Question 1: Questions related to deductions
On 18 February 2021, employee A carried out the procedure to register family deduction, deduction for dependant arisen from May 2020. The dependent tax identification number has been successfully issued by the tax authority. Can this employee include the dependent deduction from May 2020 when conducting PIT finalization for the year 2020?
According to the regulations on deductions in Circular 111/2013/TT-BTC dated August 15, 2013, the instruction c.2.3:
“If the taxpayer has not made deductions for dependents in the tax year, the deductions for dependents shall be made from the month in which the custody is arise when the taxpayer finalizes tax and registers deductions for dependents. Deductions for other dependents, who are defined in Point d.4 Clause of this Article, must be registered by December 31 of the tax year, otherwise the deduction for the whole tax year shall not be made.”
According to the instructions above: If on 18 February 2021, the registration procedure for dependent deduction had been successfully completed, then:
If dependent fall into the subjects specified at Point d.4 as: the taxpayer’s brothers, sisters, grandparents, aunts, uncles, nieces, nephews, and other people to provide for as prescribed by law, the taxpayer should not include such dependent for deduction in the 2020 PIT finalization, as the deadline for registration was 31 December 2020.
If the dependent is one of the remaining subjects other than d.4, point d, clause 1 of Circular 111/2013/TT-BTC dated August 15, 2013, and the taxpayer has not yet included deduction for such dependent in PIT calculation of the year, the dependent deduction shall be calculated from the month when the custody arisen.
Question 2: Are quarantine costs included in the Company's deductible expenses?
Due to the Covid-19 pandemic, in 2020 the Company signs a labor contract with a foreign expert with a commitment in the contract to pay the quarantine cost at the hotel and the treatment cost (if any) when entering Vietnam to work, but the monthly rent is paid by the employees themselves. Can the quarantine cost be included in the company's deductible expenses?
Related to this issue, the General Department of Taxation has issued Official dispatch No. 5032/TCT-CS dated 26 November 2020 providing guidance on tax policies for foreign experts' expenses for quarantine and prevention of Covid-19 pandemic.
Pursuant to Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance guiding on corporate income tax: For the cost of quarantine at the hotel and the cost of treatment for foreign experts who the enterprise signs a labor contract with, in which the expenses for housing paid by the enterprise for the employee are recorded, the expenses paid for the quarantine shall be included in the deductible expenses when determining taxable income, if there are sufficient invoices and documents and payment as prescribed.
Question 3: Finalization of PIT for employees of newly established companies.
The company was established in September 2020. Because it was newly established, it has not yet paid salaries to employees. Does the company have to do PIT finalization?
Pursuant to Point d.1 Clause 6 Article 8 of Decree 126/2020/ND-CP of the Government, in case organizations and individuals do not record income, they are not required to make personal income tax finalization. Therefore, if your company did not make any salary and wage payments to employees in accordance with the provisions of the PIT law in the year, the company does not have to conduct PIT finalization.
Question 4: Dependent for family deduction when they are over 22 years old
If the dependant is over 22 years old, will the tax authorities automatically reject the family deduction?
According to current regulations, the calculation of dependent deduction and self-deduction shall comply with the guidance in Article 9 of Circular No. 111/TT-BTC of the Ministry of Finance. Of which, if the dependant is the taxpayer’s children who studies in Vietnam or overseas in universities, college, vocational schools, including who is from 18 years of age and over, studies in high schools (including the period awaiting university enrolment result from June to September in 12th grade), and has no income or the monthly average income in the year from all sources not exceeding VND 1,000,000, the dependent is still counted as for dependent deduction.
Thus, the time for calculating dependent deduction for dependant who is over 18 years old will be determined according to specific information in the taxpayer’s dependant registration dossier, not based on the dependent’s actual age.
Question 5: Finalization for seasonal employees
The company specializes in construction and installation of air conditioners. Most of the workers are seasonal, so there are cases which they work for 2 companies. At the end of the year, both companies conduct PIT finalization for such individuals, however, the personal income do not exceed the amount for PIT calculation. Do these individuals have to do conduct the PIT finalization by themselves? Or can companies A and B prepare PIT finalization on their behalf?
Pursuant to the provisions at Point d, Clause 6, Article 8 of Decree 126/2020/ND-CP of the government:
- For the employer which is organization and individual who pays salaries and wages, they are responsible for making tax declarations and finalizations on behalf of individuals who had authorized the employer, regardless of whether or not the tax deduction was incurred. Therefore, your company is responsible for conducting personal income tax finalization on the income paid to those workers. Individuals with two or more income sources are not allowed to authorize employer for PIT finalization.
- For resident individual who has incomes from salaries or wages, if there is an additional tax payable or an overpaid tax amount to be refunded or offset with the next period PIT, they conducts PIT declaration and finalization directly with the tax authority. Therefore, in the company case, for individuals who have two sources of income, they are responsible for summarizing the year total incomes and conducting PIT finalization directly with the tax authorities if there is additional tax to be paid or have an overpaid tax amount to be refunded. In the 2020 tax year, any individual, with the additional tax payable after the 2020 finalization no more than VND 50,000, is not required to conduct PIT finalization and exempted from payment of such additional PIT (up to VND 50,000).
Question 6: Does individual who conducts PIT finalization by themselves need to submit the hard copies?
I have done the PIT tax finalization by myself, using the application on the General Department of Taxation’s website to submit the tax finalization return online. Do I still need to print out the hard copies and submit to the local tax authorities?
The application on GDT’s website is aim to support the taxpayer to use the appropriate declaration forms, correctly declare the criteria on the declaration, and automatically determine where to submit tax finalization documents to avoid confusion and travelling times. However, as the individual does not have digital signature, after making online declaration, you still need to print out the forms to sign and send the hard copies to the tax authority together with the required supporting documents. The submission to tax authority can be done in person or via post.
Question 7: PIT for students who does not have labor contract
My company has recruited some students for work in 4 months, without signing a contract. Does my company have to withhold the PIT when make payment to these students?
According to provision at point 1.i Article 25 Circulars 111/2013/TT-BTC dated August 15, 2013 of Ministry of Finance:
“The organization or person that pays a total income from 2 million VND to a resident that does not sign a labor contract (as guided in Point c and Point d Clause 2 Article 2 of this Circular) or that signs a labor contract for less than 03 months shall withhold 10% tax on the income before it is paid to the person.
For the person that earns only a taxable income as stated above but the total taxable income estimated after personal deductions are made does not reach the taxable level, the person shall make and send a commitment (the form is provided in the guiding documents on tax administration) to the income payer as the basis for temporarily exempting the income from personal income tax.
Based on the commitment made the income earner, the income payer shall not withhold tax. At the end of the tax year, the income payer shall make a list of persons that earn incomes below that taxable level (the form is provided in the guiding documents on tax administration) and send it to the tax authority”
According to the above regulation, if the Company recruits students to work in 4 months without signing the labor contract, if the income amount per payments is from VND 2 million, the Company must withhold 10% of PIT before making paying to the individual. In case the individual (who already registered and had tax identification number) only has income from the company, and the estimated total income after personal deductions are not yet up to the taxable level, then the individual shall make a written commitment and send to the Company as the basis for temporarily exemption from PIT withholding.
Question 8: Guidance on PIT of employee working in overseas projects.
The Ministry of Finance has not yet provided detail guidance on determining taxable income for employees working abroad. On the other hand, the local tax authority requires the Company to calculate PIT of employees working overseas (both residence for over 183 days and having income from abroad) as applicable to Vietnamese in Vietnam and pay the difference in tax if the tax in Vietnam is higher than abroad.
Thus, how should we handle the PIT for these individuals in this case?
According to provisions at point e.1, Article 26, Circulars 111/2013/TT-BTC dated August 15, 2013 of Ministry of Finance:
“e.1) The resident that earns an income overseas and has pay personal income tax on that income overseas shall have the tax paid overseas deducted. The amount of tax deducted shall not exceed the tax payable on the income earned overseas according to Vietnam’s tax table. The ratio is based on the ratio of income earned overseas to the total taxable income.
2. Tax declaration made by residents that have incomes from wages and business.
a.2) The residents that have income from wages paid by overseas organizations and individuals shall directly declare tax quarterly at tax authorities.”
According to provisions at Point b.2.1, Clause 3, Article 21 of Circulars 92/2015/TT- BTC guiding the finalization of PIT, the dossiers must have documents proving the tax has been deducted or temporarily paid in the year.
“Photocopies of documents proving the amount of tax deducted, paid in the year, or paid overseas (if any). The individual is responsible for the accuracy of such documents. If the income-paying organization does not provide documents about tax deduction to the taxpayer because the organization has been shut down, the tax authority shall consider processing the tax statement without documents about tax deductions based on the database of tax authorities.
If the foreign tax authority does not verify paid tax according to their jurisdiction, the taxpayer may submit a photocopy of the Certificate of tax deduction (specifying the tax declaration number) issued by the income payer, or a photocopy of a banking notice of overseas tax payment, which is certified by the taxpayer.”
Thus, resident with taxable income arising in a foreign country and already paid tax in such country, may deduct the amount of tax paid abroad (with supporting documents), but the deduction amount should not exceed the amount of Vietnamese PIT corresponding to the income received abroad. In case, the foreign country has signed Double Taxation Agreement with Vietnam, the provisions of the DTA shall be applied.