Tax advice on income of commission in Vietnam

TAX ADVICE ON INCOME OF COMMISSION IN VIETNAM

 

I. Who has to pay personal income tax when they receive commissions?

Currently, the law has no detailed regulations on the concept of commissions, but we can roughly understand that a commission is the amount of remuneration that an entrustor pays an intermediary (as an agent or broker) for the services performed, depending on the nature and volume of work. This phrase "commission" is often used in civil life when a person acts as a broker or intermediary between the buyer and the seller of the property.

According to the regulation on Point C, Clause 2, Article 2 of Circular 11/2013/TT-BTC, commissions are taxable income, specified as follows:

Article 2. Taxable Incomes

…

Income from salaries or wages is the income that an employee receives from their employer, including:

…

c) Remuneration received in the forms of: commissions from goods sales agents, brokerage commissions; money to participate in scientific and technical research projects; money to participate in projects and schemes; royalties in accordance with the law on royalties; money to participate in teaching activities; money for participation in cultural, artistic, physical training, and sports performances; advertising service fees; other service charges, other remuneration.

Therefore, commissions from goods sales agents and brokerage commissions will be taxable income, and recipients of this amount have to pay personal income tax if they are subject to tax.

II. How much commission do you have to pay personal income tax on?

Pursuant to Clause 1, Article 25 of Circular No. 111/2013/TT-BTC, guidance is as follows:

"… Tax deduction for a number of other cases

Organizations and individuals that pay wages, remunerations, and other payments to resident individuals do not sign labor contracts (under the guidance at Points c, d, Clause 2, Article 2 of this Circular) or sign contracts. If the employee has less than three (03) months of labor with a total income of two million (two million) VND/time or more, tax must be withheld at the rate of 10% of the income before paying to individuals…".

Thus, the amount of commission from over 2,000,000 VND must be withheld from personal income tax.

III. Who will be exempt from withholding personal income tax from commissions?

Commissions are a part of the income tax payable amount; they are not included in the exemption cases for tax exemptions.

IV. The basis to calculate the personal income tax from commissions?

Remunerations receive under forms such as: commissions from good sales agents, brokerage commissions; money from scientific and technical research projects; money from participating in projects and schemes; royalties in accordance with the law on royalties; money from participating in teaching activities; money from participation in cultural, artistic, physical training, and sports performances; advertising service fees; other service fees; and other remuneration.

Therefore, each time an enterprise pays commission from over 2,000,000 VND to residents who do not sign labor contracts; the enterprise has to withhold personal income tax at a rate of 10% on the income before paying the individuals.

V. How to calculate personal income tax from commissions?

Case 1: If an employee does not sign a labor contract or signs a contract under 3 months and has income from commissions ranging from 2,000,000 VND to over, organizations or individuals that pay commissions will withhold personal income tax before paying the employee at the rate of 10%.

For example: A brokers B to sell a land lot worth 4.000.000.000 VND (4 billion Dong), A and B do not sign a contract, but B promises to give A 1% of the sold land lot value as commission. So, the amount that A receives from B will be calculated as follows:

- Commission: 1% x 4.000.000.000= 40.000.000 VND

- The withheld amount of personal income tax: 40.000.000 x 10%= 4.000.000 vnd

- The amount that B pays to A after deducting tax rate is: 40.000.000 – 4.000.000= 36.000.000 vnd.

Case 2: For a resident employee who signs a labor contract from three (03) months to over, organizations or individuals who pay commission will deduct tax rates according to the calculation of the partial progressive tax schedule, which is as follows:

Personal income tax payable= Assessable (commission) x the partial progressive tax

For example: Mr. C is a broker in the real estate field, and he signs a labor contract with X company for 1 year, starting on September 30th, 2021. On the contract, it is clearly agreed that: " His income includes: Basic salary + commission if he sells goods. With each product sold by Mr. C, he will earn 1% of its value".

Therefore, for March 2022, Mr. C received the amount as follows:

Basic salary: 15.000.000 VND

Commission: 1 x 1.000.000.000 x 2 = 20.000.000 VND.

Because A doesn’t have deductible or tax-free income, his assessable income is 20,000,000 VND.

With this amount, the personal income tax rate on the commission of Mr. A is scale 4 according to the partial progressive tax schedule, which is as follows:

Assessable income and tax rate schedule

 

Tax calculation:

PIT = Assessable income x tax rate

Assessable income= Taxable income – Deductions

Assessable income= Total income – Tax-free amount

Assessable income is the total amount of taxable income from salaries, wages and other taxable incomes has feature of salaries, wages those that the organization paid to individuals. Including salaries and wages received from working in the economic zone.

Along with the definition of taxable income is the term "assessable income."

Assessable income is income after deducting related amounts such as: personal deductions, family circumstances, insurance premiums,…

Assessable income is determined according to the following calculation:

Assessable income= Taxable income- deductions (family, personal, and circumstantial).

VI. Procedure for Personal Income Tax Declarations from Commissions:

The individual will pay personal income tax according to the month, term, or when there is an extra income. When ending a calendar year, the individual shall submit a finalization tax record dosser to request the return of any overpaid amounts; if there is no overpayment, no need to finalize personal income tax.

• First, the individual has to submit a monthly, quarterly tax declaration form or when there is an extra income.

• Afterward, individuals pay the amount of personal income tax temporarily calculated to the tax authorities.

• At the end of the year, the individual submits the finalized tax record; if the paid tax amount is in balance, the individual doesn’t have to finalize personal income tax.

Procedure for submitting tax returns

If an individual earns income from commissions and is required to declare tax directly to the tax office, he/she needs to follow the following order:

Step 1: Prepare the tax declaration documents (according to Form No. 02/KK-TNCN below).

Step 2: Submit documents.

After preparing the tax return documents, the tax declarer will submit this file to the Tax Department, which directly manages the place where the individual works or the place where his/her job arises in Vietnam.

Note: The obligation to submit tax declarations is no later than the 30th day of the quarter following the quarter in which the tax liability arises.

Step 3: Get the result

After submitting the tax return, if the individual is subject to paying additional personal income tax, the individual must pay tax to the state budget within the last day of the deadline for submitting the tax return.

VII.  Time limit for temporary payment of personal income tax from commissions?

* Time limit for temporary tax payment by month, by quarter

- For the case of a monthly personal income tax payment: no later than the 20th day of the month following the month in which the tax liability arises.

- For the case of a quarterly personal income tax payment: no later than the last day of the first month of the quarter following the quarter in which the tax liability arises.

* Tax finalization deadline

- If the individual authorizes the organization or individual paying income to finalize tax, the deadline for personal income tax finalization is March 31st every year.

- If an individual directly settles personal income tax with the tax agency, the deadline for tax finalization is April 30th every year.

VIII. Is personal income tax from commissions refundable?

There are 3 cases where individuals are entitled to a PIT refund, including:

1. The paid individual tax amount is larger than the actual payable tax amount;
2. The individual's overpaid tax amount does not offset the payable tax amount for the next period;
3. The individual has paid personal income tax but has a taxable income that is not up to the taxable level;
4. Other cases under the decisions of competent state agencies.

- Conditions to be refunded personal income tax from commissions

Specified in Clause 2,3 Article 28, Circular 111/2013/TT-BTC stipulating on tax refunding 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 effected 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. Individuals who declare directly to tax authorities can choose to refund or offset tax in the next period at the same tax authority."

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

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 affected through the income-paying organizations or individuals.

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

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

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

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

IX. Personal income tax finalization from commissions

9.1 Time limit for personal income tax finalization

- The deadline for submitting tax returns and paying tax upon self-settlement is April 30 every year.

9.2 Regulations on self-settlement of personal income tax

* Cases of self-settlement of tax

- Being authorized to finalize tax but not authorizing.

- Must directly declare the final settlement with tax authorities (not authorized).

According to Clause 3, Article 21 of Circular 92/2015/TT-BTC, residents earning income from salaries and wages are responsible for making tax finalization declarations if there is additional tax payable or an overpaid tax amount requested. Refund or offset in the next tax period must be declared directly to the tax agency, except for the following cases:

• The individual has payable tax smaller than the temporarily pay without any request for tax refund or offset in the following tax period.
• Individuals earning incomes from salaries, wages, and signing a labor contract for 3 months or more at an organization, as well as having an additional source of income in other places with no more than 10 million VND in a year, have been paid income-paying units who withhold tax at source at the rate of 10%, if there is no request, they will not finalize tax on this income.
• Individuals whose employer buys life insurance for them (except voluntary retirement insurance) and other optional insurance with accumulated premiums that the employer or insurance enterprise has deducted personal income tax at the rate of 10% on the insurance premium amount corresponding to the part of the employer as guided in Clause 2, Article 14 of Circular 92/2015/TT-BTC, the tax finalization is not required with this income.

X. Procedure for self-finalization

Step 1: Prepare documents.

Individuals declare tax finalization directly to the tax department according to the following form:

- Tax declaration form No. 02/QTT-TNCN promulgated the Circulation 92/2015/TT-BTC.

- Appendix form no. 02-1/BK-QTT-TNCN promulgated the circulation No. 92/2015/TT-BTC if registries for deduction of family circumstances for dependents.

- Photos of documents showing the deducted tax amount and the tax amount temporarily paid in a year, as well as the tax amount paid in foreign countries (if any).

- Photos of invoices and documents proving contributions to charity funds, humanitarian funds, and study promotion funds (if any).

- In cases where individuals earn income from worldwide organizations, embassies, and consulates and receive income from foreign countries, they must have proof-of-payment documents about the amount paid by the organization in the foreign country

Step 2: Submit the tax finalization document.

-Individuals earning income from salaries, wages declare tax directly to the tax department, place to declare tax is the department of taxation where the individual submits their tax declaration for the year.

- Individuals with income from salaries, wages from 2 or more places are subject to finalizing their tax and submitting it directly to the tax department. They shall submit the tax finalization documents as follows:

Individuals who have calculated deductions for their family circumstances at any income-paying organization or individual shall submit a tax finalization dossier to the tax agency directly managing such an income-paying organization or individual.

If the individual changes the place of work and the organization or individual that pays the final income did not make deduction for his/her family circumstances, he/she shall submit a tax finalization dossier to the Tax Department where the individual resides (permanent residence or temporary residence).

+ In case an individual has not yet calculated the deduction for his/her family circumstances at any income-paying organization or individual, the tax finalization dossier shall be submitted at the Tax Department where the individual resides (permanently or temporarily).

- In case an individual does not sign a labor contract, signs a labor contract of less than 3 months, or signs a service provision contract with income at one or many places that is deducted at the 10% tax rate, the tax finalization shall be made at the branch office of the tax department where the individual resides (permanent or temporary residence).

- An individual who earns income from salaries or wages in one place or many places during the year, but who at the time of finalization does not work at any income-paying organizations or individuals, tax finalization filings shall be submitted to the Sub-Department of Taxation where the individual resides (permanent or temporary residence).

Tax finalization declaration

– Dossier of personal income tax finalization declaration for individuals who directly make the final settlement

• Tax finalization declaration form No. 02/QTT-TNCN.
• Appendix form No. 02-1/BK-QTT-TNCN if registering for reduction of family circumstances for dependents.
• Photocopies of documents proving the tax withheld, temporarily paid in the year, and the tax paid abroad (if any).

The individual undertakes to be responsible for the accuracy of the information on that photo. In case the income-paying organizations do not provide tax withholding documents to the individual because the organization has terminated its operation,

The individual undertakes to be responsible for the accuracy of the information on that photo. In case the income-paying organizations do not provide tax withholding documents to the individual because the organization has terminated its operation. The tax authority shall consider and settle the tax finalization dossiers of individuals based on the tax branch's database without requiring tax withholding documents.

• Photos of invoices and documents proving contributions to charity funds, humanitarian funds, and study promotion funds (if any).

• In case the individual earns income from worldwide organizations, embassies, and consulates and receives income from foreign countries, they must have proof-of-payment documents about the amount paid by the organization in the foreign country.

• In addition, photos of identity cards, household books, labor contracts,… are required (in some cases)

- Dossers for the individual who authorizes paying-income organizations or individuals to finalize tax on his/her behalf.

• The individual authorizes the paying-income organization or individual to do tax finalization on his behalf using form No. 02/UQ-QTT-TNCN.

• Along with photos of invoices, documents proving contributions to charity funds, humanitarian funds, and study promotion funds (if any).

- Additional declaration of tax finalization declaration of personal income tax

• In case organizations and individuals have not submitted annual tax finalization declarations, taxpayers shall make additional declarations of monthly and quarterly tax declarations with errors or omissions, and concurrently synthesize additional declaration data into the declaration dossiers of annual tax settlement.
• In case an organization or individual has submitted an annual tax finalization declaration, then:
  • For individuals who declare or finalize tax directly to the tax department, and only additionally declare the annual tax finalization declaration dossier.
  • For organizations and individuals that pay income from salaries and wages to employees. They are required to make additional declarations for the annual tax finalization declaration as well as the monthly and quarterly declarations with corresponding errors or omissions.

Deadline for submission of tax finalization documents

– For income-paying organizations: The deadline for submitting tax finalization declaration is the last day of the third month from the end of the calendar year or fiscal year.

– For individuals who directly finalize tax: the deadline for submitting tax finalization documents is the last day of the fourth month from the end of the calendar year.

Please contact LVT Lawyers to get your tax advice!