Công văn 3221/TCT-TNCN

OFFICIAL LETTER

To: Tax Departments of provinces and centrally run cities

The General Department of Taxation has recently received official letters from some localities inquiring about deductible allowances upon determination of personal income taxable amount and determination of days of residence of foreigners working in Vietnam. The General Department of Taxation guides the uniform implementation as follows:

1. Determination of deductible allowances when determining taxable incomes from salaries and wages:

Article 6 of the Ministry of Finance’s Circular No. 62/2009/TT-BTC of March 27, 2009, amending and supplementing the Ministry of Finance’s Circular No. 84/2008/TT-BTC of September 30, 2008, guiding a number of articles of the Law on Personal Income Tax and guiding the Government’s Decree No. 100/2008/ND-CP of September 8, 2008, detailing a number of articles of the Law on Personal Income Tax, guides:

“To add to Point 2.2 the allowances deductible upon determination of taxable incomes from salaries and wages as follows:

For working fields, professions and occupations eligible for allowances as prescribed by the State, these allowances will not be subject to taxable incomes.

Pursuant to above provision, apart from the allowances specified at Point 2.2, Section II, Part A of the Ministry of Finance’s Circular No. 84/2008/TT-BTC of September 30, 2008, only allowances for particular fields, professions and occupations prescribed by competent State agencies are not subject to personal income tax.

Position and responsibility allowances for cadres and civil servants and allowances set by enterprises, political organizations and socio-political organizations such as allowances for leaders, managers of enterprises and Party and mass-organization cadres and salary-based allowances paid by units that enjoy autonomy over their allocated funds are not particular allowances and thus will be subject to personal income tax.

2. Finalization of personal income tax for foreigners working for the first time in Vietnam since 2008:

Point 4.2.2.1, Section III of the Ministry of Finance's Circular No. 81/2004/TT-BTC of August 13, 2004, guiding the Government's Decree No. 47/2004/ND-CP of July 23, 2004, detailing the Ordinance on Income Tax for High-Income Earners, stipulates:

“The duration of residence for determining the first tax year is the total days of presence in Vietnam within 12 consecutive months counting from the first day of arrival in Vietnam (date of arrival or departure is counted as one day)”

Under this provision, a foreigner qualified as a resident in Vietnam (being present in Vietnam for 183 days or more within 12 consecutive months) will declare and finalize income tax as a resident in Vietnam for the period from the first day of his/her arrival in Vietnam in 2008 to the end of December 31, 2008. Regarding to tax finalization forms, he/she shall use the tax finalization form under Point 1.5.2, Section VI, Part B of the Ministry of Finance's Circular No. 60/2007/TT-BTC of June 14, 2007, guiding the Government's Decree No. 85/2007/ND-CP of May 25, 2007, detailing a number of articles of the Tax Administration Law.

When a foreigner’s stay in Vietnam from the first day of arrival to December 31, 2008, lasts less than 183 days, he/she may either pay 25% of his/her incomes derived in Vietnam in 2008 or declare, pay and finalize tax as a resident mentioned above.

From January 1, 2009, when the Law on Personal Income Tax took effect, the determination of the conditions on residence in Vietnam complies with the Law on Personal Income Tax and its guiding documents, even for cases of individuals who are regarded as residents under the former Ordinance on Income Tax for High-Income Earners, who must have their residence condition re-determined under the Law on Personal Income Tax from January 1, 2009.

The General Department of Taxation notifies the above guidance to provincial-level Tax Departments for compliance.