Tax bases for incomes from business activities and incomes from salaries or wages can help employees and employers to calculate the taxable amount for employees.
Pursuant to the Law in Personal Income Tax and Article 7, Circular No. 111/2013/TT-BTC, Tax bases for incomes from business activities and incomes from salaries or wages are taxed income and tax rate, specifically as follows:
Taxed income = taxable income - deductible amounts
Therefore, it is necessary to define taxable income and deductible amounts in order to calculate the personal income tax, in particular:
1. Taxed income
Taxable income of personal income tax shall be determined as follows:
Taxable income = total incomes - tax-exempt amounts
* Total incomes
Incomes from salaries or wages are incomes received by employees from
their employers, including
- Salaries, wages, and amounts of salary or wage nature in monetary or nonmonetary form.
- Allowances and subsidies, except subsidies and allowances and lump-sum subsidies.
- Remuneration receivable under the forms such as:
+ Commission for goods sale agency, brokerage commission
+ Payments for participation in scientific and technical research;
+ Payments for participation in projects or schemes;
+ Royalties as prescribed by the law on royalties’ regime;
+ Payments for teaching activities;
+ Payment for art and cultural performances, physical training, and sports activities;
+ Payments for advertising;
+ and other services and other payments.
- Sums of money earned from participation in business associations, boards of directors or control boards of enterprises, project management units, management boards, professional associations and societies, and other organizations.
- Other monetary or non-monetary benefits other than salaries and wages paid by employers to taxpayers in any form.
Monetary and non-monetary rewards in any form, including bonus securities, except rewards.
* Amounts are not included in taxable incomes
The following amounts are not included in taxable incomes:
- Incomes from salary or wage amounts paid for night shift or overtime work, which are higher than those paid for day shifts or working hours as prescribed by the Labor Code, as follows:
+ Salary or wage amounts paid for night shift or overtime work eligible for tax exemption are determined based on actual paid salary or wage amounts for night shift or overtime work minus those paid for ordinary workdays.
For example: If Mr. B earns a wage of VND 40,000/hour for each ordinary workday under the Labor Code.
If Mr. B performs overtime work on an ordinary workday, he will get an overtime pay of VND 60,000/hour. In this case, his tax-exempt income is:
VND 60,000/hour - VND 40,000/hour = VND 20,000/hour
If Mr. B performs overtime work on a weekend or holiday, he will get an overtime pay of VND 80,000/hour. In this case, his tax-exempt income is:
VND 80,000/hour - VND 40,000/hour = VND 40,000/hour
+ Income payers shall make a list showing working time in the night shift or overtime work and wage amounts for the night shift or overtime work additionally paid to employees. Income payers shall keep this list and present it to tax offices at the latter’s request.
- Incomes from salaries and wages of Vietnamese crews who are working for foreign shipbuilders or Vietnam shipbuilders with international transportation.
2. Deductions for determining personal income tax
Pursuant to Article 9, Circular No. 111/2013/TT-BTC, a deduction for insurance premiums and contributions to voluntary pension funds is as follows:
*Deductions for insurance premiums and contributions to voluntary pension funds
- Insurance premiums include premiums of social insurance, health insurance, unemployment insurance, and occupational liability insurance for occupations subject to compulsory insurance.
- Contributions to voluntary pension funds: Social insurance 8%, health insurance 1.5%, unemployment insurance 1%.
- The level of contributions to voluntary pension funds may be deducted from taxable income as actually arisen but at no more than VND one (1) million/month for employees buying voluntary pension products as guided by the Ministry of Finance, even in case of participating in different funds.
The ground for determining the deductible income is the copy of the receipt of payment of money (or fee) issued by voluntary pension funds.
* Deduction based on family circumstances
- Deduction is based on family circumstances for taxpayers. Reduction for the taxpayer, which is VND 11 million/month (VND 132 million/year);
- Deduction based on family circumstances for dependants only taxpayers who have made tax registration and obtained tax identification numbers may get the family circumstance-based deduction for their dependants. Or speaking in other ways, dependants who do not register shall not be deducted.
Reduction for each dependent of the taxpayer, which is VND 4.4 million/month.
* Deduction for charity, humanitarian, or study promotion donations
Charity, humanitarian or study promotion donations deductible before tax calculation from taxable income of taxpayers who are resident individuals and earn incomes from business activities, salaries or wages include:
+ Contributions to organizations or establishments that care for or nurture especially disadvantaged children, persons with disabilities, and helpless elderly.
Contributions to charity funds, humanitarian funds, or study promotion funds are established and operating under regulations.
- Deduction level:
+ The maximum deduction must not exceed taxed income from salaries or wages and income from business activities of the tax year in which charity, humanitarian or study promotion donations are made.
+ Documents evidencing charity, humanitarian, or study promotion donations are lawful receipts issued by central or provincial-level organizations or funds.
Here are the methods for determining personal income tax from salaries and wages.