Personal Income Tax
In the case that foreigners are classified as residents in Vietnam, the same tax rates are applicable to both Vietnamese and foreign residents.
It is widely recognized that taxes are the primary source of the state budget in Vietnam. Income tax is defined as a tax levied on the income of individuals or businesses, including corporations and other legal entities. On November 20, 2007, Vietnam introduced its first law on personal income tax (PIT). Following numerous debates and delays, this new law officially took effect on July 1, 2009.
The law aims to regulate the economy and personal income through tariffs and taxation. When implemented effectively, income tax can significantly contribute to the national budget, thus addressing state budget deficits and associated issues such as infrastructure development, social welfare, and healthcare services. It is generally believed that a more equitable distribution of social assets can help narrow the gap between the wealthy and those in need.
However, the enforcement of the PIT remains sluggish. Challenges like tax evasion and debates over methods to ensure equity in the taxation process continue to raise significant social concerns.
Outlined below are some key aspects of the personal income tax law that pertain specifically to foreigners living and working in Vietnam. Many expatriates often find themselves puzzled over their income tax obligations. As a general rule, all foreigners earning income in Vietnam are subject to taxation.
Another critical issue concerns taxable income and the applicable tax rates under various circumstances. According to the 2007 Law on Personal Income Tax, along with subsequent legal documents such as Circular No. 84/2008/TT-BTC and Decree No. 100/2008/ND-CP, taxable income and tax rates depend on an individual’s length of stay in Vietnam.
Classification
Based on the duration of their stay in Vietnam, authorities can determine whether a foreigner qualifies as a resident. The taxable income and tax rates differ for residents and non-residents. A foreigner is considered a resident of Vietnam if they stay for 183 days or more within a consecutive 12-month period, starting from their first entry date, or if they possess permanent accommodation in Vietnam, such as a registered residence or a rental agreement lasting more than 90 days within a year. Other individuals are classified as non-residents.
For those classified as residents in Vietnam, the same tax rates apply to both Vietnamese and foreign residents.
| Tax Bracket | Portion of Annual Assessable Income (VND millions) | Portion of Monthly Assessable Income (VND millions) | 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 |
Source: Law on Personal Income Tax (2007)
The taxable income for foreigners classified as residents in Vietnam, earning more than 5 million VND per month, is computed as their remaining income after deducting 4 million VND and 1.6 million VND for each dependent.
Example:
a. Resident:
For a taxpayer with two children as dependents earning 20 million VND, their taxable income and the tax owed would be calculated as follows: Taxable income = 20 million - (4 million + 1.6 million * 2) = 12.8 million VND.
PIT = 5 million x 5% + 5 million x 10% + 2.8 million x 15% = 1.17 million VND.
If they have no dependents, the PIT = 5 million x 5% + 5 million x 10% + 8 million x 15% + 2 million x 20% = 2.35 million VND.
b. Non-Resident:
If foreigners are classified as non-residents, a flat tax rate of 20% applies. In the example above, they would pay 4 million VND in tax.
Related Readings:
Vietnam Average Salary
