Main points of the new Personal income tax law 2007
MAIN POINTS OF NEW PERSONAL INCOME TAX LAW 2007
After more than 03 years carefully prepared with hundreds of conferences and after nearly 01 year publicized for gathering people’s opinions, On 20 Nov 2007, at the 2nd meeting, National Assembly of Vietnam - XII Section passed Law on Personal Income Tax (“PIT”). PIT Law shall officially take into effectiveness as from 01 Jan 2009 and supersede (i) Ordinance on Income Tax for High Income Earners No. 35/2001/PL-UBTVQH10 some articles of which have been amended implemented by Ordinance No. 14/2004/PL-UBTVQH11 (ii) Law on land use right assignment dated 22 June 1994 some articles of which have been amended implemented by Law No. 17/1999/QH10; and (iii) Regulations on Corporate Income Tax for individuals carrying out production and business activities, exclusive of Private Enterprise under Law on Corporate Income Tax No. 09/2003/QH11;
PIT law regulates main points as follows:
I. Regarding Personal income taxpayers:
1. Personal income taxpayers comprise:
- Resident individuals earning taxable income arising both within and outside the territory of Vietnam and
- Non-resident individuals earning taxable income arising within territory of Vietnam.
2. Resident individual means any person satisfying one of the following conditions:
- Being present in Vietnam for a period of one hundred and eighty-three (183) days calculated within one western calendar year or within twelve (12) consecutive months from the date of entry into Vietnam; or
- Having a regular residential location in Vietnam, including having a residential location for which permanent residence has been registered or having a leased residence to stay in Vietnam pursuant to the law on residential housing, where the lease contract has a term of ninety (90) days or more within the tax calculation year.
3. Non-resident individual means any person not satisfying the conditions mentioned above.
II. PIT Taxable Income:
PIT law regulates 10 kinds of PIT Taxable Income as follows:
1. Income from production and business activities, comprising:
- Income from production and business in goods and services;
- Income from independent professional activities of individuals with a license or practicing certificate in accordance with law.
1.1 Taxable income shall be fixed as turnover less reasonable expenses related to creation of such taxable income within tax calculation period.
1.2 Determination of turnover and expenses shall be based on the fixed levels, standards, regimes, source documents and accounting books stipulated by law.
1.3 For business people who do not implement the regime on accounting, invoices and source documents and for whom it is not possible to determine turnover and expenses and taxable income, the tax office shall have authority to fix an amount of turnover and a taxable income ratio in order to fix taxable income appropriate to each trade and line of business and in accordance with regulations of Law on Tax Management.
2. Income being salaries and wages, comprising:
- Salaries and wages, and items in the nature of salaries and wages;
- Allowances and subsidies, excluding allowances and subsidies stipulated by law on preferential treatment for people with achievements; national defense and security allowances; allowances for toxicity and danger applicable to trades or work at working locations with toxic or dangerous elements; allowances to attract labor and regional allowances as stipulated by law; subsidies being one-off payments for difficult situations, for employee accidents or for occupational disease, and on the birth or adoption of a child; subsidies due to decrease in ability to work, being one-off payments on retirement, monthly subsidies, and retrenchment or loss of work subsidies in accordance with the Labor Code; other subsidies paid by social insurance; and subsidies to resolve social evils;
- Remuneration in all forms;
- Money receivable from participation in business associations, on boards of management, inspection committees, management committees, professional or other associations and other organizations;
- Other benefits which the taxpayer receives whether or not in monetary form;
- Bonuses, excluding monetary awards attached to titles bestowed by the State; monetary awards attached to national and international awards; monetary awards for technical improvements, inventions and innovations recognized by State authorities; and monetary awards for detecting and reporting breaches of law to the State authorities;
2.1 Taxable income is fixed as total income from salaries and wages as said above receivable by taxpayer within the tax calculation period.
3. Income from capital investments, comprising:
- Interest from lending;
- Share dividends;
- Income from capital investments in any other form, excluding income being Government bonds' interest.
3.1 Taxable income shall be the total income as said which a taxpayer receives within the tax calculation period
4. Income from transfers, comprising:
- Income from transfer of capital portion in an economic organization;
- Income from transfer of securities;
- Income from transfer of capital in all other forms.
4.1 Taxable income shall be fixed as equal to the selling price, less the purchase price and reasonable expenses related to creation of income from such transfer.
4.2 In case it is impossible to fix the purchase price and reasonable expenses of the transfer of securities, then taxable income shall be fixed as the selling price of the securities.
5. Income from real property transfers, comprising:
- Income from transfer of a land use right and assets attached to the land;
- Income from transfer of ownership of or use right to residential housing;
- Income from transfer of a lease right to land or water surfaces;
- Other items of income received from real property transfers.
5.1 Taxable income shall be fixed as equal to the price at which the real property was transferred on each occasion of a transfer, less the purchase price of the real property and relevant expenses.
5.2 In case it is impossible to fix the purchase price and expenses related to the transfer, taxable income shall be fixed as the transfer price.
6. Income being winnings or prizes, comprising:
- Lottery winnings;
- All forms of promotional prizes;
- Winnings from all forms of betting and casino gambling;
- Winnings from games and competitions with prizes and all others forms of winnings.
6.1 Taxable income shall be that part of the prize which exceeds ten million Vietnamese Dong which the taxpayer receives on each occasion of winning.
7. Royalties, comprising:
- Income from transfer of, including transfer of use rights to, intellectual property objects;
- Income from technology transfer.
7.1 Taxable income shall be that part of the income which exceeds ten million Vietnamese Dong which the taxpayer receives when transferring.
8. Income from franchises:
Taxable income shall be that part of the income which exceeds ten million Vietnamese Dong which the taxpayer receives pursuant to each franchise contract.
9. Income being inheritance of securities, of capital portion in an economic organization or business establishment, of real property or other assets for which ownership or use rights must be registered.
9.1 Taxable income shall be that part of the value of the assets inherited which exceeds ten million Vietnamese Dong which the taxpayer receives on each occasion such income arises.
10. Income being receipt of a gift of securities, of capital portion in an economic organization or business establishment, of real property or other assets for which ownership or use rights must be registered.
10.1 Taxable income shall be that part of the value of the assets received as gift which exceeds ten million Vietnamese Dong which the taxpayer receives on each occasion such income arises
III. Income exempted from paying PIT:
PIT law regulates 14 kinds of income to be exempted from paying PIT as follows:
1. Income from real property transfers as between husband and wife; as between parents and children, including foster parents and adopted children; as between parents-in-law and children-in-law; as between grandparents and grandchildren; and as between siblings.
2. Income from transfer of residential housing, rights to use residential land and the assets attached to the land by an individual who owns only one residential house or residential land block in Vietnam.
3. Income from the value of a land use right of an individual to whom the State allocated such land.
4. Income being receipt of an inheritance or gift of real property as between husband and wife; as between parents and children, including foster parents and adopted children; as between parents-in-law and children-in-law; as between grandparents and grandchildren; and as between siblings.
5. Income of a family household or individual directly engaged in agricultural production, forestry, salt mining, breeding animals or cultivating crops, or aquaculture where the produce has not yet been processed into other products or has only been preliminarily processed.
6. Income from conversion of agricultural land by a family household or individual to whom the State allocated such land for production.
7. Income being interest on money deposited at a credit institution, and interest from life insurance policies
8. Income being foreign currency remitted by overseas Vietnamese.
9. Income being that part of night shift or overtime salary which is higher than the day shift or normal working hours salary stipulated by law.
10. Pensions paid by social insurance.
11. Income being scholarships, comprising:
- A scholarship received from the State Budget;
- A scholarship received from a domestic or foreign organization pursuant to its program to assist and encourage study.
12. Income being compensation payments from life and non-life insurance contracts, compensation for labor accidents, State compensation payments and other compensation payments paid pursuant to law.
13. Income received from charitable funds which the competent State authority permits to be established or which it recognizes, and which are for charitable or humanitarian purposes and not for profit-making purposes.
14. Income received from foreign aid sources for charitable or humanitarian purposes in both Government and non-Government forms approved by the competent State authority.
IV. Reduction of Tax:
1. PIT Law regulates that in case taxpayers encountering difficulties due to natural disaster, war, accident, serious disease or illness which affects their ability to pay tax shall be considered for a reduction of tax corresponding to the amount of their loss but not to exceed the amount of tax payable.
2. Basis for defining damage level which tax reduced is total actual costs and expenses for remedying damage less compensation amounts received from insurance body (if any) or from organization, individual causing damage (if any).
3. Reduced tax amount is defined as follows:
- In case payable tax amount within tax calculation year in excess of damage level then reduced tax amount is equal to damage level.
- In case payable tax amount within tax calculation year less than damage level then reduced tax amount is equal to payable tax amount.
V. Deduction of Tax:
Deduction amount is the amount deducted into taxable income before calculating tax as for income from business activities, salaries and wages of taxpayers who are resident individuals. PIT Law regulates 02 kinds of deduction as follows:
1. Deduction for family circumstances, comprising 02 levels:
- A level of deduction applicable to taxpayers being four million Vietnamese Dong per month (forty eight million dong per year);
- A level of deduction for each dependant at one point six million Vietnamese Dongs per month.
1.1 The level of deduction for dependants shall be determined on the principle that each dependant may only be assessed for deduction on one occasion from taxable income of one taxpayer.
1.2 Dependants mean people whom the taxpayer has the responsibility to rear or care for, and comprising:
- Children who are still minors (under 18 years old); children who are handicapped unable to work;
- Individuals who do not receive income or who receive income which does not exceed VND500,000 per month comprising a child of full age who is currently studying at a university, college, specialized secondary school or who is undergoing vocational training; a spouse who is unable to work; a parent above the working age or who is unable to work; and any other feeble person whom the taxpayer directly rears or cares for.
2. Deductions for contributions to charitable and humanitarian funds comprising:
- Contributions to any institution or establishment which raises or cares for children in an especially difficult situation, for disabled people, or for elderly feeble people
- Contributions to charitable, humanitarian and study promotional funds.
2.1 The institutions, establishments and funds mentioned above must be permitted to be established or must be recognized by the competent State authority, and must operate for charitable, humanitarian or study promotional purposes and not for profit making purposes
VI. Calculation of PIT for resident individuals:
1. Basis for calculation of tax against income from business and income from salaries and wages is accessible income and tax rate according to Progressive tax tariff on each portion of income as follows: