On 15 January 2013, the General Department of Taxation (“GDT”) issued Official Letter 187/TCT-TNCN (“Letter 187”) to all local tax departments guiding the personal income tax finalization for 2012. The Letter provides in more detail the annual PIT finalization to provide guidelines on matters which have not been clearly indicated in guiding decrees and circulars on PIT. Below are notable points addressed by Letter 187.
Taxpayers and tax withholding agents that are subject to PIT finalization
Letter 187 reiterates circumstances where tax finalization is required, including:
· Income payers that are required to withhold PIT on the payments made to individuals, regardless whether the withholding tax is incurred or not.
· Residents who have business income, employment income where:
– the tax amount which have been paid is greater than the tax payable;
– a request for a refund of the overpayment amount of tax or for offsetting the over payment amount of tax against subsequent tax payables, is made.
· Residents who have been registered to pay PIT on the gains generated from securities transfer are required to proceed PIT finalization in cases:
– the tax payable calculated at the rate of 10% (as the PIT on securities transfer is entitled to a 50% reduction of tax payables in 2012) greater than the provisional tax amount withheld at 0.05% on the sale proceeds (after reduction of 50%).
– request for a refund of the over payment amount of tax or for offsetting the over payment amount of tax against subsequent tax payables.
· Expatriates who are tax residents of Vietnam are required to proceed with PIT finalization upon the termination of the Vietnamese assignment and before exiting Vietnam. The Letter, however, further guides that in case, expatriates have terminated their Vietnamese assignments and conducted the PIT finalization prior 31 December, but subsequently return to work in Vietnam until the end of 2012, their average taxable income for 2012 PIT finalization at the year-end shall be calculated on the income for the whole year (i.e. from 1 January to 31 December).
Authorization for income payers to proceed with the PIT finalization on behalf of individual taxpayers
Individuals who have employment income from a single employer on the basis of contract with the term above three months during the year, even if the working period for such employer is less than 12 months in 2012, if required, may authorize their income payer to proceed with the PIT finalization on their behalf.
Other individual taxpayers (i.e. those who are issued PIT withholding receipts by their employers and the receipt are not revoked or cancelled by their employers, or those subject to provisional withholding PIT (at 20% or 10% on the payment received) on the income received from income payers) are not allowed to conduct PIT finalization (if requested) through the authorization process. They have to directly proceed with their PIT finalization with relevant tax authorities.
Determination of taxable income
The Letter affirms that the taxable income is determined on “cash basis”. This means, the tax shall be imposed at the time the income is actually paid. Thus, for example, income of 2012 (i.e. Tet bonus or 13-month salary is normally paid after 31 December) but is paid in January 2013 shall be included in taxable income of 2013 (not 2012) for PIT purposes.
In case the income is paid on a net basis, the gross-up of the net income for determination of taxable income is conducted as guided in previous Letters (i.e. letter 1578/TCT-TNCT dated 28 April 2009 and Letter 3565/TCT-TNCN dated 14 September 2010 issued by the GDT). Generally, the principles for grossing up the net base salary provided in these letters are:
Step 1: Net base salary — (less) deductions for family circumstances (i.e. deductions for personal and dependent,)
Step 2: Gross up the net income after deduction (result from Step 1)
Step 3: Calculation of PIT payable on gross income (result from Step 2)
Detailed guidance on the determination of taxable income in case of securities transfer is also available in Letter 187.
Procedures for filing tax finalization
In terms of tax finalization dossiers and tax offices for tax filling, the Letter simply refers to relevant provisions of Circular 28/2011/TT-BTC, with additional requirements for income payers (in case of PIT exemption in accordance with Circular 140/2012/TT-BTC) and withholding organizations for withholding tax on securities transfers.
The due date for submission of tax finalization is 1 April 2013.
Further guidance on other matters such as tax filing for individuals who have business income (i.e. sole proprietor), tax office for tax filing in case individuals relocated to work in several provinces for different employers during the year, determination of tax reduction, tax refund and notices on the modifications of the software (available for free on website of GDT) for PIT declarations, is also available in Letter 187.
Please do not hesitate to contact us should you have further concerns on the above matters.