The settlement of personal income tax for foreigners

The settlement of personal income tax for foreigners is a complicated issue. In fact, there are many cases where the settlement is wrong because a foreign worker or the enterprise does not comply with the law. So, how is the finalization of personal income tax for foreigners carried out? To know more about this issue, please read the following article of AZLAW.

DETERMINATION OF RESIDENT TAXPAYER OR NON- RESIDENT TAXPAYER

Determining a resident or non-resident helps us to understand the scope of the taxable income, specifically:

• Taxable incomes earned by residents are the incomes earned within or outside Vietnam’s territory, regardless of locations or payment and receipt; 
• Taxable incomes earned by non-residents are the incomes earned within Vietnam’s territory, regardless of the location of payment and receipt.

So how to determine whether a foreigner is a resident or non-resident? The Law on Personal Income Tax  prescribes as follows:

– A resident is a person that meets one of the conditions below:

1. a) The person has been present in Vietnam for 183 days or longer in a calendar year, or 12 consecutive months from the day on which that person arrives in Vietnam (the date of arrival and date of departure are considered 01 day). The date of arrival and date of departure depends on the certification of the immigration agency on the passport (or laissez-passers) when that person enters and leaves Vietnam. If the person enters and leaves Vietnam within one day, it is considered a day of residence.
2. b) The person has a regular residence in Vietnam in one of two cases below:

b.1) The regular residence is the permanent written in the permanent residence card, or the temporary residence when applying for the temporary residence card issued by competent authorities affiliated to the Ministry of Public Security.

b.2) The person rents a house in Vietnam according to legislation on housing under a contract that lasts 183 days or longer in the tax year

– Non-residents are the persons that fail to meet the above conditions

DETERMINATION OF THE SUBJECTS WHO SETTLE PERSONAL INCOME TAX FOR FOREIGNERS IN VIETNAM

– Cases in which the wage-earner shall request another organization or person to settle tax on their behalf

Foreign wage-earner shall request another organization or person to settle tax on their behalf in the following cases:

• The person who only earns income from wages signs a labor contract for 03 months or more in a unit and is working at that unit when delegating the making of tax declaration, even if he has not worked for 12 months in the year.
• The wage-earner signs a labor contract for 03 months or more and earns other incomes as guided by law regulations.

Note: The income payer shall only settle tax on the income that they pay on the person’s behalf.

– Cases in which the foreigner who earns taxable incomes shall settle tax

• A foreigner who earns income from wages, business, or other multiple sources of taxable income shall settle tax when tax is incurred or overpaid or offset against the next period, except for some special cases.
• A foreigner who only has income from wages which are paid by two or more places.
• A foreigner has only income from the business.
• If the individual is a foreigner transferring securities, there is a request for PIT finalization. The securities transferor shall directly settle tax at the tax authority at the year’s end if he wishes to settle tax.

CALCULATING PERSONAL INCOME TAX INCURRED BY FOREIGNERS

– Calculating personal income tax incurred by a foreigner who is resident

• If a foreigner signs a labor contract with a duration of 3 months or more in Vietnam, the tax calculation will be applied according to the progressive tax table.
• If a foreigner signs a labor contract with a duration of less than 3 months, the tax rate will be calculated according to the whole income tax table x 10% tax rate.

–  Calculating personal income tax incurred by a foreigner who is non- resident

Under Clause 1, Article 18, Circular 111/20213/TT-BTC, for non-resident foreigners, PIT will be calculated according to the following formula:

Payable amount  = Taxable income x 20%.

THE DOSSIER FOR SETTLEMENT OF PERSONAL INCOME TAX

– Dossier in case wage-payers settle personal income tax

• PIT finalization declaration form 
• A detailed list of individuals who are taxed on a progressive tax rates basis.
• A detailed list of individuals who are taxed on a whole tax rate basis
• A list of family circumstance deductions.

– Dossier in case individuals directly settle personal income tax

• PIT finalization declaration form
• A list of dependants if deductions for dependants are claimed.
•  Photocopies of documents proving the amount of tax deducted, paid in the year, or paid overseas (if any).

OTHER REGULATION ON THE SETTLEMENT OF PERSONAL INCOME TAX

– The resident that earns an income overseas and has paid personal income tax on that income overseas shall have the tax paid overseas deducted. The amount of tax deducted shall not exceed the tax payable on the income earned overseas according to Vietnam’s tax table. The ratio is based on the ratio of income earned overseas to the total taxable income.

– The person earns income from wages and has been present in Vietnam in the first calendar year for fewer than 183 days, but has been present in Vietnam for 183 days or more within12 consecutive months from the date of arrival.

• In the first tax year: make and submit the tax settlement form by the 90th day from the end of the 12 consecutive months.
• From the first tax year: make and submit the tax settlement form by the 90th day from the end of the calendar year. The remaining tax payable in the second tax year is calculated as follows:

In which:

– The resident that is a foreigner terminates the labor contract in Vietnam and settles tax at the tax authority before departure

These are regulations on PIT finalization for foreigners. If you have any questions or need legal support, please contact Hotline 0987.748.111 or email info@azlaw.com.vn for advice.