Công văn 12495/BTC-TCT

To: Provincial Departments of Taxation

The Ministry of Finance have recently received requests for provision of guidelines for personal income tax policies in case of application of presumptive taxes and house rents when calculating income subject to personal income tax (hereinafter referred to as taxable income). The Ministry of Finance hereby provides the following guidance:

- Pursuant to Clause 4 Article 7 of Circular No. 111/2013/TT-BTC dated August 15, 2013 on guidelines for the Law on Personal Income Tax, Law on amendments to the Law on Personal Income Tax, and the Government's Decree No. 65/2013/NĐ-CP on guidelines for some Articles of the said Laws:

If the wages paid to the employee as prescribed in Clause 2 Article 2 of this Circular are exclusive of tax, they must be converted into assessable income in accordance with Appendix No. 02/PL-TNCN enclosed with this Circular in order to determine taxable income. To be specific:

a) The income converted into assessable income is the actual income plus (+) benefits paid by the employer on behalf of the employee (if any) minus (-) deductions. If the amounts paid on behalf of the employee include house rent, the house rent shall be included in the converted income. Nevertheless, this amount must not exceed 15% of the total taxable income incurred (not including house rent)

Formula for calculating converted income

Where:

- Actual income is the tax-exclusive wages received by the employee every month.

- The amounts paid on the employee’s behalf are monetary or in-kind benefits paid to the employee by the employer as prescribed in Point dd Clause 2 Article 2 of this Circular.

- Deductions include personal deductions, insurance premiums, contributions to the voluntary pension fund, and charitable donations as prescribed in Article 9 of this Circular”.

Guidance on conversion for determination of taxable income in some cases:

1. With regard to presumptive tax:

If the employer exercises tax equalization and deduct a presumptive amount of tax from the employee’s income before paying to the employee and pay actual personal income tax on the employee’s behalf, the income converted into assessable income does not include the presumptive tax deducted and must comply with Clause 4 Article 7 of Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance.

After calculating the actual amount of tax payable in Vietnam, the employer shall equalize tax. In case of additional deduction of presumptive tax or refund of deducted presumptive tax, the converted income of the employee will be respectively decrease or increase (exclusive of presumptive tax) at the time the difference is received in order to determine taxable income.

An example is provided in the Appendix to this document.

2. With regard to presumptive house rent:

If the employer deducts a presumptive amount of house rent from the employee’s income before paying income to the employee and pay actual house rent on the employee’s behalf, the income converted into assessable income does not include the presumptive house rent deducted. Determination of house rent included to income converted into assessable income is the actual house rent. Nevertheless, this amount must not exceed 15% of total taxable income (exclusive of actual house rent and presumptive house rent). Income shall be converted in accordance with Clause 4 Article 7 of Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance.

If the employer deducts both presumptive tax and presumptive house rent from the employee’s income and pay the actual house rent and personal income tax incurred in Vietnam for the employee, the income converted by the investor into assessable income does not include presumptive tax and presumptive house rent deducted. Determination of house rent included to income converted into assessable income is the actual house rent. Nevertheless, this amount must not exceed 15% of total taxable income (exclusive of actual house rent and presumptive house rent). Income shall be converted in accordance with Clause 4 Article 7 of Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance.

An example is provided in the Appendix to this document.

Provincial Departments of Taxation are responsible for instructing taxpayers to implement the Circular correctly./.

APPENDIX

Example 1. Application of presumptive tax

Mr. A who has American citizenship is appointed by Corporation X in America to work in Vietnam for 03 years starting from January 2014. His monthly income in Vietnam:

Personal income tax incurred by Mr. A in Vietnam is calculated as follows:

APPENDIX

Example 2. Application of presumptive house rent

The company applies presumptive house rent in the case of Mr. A in Example 1. The monthly presumptive house rent withheld by the company is VND 40 million. The actual house rent in Vietnam paid by the company is VND 55 million/month

Personal income tax incurred by Mr. A in Vietnam is calculated as follows: