Công văn 94TCT/TNCN

To: The provincial/municipal Departments of Tax

Pursuant to Article 17 of the Ordinance on Income Tax on High-Income Earners, Article 10 of the Government’s Decree No.147/2004/ND-CP of July 23, 2004, detailing the implementation of the Ordinance on Income Tax on High-Income Earners, Point 1, Section III of Circular No.81/2004/TT-BTC of August 13, 2004, of the Finance Ministry;

Pursuant to the Prime Minister’s Decision No. 211/1998/QD-TTg of October 31, 1998 promulgating the regulations on foreign experts engaged in execution of ODA programs or projects in Vietnam; the Finance Ministry’s Circular No. 52/2000/TT-BTC of June 5, 2000 guiding the tax and fee exemption for foreign experts involved in carrying out ODA-funded programs or projects;

Pursuant to the guidelines in Official Letter No. 7333 TC/TCT of July 2, 2004, of the Finance Ministry on business income tax (BIT) and personal income tax (PIT) applicable to non-refundable ODA projects and Official Letter No. 7711 TC/TCT of July 13, 2004, of the Finance Ministry on enhancing the tax management and financial management of ODA- funded projects;

Taking the characteristics of foreign-financed projects into consideration,

The General Department of Taxation hereby guides in detail a number of contents on declaration, payment and settlement of income tax on high-income earners (called PIT for short) applicable to individuals working for ODA projects or programs in Vietnam and other projects funded by foreign countries (foreign-funded projects) as follows:

1. Taxpayers: Vietnamese and foreign individuals working for foreign-funded projects, individuals working for contractors performing jobs under foreign-funded projects in Vietnam in all forms.

2. Subjects eligible for PIT exemption: Individuals who are exempt from PIT under international treaties, agreements or accords which the Vietnamese Government has signed or acceded to and contain provisions on PIT exemption.

3. Registration for the grant of tax identification numbers: Individuals with taxable incomes shall make tax registration declaration in order to be granted PIT identification numbers under the provisions of the Finance Ministry’s Circular No. 80/2004/TT-BTC of August 13, 2004. Specifically:

Individuals who work for and earn incomes from a project only shall have to submit the tax registration declarations for the grant of PIT identification numbers to project management unit (PMU). The PMU shall receive tax registration declarations from such individuals and submit them to the tax office for carrying out the procedures to grant tax identification numbers.

Individuals earning incomes from two or more working places may make tax registration declaration either directly at tax offices or via income-paying agencies (PMUs or contractors).

4. Tax declaration and payment

4.1. In case incomes are paid by the PMUs directly to individuals

Monthly, before paying incomes to foreign or Vietnamese individuals, the PMUs shall have to withhold their PIT. The tax declaration, withholding and remittance by the PMUs shall vary between taxpayers who work under labor contracts and who work under service contracts. For individuals who work under labor contracts for a definite, indefinite or short term, the PMUs shall withhold their PIT according to the partially progressive tax rates table from their monthly income, which is over VND 5 million for Vietnamese and over VND 8 million for foreigners.

For individuals signing service contracts such as those on survey consultancy, designing, upon each payment of VND 500,000 or more to these individuals, 10% of this amount shall be withheld.

Example 1: The Project Management Unit X in 2005 signed contracts with two foreign experts who are paid a monthly wage of USD 10,000 each, with one Vietnamese who is paid a monthly wage of VND 7 million, and with individual A for providing the survey service at the cost of VND 100 million.

Monthly the PMU shall withhold and pay PIT as follows:

- PIT amount payable under the partially progressive tax rate table by the foreign experts shall be:

Assume that USD 10,000 is equivalent to VND 160 million (at the exchange rate of VND 16,000 per USD)

The PIT amount payable in the year by one expert shall be:

VND 16.2 million + 40% x (VND 160 million - 80 million) = VND 48.2 million.

- The PIT amount payable under the partially progressive tax rate table by the Vietnamese individual:

0 + 10% x (VND 7 million- 5 million) = VND 0.2 million.

- 10% of the amount paid to the individual providing the survey service:

(VND 100 million x 10%) = VND 10 million.

Example 2: Mr. A signs on behalf of a group of persons a consultancy service contract worth VND 20 million with a project management unit. Of this amount, Mr. A receives VND 10 million, Mr. B receives VND 6 million. Mr. C receives VND 3.6 million and Mr. D receives VND 0.4 million.

The PMU shall withhold 10% of the amounts paid to A, B and C and grant tax-withholding vouchers to them. Particularly, Mr. D’s amount shall not be liable to PIT withholding as it is below VND 500,000.

For tax amounts withheld under the partially progressive tax rates table, PMUs shall make declarations according to Form No.03a/TNTX issued together with Circular No.81/2004/TT-BTC For 10% withheld tax amounts, PMUs shall make declarations according to Form No. 03b/TNTX issued together with the said Circular. The deadline for submission of such declarations to tax offices is the 10th day and for the remittance of PIT tax into the state budget is the 25th of the month following the month when incomes are generated.

4.2. In cases where incomes are not paid by the PMUs directly to individuals

In case a PMU signs contracts with contractors to perform various jobs under a project, upon signing such contracts, it is obliged to notify the contractors of their responsibility to withhold, declare and remit personal income tax of individuals working for them, and give the contractors a brief document on the PIT payment obligation (enclosed with the contracts). At the same time, the contractors shall be requested to send to the PMU the lists of individuals working for the project (Form No.2). Within 30 days after signing contracts with the contractors, the PMU shall send to tax offices the list of contractors to carry out the project and the list of individuals working for each contractor (Form No.1). The contractors shall withhold, declare and remit PIT under the guidance at Point 4.1 of this Official Letter.

In case individuals working for a project are paid directly by foreign donors or contractors who are not present in Vietnam, the PMU shall request the contractors or the donors to make a list of these individuals (Form No. 2) and the PMU shall forward such list to the managing tax office within 30 days after signing labor contracts with such individuals. These individuals shall declare and pay tax directly at the tax office.

5. PIT finalization

5.1. With regard to Vietnamese

For Vietnamese working for and earning incomes from a project only: At year-end, they shall make letters of authorization according to Form No.09/TNTX issued together with the Finance Ministry’s Circular No. 81/2004/TT-BTC of August 13, 2004, , requesting the PMU to make tax finalization. The PMU shall make declarations according to Forms No. 10/TNTX and No. 11/TNTX, issued together with the said Circular and make tax finalization under the provisions of Point 4.3.1 Section III of the said Circular.

For Vietnamese working for a project and earning incomes from such project and from other places: At year-end, they shall list all sources of income and all taxable incomes in the year, declare their income tax and submit the tax finalization declarations to the tax office, made according to Form No.08/TNTX issued together with Circular No.81/2004/TT-BTC.

5.2. For foreigners: Foreigners liable to income tax on high-income earners shall, at year-end, have to declare the number of days they have stayed in Vietnam according to Form No.13a/TNTX issued together with Circular No. 81/2004/TT-BTC in order to determine whether they are residents or non-residents.

Where foreigners are non-residents in Vietnam, the PMU shall withhold the payable PIT amounts at the PIT rate of 25% of their respective total incomes, fill in the declarations according to Form No. 05/TNTX issued together with Circular No. 81/2004/TT-BTC; for foreigners identified as residents in Vietnam, they shall, at the year-end, make PIT finalization like Vietnamese: if earning incomes from one place only, they shall make PIT finalization at the income-paying agency; if earning incomes from different agencies, they shall make PIT finalization at tax office.

6. Tax relief

6.1. Methods for determination of the exempted PIT amounts

Where foreigners earn both tax-free incomes and taxable incomes, they shall declare all of their incomes arising in the year, including tax-free incomes. The payable PIT amounts shall be determined by the following method:

- Total income in the year = Taxable income + Tax-free income

- Average monthly income = Total yearly income divided by 12 months.

- PIT amount payable on the total income according to the partially progressive tax rate table.

- Proportion of the tax-free income to the total income.

- Exempted tax amount pro rata to the proportion of the tax-free income.

Example: Mr. A has the average monthly income of VND 200 million, of which VND 40 million is PIT-free.

The tax amount payable according to the partially progressive tax rates table on the income amount of VND 200 million is VND 64.2 million.

The exempted PIT amount = VND 64.2 million x 20% = VND 12.84 million.

The payable PIT amount = VND 64.2 million – VND 12.84 million = VND 51.36 million.

6.2. Conditions for tax relief

- For cases of application for tax relief under Agreement, the conditions for tax relief shall comply with the Finance Ministry’s Circular No. 95/1997/TT-BTC of December 29, 1997, and Circular No.37/2000/TT/BTC of May 5, 2000.

- For other commitments, the conditions for tax relief shall comply with the Finance Ministry’s Circular No.52/2000/TT-BTC of June 5, 2000.

The provincial/municipal Departments of Tax are hereby requested to guide the PMUs to withhold and remit PIT of individuals working for their projects as guided above.

Any problems arising in the course of implementation shall be promptly reported to the General Department of Taxation for study and settlement./.