FINALIZATION OF PERSONAL INCOME TAX FOR FOREIGNERS ACCORDANCE WITH VIETNAM LAW

Finalization of personal income tax for foreigners is a rather complicated issue. In fact, there are many cases where the settlement is wrong because the individual foreign worker or the enterprise does not comply with the law. So, how is the finalization of personal income tax for foreigners done? Specifically, what are the relevant laws? Readers, please follow the article below of OTIS LAWYERS to get answers to the above questions.

Determining whether a foreigner is an individual residing or not residing in Vietnam

Determining whether a resident or a non-resident helps us understand the scope of the taxpayer's taxable income, specifically:

• For resident individuals, taxable income is income generated inside and outside the territory of Vietnam, regardless of where the income is paid;
• For non-resident individuals, taxable income is income generated in Vietnam, regardless of where the income is paid and received.

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

The foreigner is an individual residing in Vietnam when one of the following conditions is met:

1. a) Being present in Vietnam for 183 days or more in a calendar year or for 12 consecutive months from the first day of presence in Vietnam, in which the arrival and departure dates are counted as one (01) day. The date of arrival and departure is based on the certification of the immigration authority on the passport (or travel document) of the individual upon arrival and departure from Vietnam. In case of entry and exit on the same day, it will be counted as one day of residence.
2. b) Having a regular place of residence in Vietnam in one of the following two cases:

b.1) Having a regular place of residence which is the place of permanent residence stated in the permanent residence card or the temporary residence when applying for a temporary residence card issued by a competent agency of the Ministry of Public Security.

b.2) Having a rented house to live in in Vietnam in accordance with the law on housing, with the term of the lease contract from 183 days or more in the tax year.

Foreigners are individuals who do not reside in Vietnam when they do not meet the above conditions.

Determining the subjects of personal income tax finalization for foreigners in Vietnam

In case of authorizing organizations and individuals to pay income for tax finalization

Foreigners earning income from salaries or wages authorize organizations and individuals to pay tax finalization income in the following cases:

• Foreign individuals who only earn income from salaries and wages of a labor contract with three (03) months or more at a unit and are actually working at the unit at the time of authorization for settlement, even the case of not working full 12 months in the year.
• Foreign individuals earning incomes from salaries and wages of a labor contract with three (03) months or more and have other current incomes as prescribed by law.

Note: Income-paying organizations and individuals only make tax finalization on behalf of foreigners for the income from salaries and wages paid by income-paying organizations or individuals.

In case of direct implementation of personal income tax finalization

• When the individual is a foreigner who has income from business, wages, salaries, or multiple sources subject to PIT. At the same time, the additional tax payable or overpaid tax shall be refunded or cleared in the next tax period, except for some other special cases.
• Individuals who are foreigners with only income but come from two or more places.
• The individual is a foreigner whose income only comes from business.
• If the individual is a foreigner transferring securities and has a request for PIT finalization.

How to calculate PIT for foreigners?

In the case of resident foreigners

• If a foreigner signs a labor contract of 3 months or more in Vietnam, the tax calculation will be applied according to the partially progressive taxation.
• If a labor contract is signed for less than 3 months, the tax rate will be calculated according to the full taxation x 10% tax rate.

In case of non-resident foreigners

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

Amount payable = Taxable income x 20%.

Dossiers of PIT finalization for foreigners

Dossier in case organizations or individuals pay income for tax finalization

• PIT finalization declaration
• A detailed list of individual according to the partial progressive taxation
• A detailed list of individual according to the full taxation
• List of dependents with family deductions

Dossier in case individuals directly finalize tax

• PIT finalization declaration
• Photocopies of documents proving the tax amount already withheld, temporarily paid in the year, tax paid abroad (if any)

Some other regulations on tax finalization

- In case the resident individual earns income in a foreign country and has calculated and paid personal income tax according to foreign regulations; the tax amount already paid abroad may be deducted. The deductible tax amount does not exceed the payable tax amount calculated according to Vietnam's tax table and distributed to the income generated abroad. The distribution ratio is determined by the ratio between the amount of income generated abroad and the total taxable income.

- Resident individuals with incomes from business, wages or salaries, in case the number of days present in Vietnam in the first calendar year is less than 183 days, but calculated in 12 consecutive months from the first day of presence in Vietnam is 183 days or more.

• The first tax year: declare and submit tax finalization documents no later than the 90th day from the date of calculation for 12 consecutive months.
• From the second tax year: declare and submit tax finalization documents no later than the 90th day from the end of the calendar year. The remaining tax payable in the second tax year is determined as follows:

The remaining tax payable in the 2nd tax year = The payable tax amount of the 2nd tax year - Deducted duplicate tax amount

In there:

The payable tax amount of the 2nd tax year = Taxable income of the 2nd tax year x Personal income tax rate according to the partially progressive taxation.

The deducted duplicate tax amount = Tax payable in the first tax year/12 x Number of months for duplicate calculation

- Resident foreigners who terminate their working contracts in Vietnam shall finalize tax with tax authorities before leaving the country.

The above is the regulation on PIT finalization for foreigners. If you have any questions or need legal assistance, please contact us for answers and consultations.

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