam. This provision has been removed, so that Vietnamese nationals working abroad will, it appears, no longer be taxed as residents.
- The definition of residents is also extended to include those having a "permanent residence" in Vietnam. This includes a rented house. The exact intention here is unclear, but expatriates who spend less than 183 days a year in Vietnam, but who have a rented house available, could potentially be treated as tax residents under the law, as could Vietnamese working abroad.
2. What is taxable?
Employment income
- As before, employment income in any form is taxable. However the language appears to be drafted in a more "catch all" style, so that those benefits in kind, which hitherto have not been taxable in practice, will now clearly be taxable under the Law.
- The previous exemptions from PIT for certain BIK's (e.g. certain airfares, children's education), and the concessional taxation of employer provided housing (the "15%" rule) have been eliminated. It remains to be seen whether these concessions may possibly still be retained in the implementing regulations.
Non-employment income
- Many significant changes are made. For the first time, the following are taxable in Vietnam:
- Interest (except on bank deposits and life insurance policies)
- Dividends
- Gain on sales of shareholdings in companies
- Gain on sales of securities
- Gains on sale of real estate (except single holdings of a house/land)
- Inheritances (in excess of VND 10 million)
- Income from overseas remittances (no further details given)
- Various exemptions are provided in case of transfers between family members.
- Additional allowances/rates paid for overtime working are exempted from PIT, in certain cases.
- For gains on sales of assets, where the buying price can not be evidenced, the taxable gain will equal the (gross) sales proceeds.
- Various annual personal allowances are given as follows:
- Single personal allowance: VND 48 million
- Additional allowance per dependent: VND 19 million
- Deductions are also allowed for donations to certain approved charities.
3. When is income taxable?
- It has never been particularly clear to date whether income is subject to PIT on an "earnings" or "cash receipts" basis in Vietnam.
- The Law includes a provision on the timing of when income is recognized, and states that this is when the taxpayers receive income.
4. Tax rates
- The existing dual rate system for Vietnamese and expats is abolished and replaced by a single tariff as follows:
| Tax bracket |
Yearly taxable income (million VND) |
Monthly taxable income (million VND) |
Tax rate (%) |
| 1 |
Up to 60 |
Up to 5 |
5 |
| 2 |
Over 60 to 120 |
Over 5 to 10 |
10 |
| 3 |
Over 120 to 216 |
Over 10 to 18 |
15 |
| 4 |
Over 216 to 384 |
Over 18 to 32 |
20 |
| 5 |
Over 384 to 624 |
Over 32 to 52 |
25 |
| 6 |
Over 624 to 960 |
Over 52 to 80 |
30 |
| 7 |
Over 960 |
Over 80 |
35 |
- Thus the rates and bands are broadly in line with the existing rates applicable to expats, although the top 40% rate is replaced with 35%.
- Other income of tax residents is taxable at the following flat rates:
| |
Rate (%) |
| Interest |
5 |
| Dividends |
5 |
| Inheritances |
10 |
| Sale of securities** |
|
| - Gain or sales proceeds |
20 or 0.1 |
| Sale of real estate** |
|
| - Gain or sales proceeds |
25 or 2 |
**(0.1 / 2% is applicable if the purchase cost cannot be evidenced, such that gross sales proceeds are taxed)
- Non residents are taxable on employment income at a flat rate of 20%. (Similar to the current regime, non residents are taxed on income earned from the performance of Vietnam related duties, regardless of where the income is paid).
- Non residents are also taxable on interest and dividends at 5%. It is not clear whether this will be achieved via a withholding obligation imposed on the income payers or non residents will pay directly. Gains on sale of assets by non residents will be taxed at flat rates applicable to gross sales proceeds.
5. Tax filing and administration
- As currently, employers must withhold PIT and finalise tax at year end for employees.
- Reflecting the widening in scope to include non-employment income, individual taxpayers must however also finalise tax themselves at year end. This could lead to large increases in the administrative burden of PIT compliance.
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