Expatriate tax - Vietnam

Expatriates working in Vietnam are subject to compulsory application for work permits, unless they are otherwise exempted under specific regulations. However, under the exempted cases, a confirmation of the exemption is still required.

In addition, consideration of the possible impact of various Vietnamese Personal Income Tax (PIT) treatments are recommended to ensure that no tax planning opportunities are missed. In particular, Vietnamese Personal Income Tax regulations provide rules and guidance on non-taxability or concessional taxability of some of the Fringe Benefits and the conditions on appropriate and relevant supporting documents.

To enter Vietnam, an expatriate is required to have a legitimate visa before entering Vietnam. The grant of visa will depend on the purpose of the expatriate’s entry into Vietnam. For those who have yet to obtain work permits or confirmation on work permit exemption, a business visa of which the term is up to three months can be granted. After a work permit/work permit exemption certificate is granted, the expatriate can apply for a work visa with term of up to 24 months.

Alternatively, the expatriate can apply for a temporary resident card if he/she has already obtained a work permit confirmation on /work permit exemption and enters Vietnam with a working visa to legally stay in Vietnam during the term of the temporary resident card, which is not exceeding the term of their work permit.

The first tax year is either (i) the first calendar year if the expatriate is present in Vietnam for more than 182 days in such calendar year or (ii) 12 consecutive months from the first arrival date in Vietnam if the expatriate is present in Vietnam for less than 182 days in this calendar year but more than 182 days in 12 consecutive months.

Subsequent tax years are calendar years. In the event if the expatriate leaves Vietnam and has already completed their tax obligation in relation to the assignments, the aforementioned rules will be applied upon their return to Vietnam.

Vietnam operates a self-assessment regime whereby taxpayers file tax returns and self-assess the tax liability for the year. If an expatriate’s employment income is paid by a Vietnamese company, they will be subject to tax filing through company and if it is paid by foreign entities, an expatriate is subject to direct filing with Vietnamese tax authority using their personal tax code.

For employment income, the statutory deadline for tax filing is the 20th of the following month for monthly tax declarations, the end of the first month of the following quarter for the quarterly tax declarations and the last day of April for the annual tax return under individual tax code/the final day of March of the following year for the annual tax return under filing through company declaration.

Expatriate leaving Vietnam are required to submit a tax finalisation return which will be due within 45 days of the departure date.

Individuals are taxed at progressive rates according to total taxable income. Non-employment income is taxed at various different tax rate depending on the nature of the income. The current rates applied for employment income are as follows:

Resident tax rates applied for employment income:

Resident Tax Rates on non-employment income applied for tax-resident having income exceeding VND100mil:

Non-residents are subject to Vietnamese PIT on their Vietnam-sourced income at a flat tax rate of 20% in the assessable year, and at various other rates on their non-employment. However, non-residents’ Vietnamese PIT could be exempted or reduced by the virtue of the provisions of any avoidance of double taxation agreement (DTA) that might apply.

According to Decree No. 143/2018/ND-CP that takes effect from 1st December 2018 on compulsory Social Insurance (SI) contributions for foreign employees working in Vietnam, foreign employees working in Vietnam who meet criteria mentioned in the Decree will be required to contribute to the compulsory SI. In addition to SI, the expatriate working under labor contracts in Vietnam is under obligation contribution of Health Insurance (HI).

The rates for SI & HI contribution and their effective dates are outlined as below table:

Tax residents of Vietnam are taxed on worldwide income at progressive tax rate while non-employment income is taxed at various different tax rate depending on the nature of income. Non-residents are subject to PIT at a flat tax rate on the income received as a result of working in Vietnam/on Vietnam-related income in the tax year, and at various other rates on their non-employment income.

Generally, an individual is a resident of Vietnam if one of the following conditions is met:

1. He or she is present in Vietnam for more than 182 days in a tax year;
2. The individual has a rented house or similar residence in Vietnam with a term of 183 days or more in a tax year or holds a Temporary Residence Card (TRC), and cannot prove that the individual is a tax resident under another jurisdiction during the same period.

Vietnamese nationals who have permanent residential location are regarded to be tax residents of Vietnam.

Where an individual does not meet the above criteria of a tax resident, he or she is deemed as Vietnamese non-tax resident.

Taxable income from employment includes salaries, wages, bonuses, lump sum payments, allowances and benefits in-kind or in-cash, employment-related share purchase schemes and option schemes, any other income related to the individual’s position or employment.

The definition of source of employment is specifically and practically applied to non-tax residents who are subject to Vietnam-sourced income only. Vietnam PIT regulation is silent on the definition of Vietnam-sourced income; therefore; the determination of this vastly depends on the interpretation of local tax authority. Practically and technically, Vietnam-sourced income is interpreted to be income earned or received in relation to the employment and/or the position of that foreign individual in or for Vietnam, regardless of where the income is paid. Where it is not possible to specifically determine Vietnam-sourced income, worldwide income and working time in and/or for Vietnam can be used to calculate Vietnam-sourced income.

Certain fringe benefits may be exempt from Personal Income Tax. These includes one-off relocation, school fee for children studying in Vietnam, insurance without accumulated premium, business trip allowance, phone allowance, annual round trip air tickets, travel allowance from home to workplace and vice versa, non-specified benefits, benefits paid by the employer for wedding and funeral of the employee and the employees’ family members, overtime allowance, training costs.

To be entitled to tax exemption, the employer and the employee are required to prepare the relevant supporting documents in line with PIT regulations such as agreements, labor contracts, and legitimate invoices according to Vietnamese rules which would be provided to the tax authority when required in future tax audit.

Certain benefits may be subject to concessional treatment depending on the nature of such benefits and the manner in which the benefit is provided. These include:

• Accommodation: Taxable housing allowance and payment for utilities and accompanied services are capped at 15% of total taxable income excluding the actual rental fee and utilities expenses.
• School fees: Only school fee paid to children attending school in Vietnam from kindergarten to high school level and the payment is required to be made directly from the employer(s) to school(s).
• Home leave flights: Only non-taxable for one round-trip air tickets per year for the expatriate supported by relevant documents;
• Non-taxable meal allowance paid in cash is capped at VND730,000;
• Non-taxable uniform allowance paid in cash is capped VND5,000,000.
• Compulsory insurance contributions in accordance with the regulations of the expatriate's home country/jurisdiction.

Specific advice should be sought in advance to ensure planning opportunities are maximised and qualification criteria are met.

Vietnamese tax residents are entitle to get a credit for foreign tax paid on foreign-source of employment income. In general terms the tax credit (Foreign Tax Credit) recognised in Vietnam will be limited to the lesser of the foreign tax paid or the Vietnam tax applicable to the foreign income.

General tax deductions against employment income are available under Vietnam PIT regulation and only applicable to tax residents. A tax resident in Vietnam is entitled to the following deductions:

• Self-deduction: VND11,000,000/month (VND132,000,000/year)
• Dependents: VND4,400,000/month per each qualifying dependents accompanied by legitimate supporting documents.
• Donations to approved charities, human aid, and education funds.
• Compulsory insurance contributions.

Employees working in Vietnam are subject to the Vietnam PIT withholding rules. Vietnamese employer who directly pays the employment income is required to deduct the corresponding PIT arising from salary and wages and remits this to the tax authority (TA) on monthly or quarterly basis (ie filing through company).

In the event of an individual receiving the compensation paid by a foreign employer, the individual is required to lodge tax calculations (ie direct filing) and pay the relevant tax due on monthly or quarterly basis (the individual is entitled to opt for the timeline of the declaration)

Monthly withholding/tax payments should be made by the 20th of the following month. For the case of applying quarterly withholding/tax payments, the deadline is the end of the first month of the following quarter.

At the year end, employees paying PIT through the employer under declaration through the company can authorise the local employer to make PIT finalisation on their behalf. The deadline to submit and pay the PIT liability under this method is no later than 31 March of the following year.

Whereas, employees under direct filing is required to conduct their PIT finalisation directly with the tax authority except for exemption cases. The deadline to submit and pay PIT liability under this method is no later than 30 April of the following year.

Taxable income of individual business includes goods production and distribution, construction, service provision (ie lease of house, land use rights and other properties) and other business operation that are licensed or certificated as prescribed by Vietnam Laws.

The PIT rate is from 1% to 5% based on the type of business incomes as above mentioned.

Individuals earning business income from VND100 million per calendar year and below will not be subject to PIT on their business income.

Investment income including interest on loans/bonds, dividends and other income earned from capital contribution will be taxed in Vietnam. PIT rate on investment income is 5%.

A Vietnamese tax resident will be subject to 20% PIT on his/her gain generating from the transfer of capital in a Vietnamese Liability Limited Company or Joint Venture Company, or 0.1% PIT on the proceeds upon selling securities in a Vietnamese Joint Stock Company.

A Vietnamese non tax resident is subject to Personal Income Tax on the basis of 0.1% on the selling price for both transfer of capital and securities.

Gains on sale of real estate is taxable income and individuals who are tax resident and non-tax resident in calendar year, has to fulfil PIT obligations on the transfer of properties. PIT payable is calculated by 2% on gross sale proceeds.

For the transfer between various direct family members, no PIT liability would be incurred.

Individuals deriving income from copyright, franchising, inheritance, gifts and winning prizes (excluding income from casino winning prizes), either in kind or in cash, would be taxed at the rate of 5% or 10% on the excess of VND10million.

Individuals who provide services and receive each payment from VND2million are subject to 10% withholding tax. If they can provide a commitment indicating they have total income less than the personal and dependent relief; no PIT filing is required.

An individual granted stock option would be taxed at the time of transfer of the granted shares. Upon the sale of granted stock options, an individual is subject to PIT on employment income in addition to capital gain tax with the tax rates being the same as those mentioned at the section of Capital Assignment.

Therefore, expatriates are recommended to seek professional advice for the proper tax treatment of the granted stock options.