Tax advice on income from the bonus of foreigner in Vietnam

TAX ADVICE ON INCOME FROM THE BONUS, WINNINGS

I. Who must pay personal income tax when there is a bonus? 

Bonuses are monetary or non-monetary bonuses of any kind, including stock bonuses.

Except for the following bonuses, personal income tax is not payable:

- Bonuses attached to titles awarded by the State, including bonuses accompanied by emulation titles, forms of reward in accordance with the law on emulation and reward, specifically:

• Bonuses accompanied by emulation titles such as National Emulation Warrior; Soldiers emulating ministries, branches, central unions, provinces and centrally-run cities; Junior Emulation Soldiers, Advanced Laborers, Advanced Soldiers.
• Bonuses are accompanied by forms of reward.
• Bonuses are accompanied by trophies awarded by the State.
• Bonuses are accompanied by prizes awarded by associations and organizations belonging to political organizations, socio-political organizations, social organizations, and socio-professional organizations of the central and local governments in accordance with the charter of that organization and in accordance with the provisions of the Law on Emulation, commend, and reward.
• Bonuses accompanied by Ho Chi Minh award, State award.
• Bonuses accompanied by medals and badges.
• Bonuses accompanied by Certificates of Merit and Certificates of Merit.

Thus, in addition to the above-mentioned bonuses that do not have to pay personal income tax, all other bonuses, such as Tet bonuses, winnings, bonuses from sports tournaments that are rewarded by organizations and individuals, must pay personal income tax.

II. How much of a bonus is required to pay personal income tax? 

Currently, the tax income from winning is the part of the prize value exceeding VND 10 million (regardless of property or objects) that taxpayers receive for each time they win, regardless of the number of times they receive the bonus. 

Example 1: How much tax is winning the lottery 15 million VND?

Mr. X has 1 winning lottery ticket for 15,000,000 VND. The calculation of personal income tax when winning the lottery of 15 million VND is as follows:

Tax payable = (15,000,000-10,000,000) x 10% tax rate = 500,000 VND

Example 2: How much tax is 2 billion in lottery winnings?

Mr. Y has 1 lottery ticket, winning VND 2 billion. The calculation of personal income tax when winning the lottery of VND 2 billion is as follows:

Tax payable = (2,000,000,000-10,000,000) x 10% tax rate = VND 199,000,000 

Example 3: How much tax is 10 million in lottery winning?

Mr. F has a winning lottery ticket of VND 10 million; it is not subject to personal income tax.

III. Who is exempt from paying personal income tax on bonuses? 

Bonuses for employees are amounts of wages and salaries. Accordingly, this amount is determined to be subject to personal income tax. This means that, except for tax-exempt bonuses, individuals who receive bonuses regardless of property or things are taxable. 

According to the Law on Personal Income Tax and the Guiding Decree, 16 cases of personal income tax exemption in 2022 include:

In addition, there are allowances and exclusions from personal income tax:

(1) Allowances, monthly preferential allowances, and one-time allowances in accordance with the law on meritorious treatment.

(2) Monthly allowance, a one-time allowance for those participating in the resistance, national defense, international missions, and volunteer youths who have completed their tasks. 

(3) Defense and security allowances; armed forces subsidies

(4) Toxic and dangerous allowances for industries, occupations, or jobs with toxic or dangerous elements in the workplace.

(5) Attraction allowance, regional allowance.

(6) Unscheduled hardship allowance, allowance for occupational disease, one-time allowance for childbirth or adoption, maternity benefit level, level of health care, post-maternity health recovery, allowance due to impairment of working ability, one-time pension benefit, monthly allowance, severance allowance, job loss allowance, unemployment benefits, and other benefits as provided by the Labor Code and Social Insurance Law. 

(7) Subsidies for people who are eligible for social protection under the law.

(8) Senior leaders' service allowances

(9) One-time allowance for individuals when transferring to areas with extremely difficult socio-economic conditions, one-time support for civil servants working on sea and island sovereignty in accordance with law.  

(10) One-time roaming allowance for foreigners residing in Vietnam, Vietnamese working abroad, overseas Vietnamese returning to Vietnam to work.  

(11) Allowances for village health workers.  

(12) Allowances for specific industries 

IV. How to calculate personal income tax from bonuses?

a. For winnings:

Assessable income from winning is the part of the prize value exceeding VND 10 million that the taxpayer receives according to each win, regardless of the number of times the prize is received.

In the case of one prize but there are many winners, the assessable income is distributed to each prize recipient. The winner must present legal evidence. In case there is no legal basis to prove it, the neutral income rewards an individual. If the individual wins multiple prizes in a game, the assessable income is calculated on the total value of the prizes.

Assessable income for some bonus games, specifically as follows: For lottery winnings, the entire value of the bonus exceeds 10 million VND received in a drawing without deducting any expenses; for in-kind promotional winnings, the value of promotional products exceeding VND 10 million is converted into money at the market price at the time of receipt without deducting any expenses; for winnings in the form of betting, the casino is the entire value of the prize exceeding 10 million VND that the participant receives without deducting any expenses; for winnings from games, the contest with prizes is calculated according to the time the prize is received. The bonus value is equal to the entire bonus amount exceeding 10 million VND that the player receives without deducting any costs.

The personal income tax rate on winning income under the full tariff is 10%.

The time to determine assessable income on a winning prize is the time when organizations and individuals pay prizes to ordinary winners.

b. For employee bonuses

PIT amount payable = (Taxable income-Deductions) x Tax rate

In which:

* Taxable income:

- Taxable income from wages and salaries is determined by the total amount of wages, salaries, remuneration, other income of a salary nature, remuneration that taxpayers receive during the tax period.

- The time to determine taxable income from wages and salaries is when organizations and individuals pay income to taxpayers.

* Deductibles:

Currently, the deduction for tax payers is 11 million VND/month (132 million VND/year); the deduction for each dependent is 4.4 million VND/month.

- Insurance contributions, voluntary pension funds as instructed in Clause 2, Article 9 of Circular111/2013/TT-BTCC.

- Charitable contributions, humanitarian and educational promotion as instructed in Clause 3, Article 9 of Circular111/2013/TT-BTCC.

- The time to determine taxable income from wages and salaries is when organizations and individuals pay income to taxpayers.

* Deductibles:

Currently, the deduction for tax payers is 11 million VND/month (132 million VND/year); the deduction for each dependent is 4.4 million VND/month.

-I nsurance contributions, voluntary pension funds as instructed in Clause 2, Article 9 of Circular111/2013/TT-BTCC.

- Charitable contributions, humanitarian and educational promotion as instructed in Clause 3, Article 9 of Circular111/2013/TT-BTCC.

* Tax rate:

The tax rate of personal income tax on salaries, wages is based on the partial progressive tax schedule, in particular as follows:

 

V. What is the procedure for paying personal income tax on employee bonuses? 

a. The procedure for paying personal income tax from winnings. Taxes will be deducted before paying the winnings. 

b. Time limit for finalization of personal income tax from the employee's bonus "

     b) At the latest, on the last day of the 4th month from the end of the calendar year, for personal income tax finalization records of individuals directly finalizing taxes". 

Thus, the deadline for filing tax returns and paying taxes when self-finalizing is no later than April 30th every year.

c. Personal income tax self-finalization regulations

* Cases of self-finalization of taxes

- In cases where tax finalization is authorized but not authorized.

- Must directly declare the final settlement to the tax authority (not authorized).

According to Clause 3, Article 21 of Circular 92/2015/TT-BTC, resident individuals with income from wages and salaries are responsible for declaring tax finalization if there is an additional amount of tax payable or there is an overpaid tax amount that is required to be refunded or offset in the next tax declaration period, except in the following cases:

• Individuals whose tax payable is less than the amount of tax temporarily paid without requesting a refund or tax offset in the following period.
• Individuals with wages and salaries signed on labor contracts for 3 months or more at a unit with additional current income in other places on average in the month of the year not exceeding 10 million VND have paid tax withholding income at the source at the rate of 10%; if no requirement exists, they will not finalize tax on the revenue.
• Individuals whose life insurance is purchased by the employer (except voluntary pension insurance) or other optional insurance have accrued premiums that the employer or insurer has deducted personal income tax at the rate of 10% on the amount of insurance premiums corresponding to the employer's share according to the instructions at Clause 2, Article 14 of Circular 92/2015/TT-BTC is not subject to tax finalization for this income.

* Tax self-finalization procedure

Step 1: Prepare the documents:

Pursuant to Clause 3 Article 21 of Circular 92/2015/TT-BTC, individuals declare tax finalization directly to tax authorities in the following form:

• Tax finalization declaration form No. 02/QTT-TNCN, issued together with Circular 92/2015/TT-BTC.
• Appendix Form No. 02-1/BK-QTT-TNCN is issued together with Circular 92/2015/TT-BTC if there is a registration of family deduction for dependents.
• Copies of documents proving the amount of tax deducted, temporarily paid during the year, and the amount of tax paid abroad (if any).
• Copies of invoices proving contributions to charitable funds, humanitarian funds, and education promotion funds (if any).
• In cases individuals receive income from international organizations, embassies, or consulates and receive income from abroad, they must have documents proving the amount paid by the unit or organization paying income abroad.

Step 2: Submit tax finalization documents

• Individuals with income from wages and salaries directly file tax declarations; the place to submit tax finalization documents is the Tax Department, where individuals have filed tax returns during the year.
• Individuals with income from wages and salaries from two or more places that are directly subject to tax finalization with tax authorities, the place to submit tax finalization dossiers is as follows:
  • Individuals who calculate family circumstance-based deductions for themselves at any income-paying organization or individual must file a tax finalization dossier with the tax agency that manages the income-paying organization or individual.
  • In case an individual changes his/her workplace and at an organization or individual who pays the final income with the deduction of his/her family background, he/she shall submit a tax finalization dossier to the tax authority managing the organization or individual paying the final income.
  • In case an individual has changed his or her place of employment, and the organization or individual paying the final income excludes his or her family situation, he or she must file a tax finalization dossier with the Tax Department in the city or town where the individual resides (permanent or temporary residence).
  • In case individuals who do not calculate family circumstance-based deductions for themselves at any income-paying organization or individual are required to file a tax finalization dossier with the tax agency in their place of residence.  (permanent or temporary residence).
• In case individuals who do not sign a labor contract, sign a labor contract for less than three months, or sign a service provision contract with income from one or more locations and have deducted 10% tax must finalize personal income tax in their residence's tax department (permanent or temporary residence).
• Individuals have income from wages and salaries at one or many places in the year, but at the time of finalization they do not work for any organizations or individuals paying income. The tax finalization documents must be filed with the Tax Department in the jurisdiction where the individual resides (permanent or temporary residence).

VI. What is the time limit for paying personal income tax on bonuses?

The time limit for paying personal income tax includes the time limit for declaration and payment on a monthly or quarterly basis and the time limit for tax finalization by year, in which:

• Tax declaration and payment on a monthly or quarterly basis is done on the basis of income in the month/quarter. 
• Tax finalization is the determination of the payable tax amount for the tax year: If the tax is overpaid or not up to the taxable level and there is a request for a tax refund, it will be refunded; in the case of not yet fully paid, the outstanding amount must be paid in full.

* Monthly and quarterly tax payment period 

The monthly/quarterly tax declaration and payment period is specified in Clause 1, Article 44 of the Law on Tax Administration 2019 as follows: 

• In case of personal income tax payment by month: No later than the 20th day of the month following the month in which the tax obligation arises. 
• In case of personal income tax payment by quarter: No later than the last day of the first month of the next quarter in which the tax liability arises. 

* The time limit for finalization 

Clause 4, Article 44 of the Law on Tax Administration 2019 stipulates the time limit for tax finalization for income received in 2021 as follows:

•  If the individual authorizes the final settlement for organizations or individuals to pay income, the deadline for finalization of personal income tax is no later than March 31 of each year. 
• If an individual directly finalizes personal income tax with the tax authority, the deadline for tax finalization is no later than 30/4 every year.

VII. Is the personal income tax on bonuses refunded?

Individuals have been refunded PIT in 3 cases according to Clause 2, Article8, The law on individual income tax in 2007.

1. The paid individual tax amount is larger than the actual payable tax amount;

2. The individual's overpaid tax amount is not offset against the payable tax amount of the next period;

3. The individual has paid individual income tax but the assessable income is not reach the taxable level;

4. Other cases under decision of competent agency  

- Conditions on refund the PIT from bonuses

Specifically, according to Clauses 2 and 3, Article 28, Circular 111/2013/TT-BTC stipulating tax refund as follows:

"2. For individuals who have authorized tax finalization for income-paying organizations or individuals to make the final settlement, the individual's tax refund shall be implemented through the income-paying organizations or individuals. Income-paying organizations and individuals shall offset the overpaid and underpaid tax amounts of individuals. After clearing, if there is any overpaid tax, it will be offset in the next period or refunded if there is a request for a refund.

3. For individuals who are subject to direct declaration to the tax authority, they can choose to refund or offset in the next period at the same tax office.”

Thus, according to the above provisions, it can be understood that if there is no PIT refund request, the overpaid tax amount will be automatically offset in the next payment period and the tax authority will not actively refund the tax.

For individuals who have authorized tax finalization for income-paying organizations and individuals to make final settlements instead, the individual's tax refund shall be made through such organizations and individuals.

For individuals who directly declare with the tax authorities, they can choose to receive back the excess tax amount or offset it with the amount of tax payable in the next period.

In addition, according to the provisions of Article 28, Circular 111/2013/TT/BTC and according to the provisions of Point b, Clause 1, Article 25, Circular 80/2021/TT-BTC on tax refund, the refunding must ensure:

• The amount of personal income tax paid in the period is greater than the amount of tax payable when finalized.

• Having a tax identification number at the time of requesting a refund.

8.  Individual income tax finalization from bonuses.

Tax finalization declaration.

- PIT finalization declaration for individuals finalizing directly

• Tax finalization declaration form No. 02/QTT-TNCN.

• Appendix Form No. 02-1/BK-QTT-TNCN if there is a registration for family deduction for dependents.

• Photos of documents proving the amount of tax deducted, temporarily paid during the year, and the amount of tax paid abroad (if any).

The individual undertakes to be responsible for the accuracy of the information in such photographs. In the event that the income-paying organization does not issue tax-deducting documents to individuals because they have ended operations, the tax authority shall rely on the database of the tax industry to consider processing tax finalization documents for individuals without being required to have tax withholding documents.

The individual undertakes to be responsible for the accuracy of the information in such photographs. In the event that the income-paying organization does not issue tax-deducting documents to individuals because they have ended operations, the tax authority shall rely on the database of the tax industry in the consideration on process of tax finalization documents for individuals without being required to have tax-deducting documents.

If according to the provisions of foreign law, the foreign tax authority does not issue a certificate of the tax paid amount, the taxpayer may submit a copy of the Tax-deducting Certificate (stating which income tax return was paid) issued by the income-paying agency or a copy of the bank document for the amount of tax paid abroad with confirmation from the taxpayer.

• Photos of invoices proving contributions to charitable foundations, humanitarian funds, education promotion funds (if any). 

• In case individuals receive income from international organizations, embassies, consulates and receive income from abroad, they must have documents proving the amount paid by the unit or organization paying income abroad. 

• In addition, it is necessary to provide a copy of ID card, household registration book, labor contract,... (in some cases)

– Dossiers for individuals authorizing organizations and individuals to pay income for tax finalization instead

• The individual authorizes the organization or individual to pay the settled income instead according to the form No. 02/UQ-QTT-TNCN.

• Accompanied by a copy of invoices, documents proving charitable, humanitarian, and educational contributions (if any).

• Additional declaration of PIT finalization declaration

– Additional of PIT Finalization Declaration

• In case the additional declaration organization or individual does not change its tax obligations, it must only submit the additional declaration explanation and related documents, not the supplementary declaration.

• If an organization or individual has not submitted an annual tax finalization declaration, the taxpayer must declare additional tax returns for the month or quarter with errors and omissions, and then synthesize the additional declaration data into the annual tax finalization declaration.

• In case an organization or individual has submitted an annual tax finalization declaration:

+ For individuals who directly file tax declarations and directly finalize taxes, they only supplement the annual tax finalization declaration.

+ For organizations and individuals paying income from wages and salaries, they must also declare additional annual tax finalization declarations and monthly and quarterly declarations with corresponding errors and errors.

Where to submit tax finalization documents

For income-paying organizations

– Submit PIT finalization declarations to the tax authority directly managing the income-paying organization.

For individuals who directly settle with tax authorities

– Individuals residing with salary and wage income at one place and subject to self-declaration during the year submit tax finalization declarations at the tax office where the individual directly declares tax during the year as prescribed at Point a Clause 8 Article 11 of Decree No. 126/2020/ND-CP.

+ If an individual has salary and wage income from two or more sources, including income that is directly declared and income that is deducted by the paying organization, the individual must file a tax finalization declaration at the tax office where the largest source of income is available during the year.

+ In case the largest source of income is not determined during the year, the individual must submit the finalization dossier at either the tax office directly managing the paying organization or the location where the individual resides. 

• Resident individuals with salary and wage income in the category of organizations deducting at two or more locations must file the following tax finalization declarations:

+ Individuals who calculated their own family deductions at any paying income organization or individual must file a tax finalization declaration with the tax authorities in charge of that paying income organization or individual. 

+ If an individual changes his or her place of employment and works for an organization or individual who pays the final income after deducting his or her family situation, he or she must file a tax finalization declaration with the tax office that manages the organization or individual paying the final income. 

+ If the individual changes places of employment and the organization or individual pays the final income without deduction for family circumstances, the tax finalization declaration dossier must be submitted at the tax office where the individual resides.

+ If the individual has not yet calculated the deduction for his/her family circumstances in any income-paying organization or individual, the tax finalization declaration dossier must be submitted at the tax office where the individual resides.

+ In case the resident does not sign a labor contract, or signs a labor contract for less than 3 months, or signs a service provision contract with income at one place or many places where 10% has been deducted, then submit a dossier of tax finalization declaration at the tax office where the individual resides.

+ For individuals who reside throughout the year and earn income from salaries or wages at one or more places, but do not work at any income-paying organizations or individuals at the time of settlement, the place of submission of tax finalization declaration dossiers is the tax office where the individual resides. 

Deadline for filing personal income tax finalization documents

– For income-paying organizations: The deadline for filing tax finalization tax returns is no later than the last day of the third month from the end day of the calendar year or fiscal year.

- For individuals directly finalizing their taxes: The deadline for submitting tax finalization documents is the last day of the fourth month following the end of the calendar year.

Time limit for tax finalization

In case of authorizing PIT finalization for income-paying organizations, at Point a, Clause 2, Article 44, Law on Tax Administration 2019 stipulates: 

“a) At the latest on the last day of the 3rd month from the end of the calendar year or fiscal year for annual tax finalization dossiers; no later than the last day of the first month of the calendar year or fiscal year for annual tax returns. "

Thus, no later than March 31 of each year, income-paying organizations must make annual PIT finalization for their employees.

Please contact LVT Lawyers to get your tax advice!