How to calculate personal income tax for foreigners and Vietnamese?

I. Calculation method of personal income tax for foreigners

The personal income tax for foreigners can be calculated in various ways, in particulars:

1.  Foreigner is a resident individual

*What is a resident individual?

Pursuant to the Clause 1, Article 1 of the Circular No. 111/2013/TT-BTC, the resident individual must satisfy conditions as follows:

Condition 1: Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months counting from the first date of his/her presence in Vietnam, of which the date of arrival is counted as one (1) day and the date of departure is also counted as one (1) day.

-  The date of arrival and date of departure is determined based on the immigration management agency’s certifications on his/her passport (or laissez-passer) upon his/her arrival at and departure from Vietnam.

- In case his/her entry and exit are on the same day, this day is counted as one day of residence.

- An individual present in Vietnam under this Point means a person who is present in the Vietnamese territory.

Condition 2: Having a place of habitual residence in Vietnam in either of the following cases:

Case 1:  Having a place of habitual residence as prescribed by the Law on the residence:

- For Vietnamese citizens: The place of habitual residence means a fixed place where a person habitually and permanently resides for an indefinite time and for which he/she has made residence registration in accordance with the Law on the residence.

- For foreigners: The place of habitual residence of a foreigner means his/her place of permanent residence stated in his/her card of permanent residence or his/her place of temporary residence at the time of making registration for grant of a temporary residence card with a competent agency of the Ministry of Public Security.

Case 2: Having rented a house for residence in Vietnam in accordance with the housing law under a rent contract with a term of 183 days or more in a tax year

*Calculation of PIT for residential individual

Using the partially progressive method (depend on each tax level, the higher income - the higher payable tax).

2. Foreigner is a non-resident individual

*  What is a non-resident individual

A non-resident individual means a person who does not satisfy the conditions of a resident individual.

* Tax calculation for a non-resident individual

Pursuant to Clause 1, Article 18 of the Circular No.111/2013/TT-BTC, the personal income tax shall be defined as follows:

Payable personal income tax = Taxable income x 20%.

Taxable income from salaries or wages equals the total salary, wage or remuneration amounts, and other income amounts of salary or wage nature received by a taxpayer in a tax period

Taxable income from salaries and wages of non-resident individuals is the same as personal income tax-liable income from salaries and wages of resident individuals. The time of determination of taxable income is defined in particular:

- The time of determination of taxable income from salaries or wages is when the employer pays salaries or wages to the taxpayer.

- Particularly, the time of determination of taxable income for accumulated insurance premiums is when the insurer or the voluntary pension fund management company pays insurance money.

Note: Deduct 20% personal income tax for foreigners who are non-residential individuals.

II. Calculation method of personal income tax for Vietnamese

1. Personal income tax withholding of 10% before payment

Point i, Clause 1, Article 25 of the Circular 111/2013/TT-BTC prescribes that:

“Payers of wages, remunerations or other amounts to resident individuals who do not sign labor contracts (under Points c and d, Clause 2, Article 2 of this Circular) or sign labor contracts of under three (3) months with a total income of VND two million (2,000,000) or more each time shall withhold tax at the rate of 10% of income before making payment to these individuals.”

According, non-residential individuals with the labor contracts under 03 months with a total income of VND 2 million or more each time shall withhold tax at the rate of 10% of income except for the case of having the full condition and making the commitment.

Note:  Other wages, remunerations or other amounts include:

- Remuneration receivable as commission for goods sale agency, brokerage commission, payments for participation in scientific and technical researches; payments for participation in projects or schemes; royalties as prescribed by the law on royalties regime; payments for teaching activities, art and cultural performances, physical training and sports activities; payments for advertising and other services and other payments.

- Sums of money earned from participation in business associations, boards of directors or control boards of enterprises, project management units, management boards, professional associations and societies and other organizations.

2. Tax calculation by the partial progressive method

Labor with the labor contract over 03 months shall be calculated with the personal income tax by partially progressive methods including 07 various tax levels, higher-income - higher payable tax.