Determining whether an individual is a resident or non-resident is the first issue that must be determined in order to apply the correct tax calculation or not?
1. A resident individual is a person who meets one of the following conditions:
a) Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months from the first day of presence in Vietnam, in which the date of arrival and date of departure are counted as one (01) day. The date of arrival and date of departure are based on the certification of the immigration authority on the passport (or travel document) of the individual when arriving and departing from Vietnam. In case of entry and exit on the same day, it is counted as one day of residence.
An individual being present in Vietnam according to the instructions in this point is the presence of that individual in the territory of Vietnam.
b) Having a permanent residence in Vietnam in one of the following two cases:
b.1) Having a permanent residence according to the provisions of the law on residence:
b.1.1) For Vietnamese citizens: the permanent residence is the place where the individual lives regularly, stably and indefinitely at a certain place of residence and has registered for permanent residence according to the provisions of the law on residence.
b.1.2) For foreigners: the permanent residence is the permanent residence recorded in the Permanent Residence Card or the temporary residence when registering for a Temporary Residence Card issued by a competent authority under the Ministry of Public Security.
b.2) Having a rented house to live in Vietnam according to the provisions of the law on housing, with the term of the rental contracts from 183 days or more in the tax year, specifically as follows:
b.2.1) Individuals who have not or do not have a permanent residence according to the instructions in Point b.1, Clause 1, this Article but have a total number of days of renting a house to live in according to the rental contracts from 183 days or more in the tax year are also determined as resident individuals, including cases of renting houses in many places.
b.2.2) Rented houses to live in include cases of staying in hotels, guesthouses, motels, boarding houses, workplaces, agency headquarters, etc., regardless of whether the individual rents them himself or the employer rents them for the employee.
In case an individual has a permanent residence in Vietnam as prescribed in this Clause but is actually present in Vietnam for less than 183 days in the tax year and the individual cannot prove that he/she is a resident of any country, then that individual is a resident of Vietnam.
Proof of being a resident of another country is based on the Certificate of Residence. In case the individual is from a country or territory that has signed a tax agreement with Vietnam and does not have regulations on granting a Certificate of Residence, the individual shall provide a copy of the Passport to prove the period of residence.
2. A non-resident individual is a person who does not satisfy the conditions specified in Clause 1 of this Article.
==> The problem is that the individual rents a house for more than 183 days, has a residence card but then returns to the country and does not live in Vietnam, what should be done?
Responding to Official Dispatch No. 3600465041 dated September 20, 2016 of Xich KMC Vietnam Company Limited regarding personal income tax settlement, the General Department of Taxation has the following comments:
1/ Regarding the deadline for tax settlement declaration for foreign individuals:
1.1/ Deadline for tax settlement declaration for foreign individuals working until December 31:
Point d, Article 16 of Circular No. 156/2013/TT-BTC dated November 6, 2013 of the Ministry of Finance guiding the implementation of a number of Articles of the Law on Tax Administration; The Law amending and supplementing a number of Articles of the Law on Tax Administration and Decree No. 83/2013/ND-CP dated July 22, 2013 of the Government stipulate:
“- The deadline for submitting tax finalization declaration dossiers is the 90th (ninetieth) day from the end of the calendar year”.
In case a foreigner is an individual residing in Vietnam and has authorized personal income tax finalization, the organization or individual paying income shall make the finalization for the individual at the time of personal income tax finalization, no later than the 90th (ninetieth) day from the end of the calendar year.
In case a foreigner is an individual residing in Vietnam and does not authorize personal income tax finalization, the organization or individual paying income shall not have to make the finalization for the individual.
1.2/ Deadline for tax finalization declaration for cases where foreign individuals terminate their labor contracts within the calendar year:
Point a.5, Clause 2, Article 16 of Circular No. 156/2013/TT-BTC dated November 6, 2013 guiding the implementation of a number of Articles of the Law on Tax Administration; Law amending and supplementing a number of Articles of the Law on Tax Administration and Decree No. 83/2013/ND-CP dated July 22, 2013 of the Government stipulate:
“In case of a resident individual who is a foreigner who terminates his/her labor contract in Vietnam, he/she shall declare tax finalization with the tax authority before leaving the country”.
Clause 5, Article 32 of the Law on Tax Administration stipulates the deadline for submitting documents: “No later than the 45th day from the date of termination of operations, termination of contracts, conversion of business ownership or reorganization of businesses”.
Based on the above provisions, foreigners must make tax settlement with the tax authority before leaving the country. In case the personal income tax settlement cannot be made due to the urgent time and the organization or individual paying the income is responsible to the tax authority for the personal income tax payable by the individual, the individual shall authorize the organization or individual paying the income to make personal income tax settlement on his/her behalf no later than the 45th (forty-fifth) day from the date of departure.
2/ Tax settlement for cases where foreigners are individuals working at the Company for less than 183 days, more than 183 days:
Based on Point 1, Article 1 of Circular No. 111 dated August 15, 2013 of the Ministry of Finance guiding the implementation of the Law on Personal Income Tax, the Law amending and supplementing a number of articles of the Law on Personal Income Tax and Decree No. 65/2013/ND-CP of the Government detailing a number of articles of the Law on Personal Income Tax and the Law amending and supplementing a number of articles of the Law on Personal Income Tax, in cases where foreign individuals are present in Vietnam for less than 183 days and are individuals who do not reside in Vietnam, organizations and individuals paying income shall deduct personal income tax at a rate of 20% on the total income paid to non-resident individuals for each payment.
Foreign individuals who are present in Vietnam for more than 183 days are individuals residing in Vietnam. If they authorize the organization or individual paying the income to settle personal income tax, the organization or individual paying the income shall make the settlement for the individual at the time of settling personal income tax according to regulations.
3/ Family deduction for children of foreign individuals when settling personal income tax:
Family deduction for dependents who are children is implemented according to the provisions in Point 1, Article 9 of Circular No. 111 dated August 15, 2013 of the Ministry of Finance.
4/ Family deduction for foreign individuals on maternity leave when settling personal income tax:
Based on the provisions in Point c, Clause 1, Article 9 of Circular No. 111 dated August 15, 2013 of the Ministry of Finance. In case a foreign individual is a resident subject on maternity leave for 6 months and authorizes the settlement of personal income tax, the organization or individual paying the income shall make the personal income tax settlement on behalf of the individual, calculate the family deduction for himself/herself and calculate the family deduction for the dependent individual from the month the obligation to support arises. The individual must register for the family deduction before making the personal income tax settlement. 5/ Offsetting personal income tax after finalizing personal income tax for individuals who have retired:
Based on the provisions of Clause 4, Clause 5, Article 33 of Circular No. 156/2013/TT-BTC dated November 6, 2013 of the Ministry of Finance on offsetting excess tax payments, in case the organization or individual paying income, after finalizing personal income tax for an individual with excess personal income tax paid but the individual has retired, the organization or individual paying income shall contact the individual to return the excess payment.
In case the individual has retired before the end of the year, the organization or individual paying income shall issue a deduction certificate to the individual so that the individual can self-finalize personal income tax.
We recommend that Xich KMC Vietnam Co., Ltd. contact the local Tax Department for specific instructions.
Solution
Personal income tax is not too complicated, but the following points need to be noted: whether the individual is a resident or non-resident, whether the income is tax-exempt or not, whether the income exceeds the prescribed limit or not?, have the deductions been fully calculated?, distinguish what type of income it is to apply the correct tax rate. Contact us for a more detailed discussion for your company’s situation.