Official Dispatch 3588/CT-HTr Hanoi 2016 regarding personal income tax

To:    Cho Seong Ryong Accounting Company Limited
Address: Room B01, Sky City Tower, 88 Lang Ha Street, Dong Da District, Hanoi City
Tax identification number: 0106589307

In response to Official Dispatch No. 201512001/CV-PIT dated January 05, 2016, of Cho Seong Ryong Accounting Company Limited (hereinafter referred to as Company) regarding personal income tax, Hanoi Tax Department gives the following opinions:

- Pursuant to Clause 4 Article 7 of the Ministry of Finance's Circular No. 111/2013/TT-BTC dated August 15, 2013, guiding the Law on Personal Income Tax, the Law Amending and Supplementing a Number of Articles of the Law on Personal Income Tax and the Government’s Decree No. 65/2013/ND-CP detailing a number of articles of the Law on Personal Income Tax and the Law Amending and Supplementing a Number of Articles of the Law on Personal Income Tax, the conversion of tax-exclusive incomes into taxed income is prescribed as follows:

“In case the incomes from salaries or wages paid by organizations or individuals to their employees under Clause 2, Article 2 of this Circular are exclusive of tax, such tax-exclusive incomes must be converted into taxed incomes according to Appendix No. 02/PL-TNCN to this Circular for determining taxable income...”

- Pursuant to Clause 1 Article 14 of the Ministry of Finance's Circular No. 92/2015/TT-BTC dated June 15, 2015, on guidelines for value-added tax and personal income tax in terms of residents engaging in business; revised guidelines for personal income tax in the Law Amending and Supplementing a Number of Articles of the Laws on Taxes No. 71/2014/QH13 and the Government's Decree No. 12/2015/ND-CP dated February 12, 2015, detailing the implementation of the Law Amending and Supplementing a Number of Articles of the Tax Laws and amending and supplementing a number of articles of the decrees on taxes, Point a Clause 4 Article 7 of Circular No. 111/2013/TT-BTC is amended and supplemented as follows:

“...a) Incomes serving as a basis for conversion into taxed incomes are incomes actually received (excluding tax-exempt incomes) plus (+) benefits paid by employers on behalf of employees (if any) minus (-) deductions. In case employers apply the “presumptive tax” or “presumptive house rent” policy, incomes serving as a basis for conversion into taxed incomes shall not include “presumptive tax” or “presumptive house rent”.   In case house rents are included in benefits paid by employers on behalf of employees, the amount of house rents included in incomes serving as a basis for conversion equals the actually paid amount but must not exceed 15% of the total taxable income paid by such employers, regardless of income payer (exclusive of actual house rents or “presumptive house rent” (if any)).

Formula for determining incomes serving as a basis for conversion:

In which:

- Actually received income is tax-exclusive salary or wage received every month by the employee.

- Amounts paid by the employer on behalf of the employee include monetary or non-monetary benefits paid by the employer to the employee under Point dd, Clause 2, Article 2 of Circular No. 111/2013/TT-BTC and Clauses 2, 3, 4, Article 11 of Circular No. 92/2015/TT-BTC.

- Deductions include family circumstance-based deductions; insurance premiums; contributions to voluntary pension funds; and charity, humanitarian and study promotion under Article 9 of Circular No. 111/2013/TT-BTC and Article 15 of Circular No. 92/2015/TT-BTC...”

Based on the above regulations and guidelines, if the Company signs a contract to pay NET salary for the employee, actually received income exclusive of personal income tax, and the Company pays compulsory insurance premiums or house rents on behalf of the employee, tax-exclusive income and compulsory insurance premiums must be converted into taxed incomes in accordance with Appendix No. 02/PL-TNCN to Circular No. 111/2013/TT-BTC for determination of taxable income. Incomes serving as a basis for conversion into taxed incomes are incomes actually received plus (+) benefits paid by employers on behalf of employees (compulsory insurance premiums or house rents) minus (-) deductions.

For example: According to the labor contract signed between Mr. D and Company X, in 2015, Mr. D enjoys a monthly salary of VND 31.5 million. Suppose that in addition to salary, Company X also pays a compulsory insurance premium of VND 1.5 million/month and house rent of VND 6 million/month on behalf of Mr. D. Company X takes charge of paying personal income tax according to regulations for Mr. D. In the year, Mr. D is entitled to family circumstance-based deduction for himself only and neither has dependants nor makes charity, humanitarian and study promotion donations. Mr. D’s monthly payable personal income tax is calculated as follows:

* Step 1: Determining the rent amount paid by the employer and included in the income serving as a basis for conversion

- Income serving as a basis for conversion (exclusive of house rent):

VND 31.5 million + VND 1.5 million - (VND 9 million + VND 1.5 million) = VND 22.5 million

- Taxed income (calculated according to Appendix No. 02/PL-TNCN):

(VND 22.5 million - VND 1.65 million)/0.8 = VND 26.0625 million

- Taxable income (exclusive of house rents):

VND 26.0625 million + VND 9 million + VND 1.5 million = VND 36.5625 million

- 15% of the total taxable income (exclusive of house rent):

VND 36.5625 million x 15% = VND 5.4844 million/month

Then the rental amount calculated into the income serving as a basis for conversion is VND 5.4844 million/month.

* Step 2: Determination of taxed income

- Income serving as a basis for conversion into taxed income:

VND 31.5 million + VND 1.5 million + VND 5.4844 million - (VND 9 million + VND 1.5 million) = VND 27.9844 million/month

- Taxed income (converted according to Appendix 02/PL-TNCN):

(VND 27.9844 million - VND 3.25 million)/0.75 = VND 32.9792 million/month

- Payable personal income tax amount:

VND 32.9792 million x 25% - VND 3.25 million = VND 4.9948 million/month.

Hanoi Tax Department hereby informs the Company for implementation./.