Question 1: Regarding family circumstance deductions
On February 18, 2021, employee A completed the procedure to register for family circumstance deductions, with the deduction effective from May 2020. The tax code for the dependent has been successfully issued by the tax authority. Will this employee be able to claim family circumstance deductions from May 2020 when finalizing their personal income tax for 2020?
Answer:
According to the regulations on family circumstance deduction registration in Circular No. 111/2013/TT-BTC dated August 15, 2013, which provides guidance:
“c.2.3) In cases where the taxpayer has not calculated family circumstance deductions for dependents during the tax year, deductions for dependents shall be calculated from the month the nurturing obligation arises when the taxpayer performs tax finalization and has registered for family circumstance deductions for dependents. Particularly for other dependents as guided in item d.4, point d, clause 1, Article này, the deadline for family circumstance deduction registration is no later than December 31 of the tax year; exceeding the aforementioned deadline means no family circumstance deduction can be calculated for that tax year.”
According to the guidance above: If you successfully registered for family circumstance deductions for your dependent on February 18, 2021, then:
If your dependent falls under the category specified in item d.4, which includes: biological siblings, paternal/maternal grandparents, aunts, uncles (paternal/maternal), nieces/nephews, or other individuals who must be directly nurtured, then you will not be eligible for family circumstance deductions for the 2020 tax year because the registration deadline (December 31, 2020) has passed.
If the dependent is not covered by item d.4, point d, clause 1 of Circular No. 111/2013/TT-BTC dated August 15, 2013, and the taxpayer has not calculated family circumstance deductions for the dependent during the tax year, then deductions for the dependent can be calculated from the month the nurturing obligation arises.
Question 2: Can isolation costs be included in the Company’s deductible expenses?
Due to the Covid pandemic, in 2020, the Company signed a labor contract with a foreign expert, committing in the contract to cover hotel isolation costs and treatment costs (if any) upon their arrival in Vietnam for work, but the employee pays monthly housing costs themselves. Can isolation costs be included in the Company’s deductible expenses?
Answer:
Regarding this issue, the General Department of Taxation issued Official Letter No. 5032/TCT-CS dated November 26, 2020, providing guidance on tax policy for Covid-19 prevention and control isolation costs for foreign experts.
Based on Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015, of the Ministry of Finance guiding corporate income tax: For isolation costs at hotels and treatment costs for foreign experts where the enterprise has a labor contract with the employee that states the housing expenses are paid by the enterprise, the costs paid to the isolation facility shall be included in deductible expenses when determining corporate income subject to tax if there are sufficient invoices, documents, and payments in accordance with regulations.
Question 3: Personal income tax finalization for employees of a newly established company.
The company was newly established in September 2020 and has not yet paid salaries to employees. Does the Company have to finalize personal income tax?
Answer:
Based on point d.1, clause 6, Article 8 of Decree No. 126/2020/ND-CP of the Government, organizations and individuals that do not generate income payments are not required to file personal income tax finalization. Therefore, if your company does not generate payments from salaries and salary-like amounts according to personal income tax law for employees, it is not required to file personal income tax finalization.
Question 4: Dependents for family circumstance deductions if over 22 years old
If a dependent is over 22 years old, does the tax authority automatically cut off the deduction?
Answer:
According to current regulations, the calculation of family circumstance deductions for dependents and personal family circumstance deductions is carried out according to the guidance in Article 9 of Circular No. 111/TT-BTC of the Ministry of Finance. This includes cases where children are studying in Vietnam or abroad at university, college, professional secondary, or vocational levels, including children aged 18 or older who are studying at the general education level (including the waiting period for university exam results from June to September of 12th grade) and have no income or an average monthly income from all sources not exceeding 1,000,000 VND, are considered dependents.
Thus, the period for calculating family circumstance deductions for children aged 18 and over will be determined by the specific information in the taxpayer’s family circumstance deduction registration dossier, not by their actual age.
Question 5: Tax finalization for seasonal employees
Our company specializes in construction and air conditioning installation. Our workers are mainly seasonal, so some workers work for two companies. At the end of the year, both companies finalize personal income tax, but the personal income level has not exceeded the taxable threshold. Does the individual have to finalize personal income tax themselves, or do company A and B still finalize separately?
Answer:
Based on point d, clause 6, Article 8 of Decree No. 126/2020/ND-CP of the government, it is stipulated that:
- Organizations and individuals paying income from salaries and wages are responsible for declaring and finalizing tax on behalf of individuals who authorize them, regardless of whether tax withholding occurs or not. Therefore, your company is responsible for declaring personal income tax finalization for the income paid to those workers. Individuals with two or more sources of income are not allowed to authorize tax finalization.
- Resident individuals with income from salaries and wages, if they have additional tax payable or have excess tax paid and request a refund or offset against the next tax period, must directly declare personal income tax finalization with the tax authority. Therefore, if these employees in your company have income from two places, they are responsible for aggregating their annual income and finalizing personal income tax directly with the tax authority if there is additional tax payable or excess tax paid for which a refund is requested. For the 2020 tax period, if an individual has an additional tax payable after finalization of each year of 50,000 VND or less, they are not required to file tax finalization and are exempt from personal income tax for the additional tax payable after finalization of 50,000 VND or less.
Question 6: Does an individual self-finalizing tax need to print a physical copy?
I am an individual self-finalizing tax. I have used the online application on the General Department of Taxation’s website to submit my tax finalization online. Do I need to print a physical document to submit to the local tax department?
Answer:
This application assists taxpayers in using the prescribed declaration forms, correctly filling in the fields on the declaration, and automatically determining the place to submit the tax finalization dossier to avoid confusion and multiple trips. However, since individuals do not yet have a digital signature, after declaring online, you still need to print it out to sign and send it to the tax authority along with the required documents and dossiers. The dossier can be submitted directly or sent via registered mail.
Question 7: Personal income tax for students not under contract
My company hired several students to work without a contract for the Company for 4 months. Do I have to withhold personal income tax when paying these students?
Answer:
According to point 1.i, Article 25 of Circular No. 111/2013/TT-BTC dated August 15, 2013, of the Ministry of Finance:
“Organizations and individuals paying wages, remuneration, or other expenses to resident individuals who do not sign labor contracts (as guided in points c, d, clause 2, Article 2 of this Circular) or sign labor contracts for less than three (03) months with a total income payment of two million (2,000,000) VND/time or more must withhold tax at a rate of 10% on the income before paying it to the individual.
If an individual has only one source of income subject to tax withholding at the above rate but estimates that their total taxable income after family deductions is not yet subject to tax, the individual with income shall make a commitment (according to the form issued with the tax administration guidance document) and submit it to the income-paying organization for the income-paying organization to temporarily not withhold personal income tax. Based on the commitment of the income recipient, the income-paying organization shall not withhold tax. At the end of the tax year, the income-paying organization must still compile a list and income of individuals who have not reached the tax withholding threshold (into the form issued with the tax administration guidance document) and submit it to the tax authority.”
Based on the above regulations, if your company hires students to work without a contract for 4 months, and does not sign labor contracts, when the Company pays income of two million (2,000,000) VND/time or more, it must withhold tax at a rate of 10% on the income before paying it to the individual. If the individual has only one source of income subject to tax withholding at the above rate but estimates that their total taxable income after family deductions is not yet subject to tax, and the individual has registered for tax and has a tax code, then the individual shall make a commitment and send it to the Company to temporarily not withhold personal income tax.
Question 8: Guidance on personal income tax payment for officers and employees working on overseas projects.
The Ministry of Finance has not yet issued guidance on determining taxable income for officers and employees working overseas. Furthermore, the local tax authority requires the Company to calculate personal income tax for officers and employees working overseas (including cases of residing over 183 days and having income from abroad) as applied to Vietnamese citizens in Vietnam and pay the tax difference if the tax in Vietnam is higher than abroad.
So, how should the Company handle personal income tax for individuals in this case?
Answer:
At point e.1, Article 26 of Circular No. 111/2013/TT-BTC dated August 15, 2013, of the Ministry of Finance, it is guided that:
“e.1) If a resident individual has income arising abroad and has calculated and paid personal income tax according to foreign regulations, the amount of tax paid abroad may be deducted. The deductible tax amount shall not exceed the amount of tax payable calculated according to Vietnam’s tax schedule, prorated for the income arising abroad. The proration rate is determined by the ratio between the income arising abroad and the total taxable income.
2. Tax declaration for resident individuals with income from salaries, wages, and business income
a.2) Resident individuals with income from salaries and wages paid by organizations or individuals from abroad shall declare tax directly with the tax authority quarterly.”
According to the guidance at point b.2.1, clause 3, Article 21 of Circular No. 92/2015/TT-BTC guiding personal income tax finalization, the dossier must include documents proving the tax withheld and temporarily paid during the year:
“…Copies of documents proving the tax withheld, temporarily paid during the year, and tax paid abroad (if any). Individuals commit to being responsible for the accuracy of the information on such copies. If the income-paying organization does not issue tax withholding documents to the individual because the income-paying organization has ceased operations, the tax authority shall rely on the tax industry’s database to consider and process the individual’s tax finalization dossier without requiring tax withholding documents.
If, according to foreign law, the foreign tax authority does not issue a certificate of tax paid, the taxpayer may submit a copy of the Tax Withholding Certificate (clearly stating that tax has been paid according to which income tax declaration) issued by the income-paying agency or a copy of the bank document for the tax paid abroad with the taxpayer’s confirmation.”
Thus, resident individuals with taxable income arising abroad who have paid tax abroad may deduct the tax paid abroad (with supporting documents) but not exceeding the personal income tax amount calculated according to Vietnamese law for the income received abroad when finalizing tax. If tax has been paid in countries that have signed Double Taxation Avoidance Agreements with Vietnam, the provisions of the Agreement shall apply.
