Giáo trình Taxation - Chapter 7: Personal Income Tax

TAXATION Chapter 7: Personal Income Tax References • Law on PIT No.04/2007/QH12 dated 21 November 2007; • Law No.26/2012/QH13 dated 22/11/2012 on amendments of PIT; • Law No.71/2014/QH13 dated 26 November 2014; • Decree 65/2013/ND-CP dated 27 June 2013; • Decree 91/2014/ND-CP dated 01 October 2014; • Decree 12/2015/ND-CP dated 12 February 2015; • Circular 111/2013/TT-BTC dated 15 August 2013; • Circular 119/2014/TT-BTC dated 25 August 2014; • Circular 151/2014/TT-BTC dated 10 October 2014; • Circular 92/2015/TT-BTC dated 15 June 2015; • Circular 26/2016/TT-BLDTBXH dated 01/09/2016. Learning Outcomes • LO 7-1: Understand concept, characteristics and role of PIT. • LO 7-2: Recognize taxpayers of current PIT of Vietnam. • LO 7-3: Define taxable incomes of current PIT of Vietnam. • LO 7-4: Specify PIT exemption and reduction of current PIT of Vietnam. • LO 7-5: Explain PIT deductions of current PIT of Vietnam. • LO 7-6: Identify PIT rates of current PIT of Vietnam. • LO 7-7: Calculate PIT payable for residents and nonresidents. Introduction ▪ Concept: + PIT is a direct tax levied on taxable income of individuals in a tax period. + It appeared in Europe in the 18th century, in the US and Japan in the 19th, in Asia in the 20th and in Vietnam since 1990. ▪ Characteristics: + Direct tax→ create a sense of tax burden for the taxpayers. + Progressive tax. + Wide tax range from taxable subjects to taxpayers. ▪ Role: + Regulate income among the population→ ensure social justice. + Contribute to overcome the regression of indirect taxes such as VAT. + Create revenues for state budget LO 7-1: Understand concept, characteristics and role of PIT. Taxpayers ▪ Taxpayers are residents and non-residents who have income subject to PIT, including: ✓ Individuals that have Vietnamese nationality, including those who are working or studying abroad, and earn taxable income. ✓ Individuals that do not have Vietnamese nationality but earn taxable income: + Foreigners that work in Vietnam. + Foreigners that are not in Vietnam but have taxable income in Vietnam. LO 7-2: Recognize taxpayers of current PIT of Vietnam. Residents ▪ Individuals who meet one of the following criteria: ✓ Staying in Vietnam from 183 days or more in a calendar year or 12 consecutive months from the date of first arrival. ✓ Having regular accommodation in Vietnam: having registered as permanent / temporary residents or having had a term-housing- renting-contract in Vietnam (from 183 days or more). ▪ Residents are subject to Vietnamese PIT on their taxable income earned within or outside Vietnam’s territory, regardless of locations of payment and receipt. ▪ Employment income is taxed on a progressive tax rates. Other income is taxed at a variety of different rates. Non-resident • Individuals that do not meet the conditions for being residents. • Non-residents are subject to Vietnamese PIT on their taxable income earned within Vietnam’s territory, regardless of the location of payment and receipt. • Nonresidents are subject to PIT: ✓ at a flat tax rate of 20% on their employment income earned in Vietnam, ✓ at various other rates on their non-employment income. ✓ need to be considered agreement for double taxation avoidance. Taxable Income ▪ Taxable income generally comprises 10 main types of income: LO 7-3: Define taxable incomes of current PIT of Vietnam. 6. Income from winning prizes; 7. Income from royalties (copyright/patent) 8. Income from franchise; 9. Income from inheritance; 10. Income from gifts. 1. Employment income; 2. Business income; 3. Income from capital investment; 4. Income from capital transfer; 5. Income from real estate transfer; Employment Income ▪ Taxable employment income includes all cash remuneration and various benefits in-kind, except for following items not subject to PIT: a) Allowances for noxious and dangerous works; b) Allowances for difficulties, labor accident, occupational illness, childbirth or adoption, maternity leave, post-maternity recovery, reduction in work ability, pension, monthly widow’s pension, severance pay, redundancy pay, unemployment, and other benefits according to Laws on Labor and Social Insurance. c) Certain benefits in kind provided on a collective basis (e.g. membership fee, entertainment, healthcare); d) Flat expenditures on stationery, business trips, telephone, office clothes (≤ 5 million VND if clothes paid in cash) specified in labor contracts, collective agreement or financial regulation of a company; e) Transportation to and from work; f) Training for employees’ improvement in skills; g) Support of an employer for an employee and their relatives in medical examination and treatment; h) Mid-shift meals (≤730,000VND if the meals paid in cash starting from Oct 15, 2016); Employment Income (cont.) ai) Once per year home leave round trip airfare for foreign employees and Vietnamese working overseas based on labor contracts and air ticket prices; j) School fees up to high school in Vietnam / overseas for children of expatriates / Vietnamese working overseas; k) Airfares for employees working on a rotation basis in a number of industries (e.g. petroleum, mining); l) One-off allowance for relocation: from Vietnam for Vietnamese working overseas; to Vietnam for foreigners working in Vietnam; to Vietnam for Vietnamese residing overseas on a long term basis and returning to Vietnam to work; m) Taxable housing benefit including utilities being the lower of the actual rental paid and 15 per cent of the employee’s gross taxable income (excluding housing with utilities); therefore the amount paid higher than the taxable rental is non-taxable rental. n) Employer’s contributions to certain local and overseas non-mandatory insurance schemes without accumulated premiums (e.g. medical insurance, accident insurance) o) Part of night shift or overtime salary payable that is higher than the day shift or normal working hours salary stipulated by the Labor Code; Employment Income (cont.) aEX 7-1: A foreign expert works and resides in Vietnam. His income as per the labor contract includes: - Salary 40M/month; - Bonus 10M/month; - Car rental: 20M/month; - House rent: 20M/month; Total taxable income of the expert is as follows: + Taxable income from house rent: 15%*(40+10+20)=10.5M; + Total taxable income of the expert: 40+10+20+10.5=80.5M EX 7-2: Mr. Nguyen Van Thanh is a CFO of Phuong Dong JVC. His salary as per the labor contract is 30M/month. Phuong Dong Company agreed in the labor contract that it pays the life insurance premium for Mr. Thanh at 5M/month for 10 years. Since life insurance is a non-mandatory insurance with accumulated premiums, the taxable income of Mr. Thanh is calculated: 30M + 5M = 35M Non-employment Income ▪ Business Income: ➢ Income from production and trading of goods and services; ➢ Income from independent profession; ➢ Income from acting as a lottery, insurance, multi-level marketing agent who directly signs a contract with the lottery company, insurer, or multi- level marketing company. ➢ Income from business cooperation with other organizations. ➢ Income from production, trading of agriculture, forestry and fishery (except for income of households and individuals who are direct labors in producing the products of agriculture, forestry, salt, aquaculture and capture of unprocessed fishery or only in preliminary processing); ➢ Not including income from business of individuals/households with revenue ≤ 100 million VND/year. Non-employment Income (cont.) ▪ Income from Capital Investment: ➢ Interest on loan which lend to organizations and individuals (except for interest received from banks and credit institutions, interest on life insurance contracts). ➢ Dividend (except for dividend of proprietorship and one-member limited liability companies). ➢ Income from capital investment including contribution by properties, reputation, right-to-use of land, copyright. ➢ The increasing value of capital due to dissolution, reorganization, merger, of enterprise. ➢ Interest on bonds, trusted-bills (except for government bonds). Non-employment Income (cont.) ▪ Income from capital transfer includes income from transferring contributed capital, securities and other capital transfer. ▪ Income from real estate transfer: ➢ Income from transfer of right-to-use-land and assets-attached-to-land such as house; infrastructure and construction; assets attached to land of agricultural, forestry and fishery. ➢ Income from the transfer of right-to-own or right-to-use of house (except for transferor who has only one house or right-to-use land). ➢ Income from transfer of right-to-lease of land, surface of water. ➢ Income from the transfer of right-to-own or right-to-use of house, including Income from real-estate capital contribution in to establish an enterprise, or increase business capital of enterprise. ➢ Income from the authorization of real estate management. ➢ Income from other transfer of real-estate (except for income from transfer of real estate between spouses, parents-children, grandparents-grandchildren, siblings). Non-employment Income (cont.) ▪ Income from winning prizes in excess of VND 10 million: winning on lottery; promotion prizes; betting; casino; games and contests. ▪ Income from royalties in excess of VND 10 million according to signed contract (patent, copyright). ▪ Income from franchise contracts in excess of VND 10 million. ▪ Income from inheritance in excess of VND 10 million: securities; business capital; real estate (except for inheritance of real estate between spouses, parents-children, grandparents-grandchildren, siblings); and other assets. ▪ Income from gifts in excess of VND 10 million: stock; business capital; real estate (except for gifts of real estate between spouses, parents-children, grandparents-grandchildren, siblings); other assets. PIT Exemption 1. Income from real estate transfer between spouses, parents-children, grandparent-grandchildren, siblings. 2. Income from the transfer of house, right-to-use-land and assets-attached- to-land of transferor who has only one house or right-to-use land. 3. Incomes from value of right-to-use-land of individuals who are allocated land by the State without payment (or reducing payment) to State. 4. Income from inheritance, gift of real estate between husband and wife, parents-child, grandparent-grandchildren, siblings. 5. Income of households and individuals, who directly produce agricultural production, converting agricultural land to legalize agricultural production. 6. Income of households and individuals who directly produce products of agricultural, forestry, salt, aquaculture and capture fisheries. LO 7-4: Specify PIT exemption and reduction of current PIT of Vietnam. PIT Exemption (cont.) 7. Interest income from deposits at banks, credit institutions, income from life insurance policies. 8. Income from Vietnamese-oversea-remittance activities. 9. Income from retirement. 10. Income from scholarships of State or of domestic, abroad organizations. 11. Income from compensation. 12. Income from charity (*). 13. Income from foreign aid as charity or humanitarian purposes. 14. Income of Vietnamese crews who work for foreign ship or Vietnam-to- international-country-ship. 15. Income of ship-owner or individual who has right-to-use ships and individuals who work on ship to deliver goods and services directly to offshore-catching-fish activities. PIT Reduction ➢ In difficulties caused by natural disaster, fires, accidents, dangerous diseases. ➢ Considering tax reduction by authorities according to calendar year. PIT Deductions ➢ Contributions to mandatory social, health and unemployment insurance schemes; ➢ Contributions to local voluntary pension schemes but the deduction shall not exceed 1 million VND/month (12 million VND/year); ➢ Contributions to charitable, humanitarian and study encouragement funds. ➢ Personal deductions: + For taxpayers: VND 9 million/month (at one working place only). + For dependents: VND 3.6 million/month/person (including children, spouse, parents, siblings, grandfather, grandmother, aunt, uncle, uncle, according to deduction statutory). Dependent definition ✓ Children under the age of 18, including: biological children, legal adopted children, illegitimate children, children of wife, children of husband. ✓ Children over 18 who are unable to work. ✓ Children studying at universities, colleges with no income or average monthly income from all sources <= VND 1.000.000. ✓ Individual who is in or out of working age but disabled, unable to work, no income or average monthly income <= VND 1.000.000.. LO 7-5: Explain PIT deductions of current PIT of Vietnam. Type Annual Taxable Income (A) (million VND) Monthly Taxable Income (M) (million VND) Rate (%) 1 A ≤ 60 M ≤ 5 5 2 60 < A ≤120 5 < M ≤ 10 10 3 120 < A ≤ 216 10 < M ≤ 18 15 4 216 < A ≤ 384 18 < M ≤ 32 20 5 384 < A ≤ 624 32 < M ≤ 52 25 6 624 < A ≤ 960 52 < M ≤ 80 30 7 A > 960 M > 80 35 PIT Rates Residents - Employment Income LO 7-6: Identify PIT rates of current PIT of Vietnam. PIT Rates Residents - Other Income Type of Taxable Income Tax Rate Business income + Sale of goods 0.5% + Provision of services, construction exclusive of materials 2% + Production, transportation, service provisions associated with goods supply, construction inclusive of materials. 1.5% + Other business activities 1% Property lease, lottery agents, insurance agents, and multi-level marketing agents 5% Capital investment: interest (but not bank interest)/dividends 5% Sale of shares 0.1% of the sales proceeds Capital assignment 20% of the net gain Sale of real estate 25% of the net gain or 2% of the sales proceeds Income from copyright / franchising / royalties 5% Income from inheritances / gifts / winning prizes 10% PIT Rates Non-residents Type of Taxable Income Tax Rate Employment income 20% Business income + Sale of goods 1% + Service provision 5% + Production, construction, transportation and other business activities 2% Capital investment: interest (but not bank interest) / dividends 5% Sale of shares / Capital assignment 0.1% of the sales proceeds Sale of real estate 2% of the sales proceeds Income from franchising / royalties 5% Income from inheritances / gifts/ winning prizes 10% Calculating PIT for Residents ▪ Employment income: PIT Payable = ( Taxable Employment Incomes - Deductions ) × PIT Rate * Time to determine taxable employment income is the time when employers pay income for employees or the time when taxpayers receive income. * Organizations that pay employment income to residents must withhold PIT from income before payment. * Tax period: annual declaration. However, temporary PIT declaration and payment must made monthly or quarterly. EX 7-3: In June 2015, Mrs. C earned a salary of VND 40 million per month, paying mandatory insurances at 10.5% of salary. Mrs. C had 2 children under the age of 18, and made no charitable donations. The PIT incurred by Mrs. C in June is calculated as follows: + Taxable income: VND 40M +Deductions: 9 + 3.6*2 + 40*10.5% = 20.4M + Taxed income: (40 – 20.4) = 19.6M +PIT payable = 5*5% + (10 - 5)*10% + (18 – 10)*15% + (19.6 – 18)*20% = VND 2.27M LO 7-7: Calculate PIT payable for residents and nonresidents. Calculating PIT for Residents (cont.) ▪ Business income: PIT Payable = Taxable Revenues × PIT Rate Method: paying flat tax 1. Revenue earned above VND 100 million/year; 2. Time for registration flat revenue with tax authorities: * From November 20 to December 5 of the year preceding the tax year. * New businessperson: within 10 days from the beginning date. 4. Flat taxpayers without using invoices of tax authorities: tax declaration once a year; no annual statement; quarterly payment. 5. Flat taxpayers using invoices of tax authorities: PIT declaration and payment on the invoices quarterly, no annual statement. Method: paying tax whenever it is incurred 1. Applied for residents who earn revenue outside Vietnam; irregular business, no permanent business premises, or persons who engages in business cooperation with other organizations. 2. Revenue earned above VND 100 million/year; 3. PIT declaration and payment whenever it is incurred, by the 30th day of the quarter succeeding the quarter in which taxable revenue is earned. Calculating PIT for Residents (cont.) ▪ Business income: EX 7-4: Mr. A started his business in transportation service in April 2015 and registered the flat revenue of VND 90 million for 9 months. In this case, Mr. A has to pay PIT on the revenue earned from April 2015. PIT payable for Mr. A in 2015 is: 90M* 1.5% = 13.5M. EX 7-6: In 2015, Mr. C earned a revenue of VND 40 million from a contract with Company X and VND 50 million from a contract with Company Y. The total value of two contracts in the year was VND 90 million. In this case, Mr. C did not have to pay PIT on the revenue earned in 2015. EX 7-5: Ms. B has received a tax notice of 2015 from the tax authority for her sale of goods with the flat revenue of 1,800M/year. In November 2015, Ms. B shut down her business. In this case, she would receive a reduction in flat tax corresponding to the last 2 months of 2015. PIT payable for Ms. B in 2015 is: 1800/12*10* 0.5% = 7.5M EX 7-7: Mr. D is a taxpayer providing construction without materials, paying PIT whenever it is incurred. In 2015 he had the following incomes: - In March: earned a revenue of VND 100M from a contract with Mr. Hung; - In October: earned a revenue of VND 150M from a contract with Company Y. The PIT Mr. C has to pay on the revenue earned in 2015: (100 + 150)*2% = 5M Calculating PIT for Residents (cont.) ▪ Other income: ▪ For income from capital assignment and from real estate transfer, taxpayers can choose the second PIT calculation: PIT Payable = Taxable Income × PIT Rate Taxable Income from Capital Assignment = ( Transfer Price - Purchase Price - Reasonable Expenses ) × CIT Rate (20%) ▪ When to pay PIT? At the point of time when organizations or individuals pay to taxpayers or when taxpayers receive their income. Taxable Income from Real Estate Transfer = ( Transfer Price - Cost - Reasonable Expenses ) × CIT Rate (25%) Calculating PIT for Residents (cont.) ▪Other income: EX 7-8: In 2015, Mr. Tam received dividend of VND 20 million from ABC Company and state bond interest of VND 10 million. He also got VND 150 million from sale of VNM shares. Calculate PIT Mr. Tam has to pay in 2015? - Taxable income from capital investment: 20 + 10 = 30M; - Taxable income from capital transfer: 150M; - PIT payable in 2015 of Mr. Tam: 30*5% + 150*0.1% = 1.65M EX 7-9: In December 2015, Ms. Minh earned the following incomes: - Lottery winning: 2 tickets, VND 500M per ticket; - Inheritance of a car from her parents: VND 500M; - 5,000 shares as gift from HPT, VND 0.01M per share. Required: Calculate PIT Ms. Minh has to pay in Dec 2015? - PIT payable from lottery winning: (2*500 - 2*10) *10% = 98M; - PIT payable from inheritance: (500 – 10)*10% = 49M; - PIT payable from gift (5,000*0.01 - 10)*10% = 4M; - PIT payable in Dec 2015 of Ms. Minh: 98 + 49 + 4 = 151M Calculating PIT for Residents ▪ Notes ➢ Income equal or higher than 2 million VND of residents without labor contract or below-3- months labor contract shall be withheld 10% PIT on the income before payment. ➢ For residents that earn only a taxable income as stated above but the total taxable income estimated after personal deductions are made does not reach the taxable level, they shall make and send a commitment (form 02/CK- TNCN) to income payers as the basis for temporary exemption of PIT. EX 7-10: WA Construction Company hires Mr. Hung as a supervisor of the AMW construction as per a 2-month labor contract. Mr. Hung's wages is 7.78M / month. + PIT withheld: 7.78*10% = 0.78M. + Amount paid for Mr. Hung: 7.78 – 0.78 = 7M Calculating PIT for Non-residents ▪ Formula: ➢ Taxable income including employment and non-employment income earned by a non-resident is similar to that of a resident. ➢ PIT rate is based on the PIT rate table applied for non-residents in the preceding slide. ➢ Organizations that pay taxable incomes to nonresidents shall withhold the PIT from the income before payment. PIT Payable = Taxable Income × PIT Rate A Big Example Mr. Nguyen Van An (Vietnamese nationality), Ho Chi Minh City residence, working at Quoc Thai Company, had income in 2017 as follows: - Gross salary (excluding SI, MI, UI): VND 536 million. - Bonus for labor productivity: VND 50 million. - Lunch allowance: VND 1 million/month. - Noxious allowance: VND 20 million. - Bonus for technical innovation & improvement (attached certificates): VND 150 million. - House rent: VND 300 million. -Winning an VND 100 million VND prize in a saving program of VietinBank. Required: Determine Mr. An’s PIT? Assuming that Mr. An already registered family deductions for 2 dependents and mandatory social, health & unemployment insurance is 10.5% of gross salary. A Big Example Solution: 1. Employment income = 536 + 50 + (1 – 0.73)*12 = 589.24M 2. Deductions = (9*12) + (3.6*2*12) + (536*10.5%) = 250.68M 3. Taxable employment income = 589.24 – 250.68 = 338.56M 4. PIT payable from employment income = 60*5% + (120 - 60)*10% + (216 - 120)*15% + (338.56 - 216)*20% = 47.912M 5. PIT payable from house rent = 300*5% = 15M. 6. PIT payable from winning-prize = (100 – 10)*10% = 9M. 7. Total PIT payable = 47.912 + 15 + 9 = 71.912M. End of Taxation VN