Tax Guide for US Expats Living and Working in Vietnam
Who Is Liable For Income Taxes in Vietnam
Under the new Personal Income Tax Law which is effective from 1 January 2009, taxpayers are resident and non-resident individuals who have income subject to tax.
The following individuals are considered to be resident for tax purposes:
- Persons residing in Vietnam for an aggregate of 183 days or more in a calendar year or in a continuous 12-month period beginning on the first date of arrival. In calculating the number of days, the arrival and departure dates are counted as one day in total.
- Persons having a usual place of domicile in Vietnam. These include persons with a registered permanent address as stated in the Resident or Temporary Resident Card and persons with house leases whose total terms exceed 90 days. The total terms of the leases equal the sum of the lease terms for different leased locations in a tax year, including hotels, motels, working places and offices.
A nonresident individual is a person who does not meet the above conditions. However, if an individual stays in Vietnam for more than 90 days but less than 183 days in a tax year and if he or she can prove that he or she is a tax resident in another country, he or she is treated as a Vietnam tax nonresident in that tax year.
The first tax year is a calendar year (from 1 January to 31 December) if an individual stays in Vietnam 183 days or more in that calendar year. If an individual stays in Vietnam less than 183 days in a calendar year, but he or she stays 183 days or more in the period of 12 consecutive months beginning with the first date of arrival in Vietnam, the first tax year is 12 consecutive months beginning with the first date of arrival in Vietnam. The second tax year is the calendar year.
Income subject to tax. Residents are taxed on their worldwide income, while nonresidents are taxed on their Vietnam-source income.
Under the new PIT law, the following 10 types of income are subject to tax:
- Income from business
- Income from employment
- Income from capital investment
- Income from capital transfers
- Income from transfers of real property
- Income from royalties
- Income from franchising
- Income from winnings or prizes
- Income from the receipt of inheritances
- Income from the receipt of gifts
Income from employment. Employment income includes salaries, wages, bonuses, allowances, premiums, directors’ fees and remuneration, housing benefits (with a tax concession; see next paragraph), income tax and benefits paid by the employer, allowances and other payments for employment services rendered. Tax on employment income for resident individuals is provisionally paid on a monthly basis, while tax on nonresident individuals is paid when the income arises. Uniform progressive tax rates ranging from 5% to 35% are applicable to both Vietnamese and expatriate residents while a flat rate of 20% applies to nonresidents. Income received in foreign currency is converted to Vietnamese dong in calculating taxable income.
Rental payments made by an employer on behalf of an expatriate for accommodation are taxable to the expatriate based on the lower of the amount actually paid or 15% of his or her total gross taxable income (income before deductions and tax). If the individual uses part of the business premises for a residence, the taxable income is based on the rent or depreciation expenses, calculated for the percentage of the area of the house that is used by the individual, and is capped at 15% of his or her total gross taxable income.
The following main categories of employment income are exempt from tax:
- Subsidies for shift work and dangerous or harmful occupations
- Subsidies for working in isolated areas (mountainous areas and offshore islands)
- Remuneration for technical innovation and invention recognized by competent state authorities
- One-off allowance for relocation to Vietnam based on a labor contract or agreement between the employer and employee
- School fees paid by the employer for elementary and high school education for the children of expatriate employees
- Cost of return air ticket to home country of expatriate employee for holiday once a year
- Transportation between home and work, provided to employees collectively
- Membership fees for sports and golf clubs and similar organizations, if the membership is not in the names of specific employees
- Cost of services such as health care, entertainment, sports and similar items, if the services are not in the names of specific employees
- Night-shift meals arranged directly by the employer or paid in cash to employees up to the amount stipulated in labor regulations
- Stationery, per diems, telephone and uniforms within the limits provided by the prevailing regulations
- Cost of training for improvement of the professional skills of employee
- Retrenchment, redundancy and unemployment allowances
- Financial support from an employer’s after-tax fund for an employee and his or her family members for cures or medical treatments for fatal diseases
Income from business. Business income is income derived from production and business activities. It also includes income derived from production and business activities in agriculture, forestry, salt production, aquaculture and fishery if such activities do not qualify for tax exemption, as well as income from independent practice.
For residents, the tax rates applicable to business income are the same as the tax rates applicable to employment income. For non-residents, the following flat rates apply:
- Doing business in goods and production: 1%
- Services: 5%
- Production, construction, transportation and other business activities: 2%
Income from capital investment. Income from capital investment is income earned from lending money, investing in shares and making capital contributions. Types of income from capital investment include cash dividends, stock dividends, shares of profits, bond interest, loan interest and similar types of income. Assessable income is determined when the income is paid to the individual or when the individual receives such income (in case of offshore investments).
Income from capital transfers. Income from capital transfers refers to gains derived by individuals from transfers of capital contributions in a limited liability company, partnership, shareholding company, business cooperation contract, cooperative or economic organization, transfers of securities and transfers of capital in other forms. Taxable income from transfers of capital equals the transfer price less the purchase price and reasonable expenses. For transfers of securities, individuals can opt to pay tax on net gain or on the transfer price. However, if the taxpayer opts to pay tax on the gain, registration and certain conditions are required. For the applicable tax rates.
Income from transfers of real property. Income from transfers of real property include the following:
- Income receivable from transfers of land-use rights, residential houses, infrastructure, buildings, engineering works and other assets attached to the land
- Transfers of ownership or use rights of residential houses, lease rights to land or water surfaces and other rights to real property
Assessable income equals the transfer price less the purchase price and relevant reasonable expenses. If prime cost is indeterminable, the fixed tax rate on the transfer price applies.
Income from royalties. Income from royalties is income derived from the assignment or transfer of the right to use intellectual property rights or objects including literary, artistic and scientific works, copyrights, inventions, industrial designs, trademarks, technical know-how and similar items. Assessable income equals the amount of the royalties in excess of VND 10 million, which is determined each time the royalties are paid.
Income from franchising. Income from franchising is income derived by an individual from a franchising contract under which the franchisor authorizes the franchisee to purchase and sell goods or provide services in accordance with conditions imposed by the franchisor. Assessable income equals the amount of franchise fee based on the contract in excess of VND 10 million.
Income from winnings or prizes. Income from winnings or prizes is income derived from winnings in cash or in kind in excess of VND 10 million from lotteries, betting, casinos, promotional prizes and similar items. Assessable income equals the amount of the prize determined on a transaction basis.
Income from receipt of inheritances or gifts. Income from the receipt of inheritances or gifts is income in excess of VND 10 million derived by an individual under a testament or law from the receipt of inherited or gifted assets, including securities, contributed capital, real property and other assets that are required to be registered. Effective from 1 January 2009, such income is taxable. The amount of assessable income is determined when the procedures are completed for the transfer of ownership or the transfer of the right to use the asset or when the taxpayer receives the gift.
Tax exemptions and reductions. Certain types of income are exempt from tax, including the following:
- Income from the transfer of real property by inheritance or gift between husband and wife, parents and children including adoptive parents and adopted children, parents-in-law and children-in-law and grandparents and grandchildren, and between siblings
- Income from the transfer of a residential house or right to use residential land and assets attached to land by an individual who has one sole residential house and/or land-use right in Vietnam
- Interest on money deposited at banks or credit institutions, and from life insurance policies
- Income in foreign currency received from overseas Vietnamese Nationals
- Pensions paid by the Social Insurance Fund under the Law on Social Insurance
- Scholarships
- Compensation payment from life and nonlife insurance contracts, compensation for labor accidents and other state compensation payments
- Income received from charitable funds or from foreign-aid sources for charitable or humanitarian purposes
Foreign experts working for official development assistance (ODA) projects in Vietnam are exempt from tax if they meet certain conditions.
Resident and nonresident individuals working in economic zones are entitled to a 50% tax reduction.
Taxation of employer-provided stock. Securities provided to employees are taxable as employment income. Share awards are treated as employment income (bonuses) and are taxed when the shares are transferred. Taxable income equals the value of the shares recorded in the accounting books of the employer. Income from the transfer of the awarded shares is also subject to capital gain tax (see Capital gains).
Capital gains. Capital gains are taxed in accordance with the rules described in Income from capital transfers.
Deductions
Personal deductions and allowances. Personal relief of VND 4 million per month is automatically granted to resident individuals who derive income from employment or business. If an individual has both employment and business income, he or she can select the type of income for such deduction. Dependent relief of VND 1,600,000 is granted for each eligible dependent. No limit is imposed on the number of dependents. However, an eligible dependent must meet certain conditions with respect to income, age and relationship with the taxpayer.
Deductions from employment income. Mandatory social, health and unemployment insurance contributions are deductible from employment income for personal income tax purposes. Certain contributions to charitable, humanitarian or study promotion funds are also deductible.
Deductions from business income. Expenses that may be deducted from business income are expenses arising from and directly related to the creation of taxable income, including salaries of employees, materials, depreciation, interest, management expenses, taxes and fees.
Credit. Tax paid in other countries may be claimed as a credit against the tax liability in Vietnam. However, the amount of the credit may not exceed the amount payable in accordance with the Vietnamese tax scale that is assessed and allocated to the part of the income arising overseas.
Tax rates. The table below presents the progressive tax rates on employment and business income of resident individuals. To calculate tax due using the tables, multiply the taxable income by the tax rate and then subtract the bracket adjustment. As a result, the total taxable income benefits from the lower progressive rates.
Relief for losses. Business losses cannot be offset against employment income if an individual has income from both business and employment.
B. Other taxes
Net worth tax is not levied in Vietnam.
E. Tax treaties
Vietnam has entered into double tax treaties with the following countries.
Algeria*
India
Qatar*
Australia
Indonesia
Romania
Austria
Ireland*
Russian Federation
Bangladesh
Israel*
Belarus
Italy
Saudi Arabia
Belgium
Japan
Seychelles
Brunei
Korea (North)
Singapore
Darussalam
Korea (South)
Slovak Republic
Bulgaria
Kuwait*
Spain
Canada
Laos
Sri Lanka
China
Luxembourg
Sweden
Cuba
Malaysia
Switzerland
Czech Republic
Mongolia
Taiwan
Denmark
Morocco*
Thailand
Egypt*
Myanmar
Tunisia
Finland
Netherlands
Ukraine
France
Norway
United Arab Emirates*
Germany
Oman
Hong Kong
Pakistan
United Kingdom
Hungary
Philippines
Uzbekistan
Iceland
Poland
Venezuela
* This treaty is not yet in force.
To learn more about the history, culture, economy and other information about Vietnam
We have been preparing US income tax returns for US Citizens and permanent residents living in Vietnam for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Vietnam and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Vietnam.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email