QUESTION
What are the obligations regarding personal income tax and mandatory social insurance in Vietnam for foreign workers who come to Vietnam to work under an internal company transfer scheme, receiving their salary directly from the parent company abroad or directly from the subsidiary in Vietnam?
REPLY
1. Insurance Obligations
a) Obligations regarding Social Insurance
According to Clause 2, Article 2 of Decree 143/2018/ND-CP regulating compulsory social insurance for foreign workers working in Vietnam, foreigners are subject to mandatory social insurance. They are not subject to mandatory social insurance if they are employees of an internal company. According to Decree 11/2016/ND-CP dated February 3, 2016. Specifically, this applies to:
Managers, executives, experts, and technical workers of foreign enterprises that have established a commercial presence in Vietnam, are temporarily transferred within the enterprise, and have been employed by the foreign enterprise for at least 12 months prior to coming to Vietnam.
b) Obligations regarding health insurance (HI)
Based on Official Letter No. 288/BHXH-QLT dated February 18, 2020, regarding health insurance contributions for foreign workers, sent by the Ho Chi Minh City Social Insurance to employers in Ho Chi Minh City, Foreign workers employed in Vietnam under the form of internal company transfers. as stipulated in Clause 1, Article 3, Decree No. 11/2016/ND-CP dated February 3, 2016 of the Government They are not eligible to pay health insurance..
The period for reducing participation in health insurance will start from February 1, 2020.
2. Obligations regarding Personal Income Tax (PIT)
According to the Personal Income Tax Law 2007 (amended and supplemented by Law 26/2012/QH13) and Circular 111/2013/TT-BTC:
- Individuals liable to pay personal income tax include resident individuals with taxable income arising within and outside the territory of Vietnam, and non-resident individuals with taxable income arising within the territory of Vietnam.
- A resident individual is someone who meets one of the following conditions:
- Being present in Vietnam for 183 days or more within a calendar year or within 12 consecutive months from the first day of arrival in Vietnam;
- Having a permanent residence in Vietnam, including a registered permanent residence or a rented house in Vietnam under a fixed-term lease agreement.
- A non-resident individual is someone who does not meet the conditions specified above.
a) How to calculate personal income tax for non-resident individuals
Personal income tax payable = 20% × Taxable income
To determine taxable income from wages and salaries in Vietnam in cases where a non-resident individual simultaneously works in Vietnam and abroad but the income earned in Vietnam cannot be separated, the following formula shall be applied:
- For foreign individuals who are not present in Vietnam:
In this context: The total number of working days in a year is calculated according to the regulations stipulated in the Vietnamese Labor Code.
- For individual foreign nationals present in Vietnam:
Note: Other taxable income (pre-tax income) arising in Vietnam as mentioned above refers to other monetary or non-monetary benefits that employees receive in addition to wages and salaries, paid by the employer or on behalf of the employee.
b) How to calculate personal income tax for resident individuals
Personal income tax payable = Tax rate × Taxable income
In which:
- Personal income tax (PIT) taxable income = Taxable income – Deductions;
- Taxable income = Total income – Tax-exempt income;
- The progressive tax rate consists of 07 different tax brackets:
| Step | Taxable income/month |
Tax rate |
Calculate the amount of tax payable. | |
| Option 1 | Option 2 | |||
| 1 | ≤ 05 million VND | 5% | 0 million VND + 5% VAT | 5% TNTT |
| 2 | > 05 million - 10 million VND | 10 % | 0.25 million VND + 10% of the total tax on a total of 05 million VND. | 10% of the taxable income – 0.25 million VND |
| 3 | > 10 million - 18 million VND | 15 % | 0.75 million VND + 15% of the total tax on a total of 10 million VND. | 15% of the taxable income – 0.75 million VND |
| 4 | > 18 million - 32 million VND | 20 % | 1.95 million VND + 20% of the total tax on a total of 18 million VND. | 20% of the taxable income – 1.65 million VND |
| 5 | > 32 million - 52 million VND | 25 % | 4.75 million VND + 25% of the total tax on a total of 32 million VND. | 25% of the taxable income – 3.25 million VND |
| 6 | > 52 million - 80 million VND | 30 % | 9.75 million VND + 30% of the total tax on a total of 52 million VND. | 30% of the taxable income – 5.85 million VND |
| 7 | > 80 million VND | 35 % | 18.15 million VND + 35% of the total tax on a total of 80 million VND. | 35% of the taxable income – 9.85 million VND |
c) Procedures for declaring and settling personal income tax
If required to pay personal income tax in Vietnam, employees need to register for a personal tax identification number and submit tax returns (directly or through the company in Vietnam if authorized) according to Decree 126/2020/ND-CP, specifically as follows:
- For non-resident individuals:
- For non-resident individuals receiving salaries directly from their parent company abroad, they must file their tax returns directly with the tax authorities and make quarterly tax declarations.
- Non-resident individuals are not required to file personal income tax returns.
- For resident individuals receiving salaries directly from the parent company located overseas:
Individuals residing in Vietnam who receive salaries directly from their parent company abroad must directly declare their taxes to the tax authorities and file quarterly tax returns, as well as perform annual personal income tax final settlements. Specifically:
-
- Employees must provide proof or confirmation of the amount paid. This must be accompanied by an income confirmation letter using form No. 20/TXN-TNCN issued with Circular 156/2013/TT-BTC.
- In practice, if the tax authorities abroad do not issue a certificate confirming the amount of tax paid, individuals must take a photograph of the tax deduction certificate or a copy of the bank statement clearly showing the amount of tax paid abroad. All these copies must be certified and verified by the individual.
- For resident individuals receiving salaries directly from a subsidiary in Vietnam:
For resident individuals receiving salaries directly from a subsidiary company in Vietnam, the subsidiary company in Vietnam is obligated to provisionally deduct tax, declare taxes monthly/quarterly, and finalize personal income tax for the employee if the employee is eligible to authorize personal income tax finalization.