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Converting tax-exclusive incomes into assessable income

If the wages paid to the worker as guided Clause 2 Article 2 of this Circular 111/2013 are exclusive of tax, they must be converted into assessable income in accordance with Appendix No. 02/PL-TNCN to this Circular. In particular:

1. a) The income converted into assessable income is the actual income plus (+) benefits paid by the employer on behalf of the worker (if any) minus (-) the deductions. If the amounts paid on behalf of the workers include the house rent, the house rent shall be included in the converted income, but shall not exceed 15% of the total taxable income incurred at the work place (not including house rent).

Formula for calculating converted income:

Where:

- Actual income is the tax-exclusive wages the worker receives every month.

- The amounts paid on the worker's behalf, the benefits in cash or in kind paid to the worker by the employer as guided in Point dd Clause 2 Article 2 of this Circular.

- Deductions include personal deductions, insurance premiums, contributions to the voluntary pension fund, and charitable donations as guided in Article 9 of this Circular.

Example 5: In 2014, according to the labor contract between Mr. D and company X, Mr. D receives a monthly salary of 31.5 million VND. Apart from that, company X pays for the sports club membership of 1 million VND/month on behalf of Mr. D. Mr. D has to pay 1.5 million VND/month for compulsory insurance. Company X is responsible for paying personal income tax on behalf of Mr. D. In the year Mr. D only has a personal deduction for himself, no dependents, and does not make charitable donations.

The monthly personal income tax payable by Mr. D:

- Converted income:

31.5 million VND + 1 million VND – (9 million VND + 1.5 million VND) = 22 million VND

- Assessable income (according to Appendix No. 02/PL-TNCN):

(22 million VND – 1.65 million VND)/0.8 = 25.4375 million VND

- Personal income tax payable by Mr. D (according to Appendix No. 01/PL-TNCN):

25.4375 million VND × 20% - 1.65 million VND = 3.4375 million VND

Example 6: Company X also pays 6 million VND/month in house rent on behalf of Mr. D. The monthly personal income tax payable by Mr. D:

Step 1: Calculate the house rent paid on Mr. D’s behalf that is included in converted income

- Converted income (exclusive of house rent):

31.5 million VND + 1 million VND – (9 million VND + 1.5 million VND) = 22 million VND

- Assessable income (according to Appendix No. 02/PL-TNCN):

(22 million VND – 1.65 million VND)/0.8 = 25.4375 million VND

- Taxable income (exclusive of house rent):

25.4375 million VND + 9 million VND + 1.5 million VND = 35.9375 million VND/month

- 15% of total taxable income (exclusive of house rent):

35.9375 million VND × 15% = 5.390 million VND/month

Thus the house rent included in the converted income is 5.390 million VND/month

Step 2: Calculate assessable income

- Converted income:

31.5 million VND + 1 million VND + 5.390 million VND – (9 million VND + 1.5 million VND) = 27.39 million VND/month

- Assessable income (converted in accordance with Appendix No. 02/PL-TNCN):

(27.39 million VND - 3.25 million VND)/0.75 = 32.187 million VND/month

- Personal income tax payable:

32.187 million VND × 25% - 3.25 million VND = 4.797 million VND/month

- Monthly taxable income incurred by Mr. D:

31.5 million VND + 1 million VND + 5.390 million VND + 4.797 million VND = 42.687 million VND/month

Or:

32.187 million VND + 9 million VND + 1.5 million VND = 42.687 million VND/month.

1. b) If the person is required to settle tax, the taxable income in the year is the sum of taxable income of each month based on the converted assessable income. If the person earns tax-exclusive incomes from multiple organizations, the taxable income in the year is the sum of taxable income of each month paid by each organization in the year.

Example 7: Mr. D in example 6 above has a contract and earn an income of 12 million VND/month at company Y from January 2014 to May 2014 apart from the incomes earned at company X. Company Y also pays personal income tax on behalf of Mr. D.

Final personal income tax incurred by Mr. D in 2014:

- Taxable income in the year earned by Mr. D at company X:

42.687 million VND x 12 months = 512.244 million VND

- At company Y:

+ Monthly assessable income (converted in accordance with Appendix No. 02/PL-TNCN):

(12 million VND – 0.75 million VND)/0.85 = 13.235 million VND

+ Taxable income in the year earned at company Y:

13.235 million VND x 5 months = 66.175 million VND

- Total taxable income earned by Mr. D in 2014:

512.244 million VND + 66. 175 million VND = 578.419 million VND

- Monthly assessable income:

(578.419 million VND : 12 months) - (9 million VND + 1.5 million VND) = 37.702 million VND

- Personal income tax payable in the year:

(37.702 million VND × 25% - 3.25 million VND) × 12 months = 74.105 million VND.

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Appendix 02/PL-TNCN

(promulgated together with the Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance)

CONVERSION OF TAX-EXCLUSIVE INCOMES TO ASSESSABLE INCOMES (FROM WAGES)

Source: Circular 111/2013

Foreign business organizations having permanent establishments in Vietnam or not; foreign business individuals that are residents of Vietnam or not (hereinafter referred to as foreign contractors and foreign sub-contractors) who do business in Vietnam or earn income in Vietnam under contracts, agreements, or commitments between the foreign contractor and a Vietnamese entity or between a foreign sub-contractor and a foreign sub-contractor to perform part of the main contract.