Update on new policy regarding Personal Income Tax (“PIT”)

Personal Income Tax (PIT) is not the concern of the tax residents themselves. As the one who makes payment to its full time/ part time employees, organizations are legally bound for paying PIT on behalf of the tax resident. Therefore, PIT management and calculation is one of the important tasks involving the accounting team.

Entities which is paying income such as companies, branches or representative offices are responsible to fulfill the PIT finalization authorized by their employees regardless of the fact whether the tax withholding liabilities have been withheld or not. In case the individual did not have income for employment, it is unnecessary to conduct PIT finalization.

Currently, the deadline for tax filling and payment in case additional tax liability arises is March 31st of the upcoming year.

The recently issued Decree 82/2018/ND-Cp (acronym “Decree 82”) was passed by the Government on 22 May 2018. The Decree has taken effect from July 10th 2018, providing regulations to management of Economic Zones (EZ) and Industrial Zones (IZ).

Before the period of July 10th 2018, all staff working at economic zones were allowed to have a 50% PIT reduction from the income from economic zones. This reduction was specified in Decree 29/2008/ND-CP (acronym “Decree 29”) issued on March 14th 2009 and Circular 128/2014/TT–BTC (“Circular 128”) issued on September 5th 2014.

According to the period Circular (128), the reduction of 50% PIT was applicable for staff who work physically in the economic zone under the labor contract signed between the employee and the employer under the approval of EZ management board, or other organizations making investment running business in the EZ.

Moreover, circular 128 also notes that the reduction only counts for the portion of income that is directly resulted from the performance under labor contract inside the economic zone. As a result, any income portion regarding the performance outside the zone cannot be able to apply PIT reduction.

Under the newly released Decree 92, the 50% PIT reduction amount which is mentioned above has been removed. Therefore, Decree 29 will no longer be available. Furthermore, the Quang Ngai Tax Department also issued Official Letter 2285/CT-TTHT reinstating this decision August 22th 2018.

When the new policy takes effects, the removal of PIT reduction will consequently increase the tax amount for employee working at the economic zone. Employers had better prepare themselves for the changes given the fact that the tax of employees working at economic zones are often borne by the organization.

In the upcoming time, it is expected that a more detailed Circular guiding organizations how to implement Decree 82 will be issued. We will update you with the latest changes in Vietnam’s tax policy in the future articles.

Above is the guidance on Personal Income Tax (PIT) by tax expert team at S4B Vietnam. Please contact S4B Vietnam if you need our professional assistance in the issue of tax compliance in Vietnam.

Note: All information in article is for reference and general guidance purposes only, customized consultancy on specific cases can be provided upon request.