How To Income Tax Calculation Guidence Viet Nam

The latest individual income tax calculation guidance in 2016

To calculate the individual income tax for 2016, accountant needs to concern about the following guiding Circulars upon individual income tax: Circular 111/2013/ TT-BTC that was modified and supplemented in Circular 92/ 2015/ TT-BTC.

For enterprise accountants, the individual income tax calculation from salaries and wages is the most common work. So in this article, LHD LAW FIRM Accounting will guide you how to calculate individual income tax from salaries - wages.

1. The individual income tax calculation for resident individual with contract from 3 months.

(For employees signing labor contracts from 3 months, calculate the individual income tax by the progressive tax tariff)

The foundation to calculate individual income tax for incomes from business activity, salary and wage are assessable income and tax rate.
It is determined by the calculation:

Individual income tax payment = assessable income x tax rate

Assessable income = taxable income - deductions

In which:

* Taxable income = Gross salary – non-taxations

a.       Gross salary includes: salary, wage, charge, other incomes related to salary, wage receipt,  holiday and Tet bonuses

b.      Non-taxations include:

- Allowances for lunch, mid-shift:

+ If allowance is calculated on salary, it will be exempted 680,000/month at maximum.

+ If enterprise organizes meals (self-catering) or buy meals, food stamps, it is exempted all (unrestricted).

- Telephone allowance:+ For expenditure allocation: Tax is exempted according to the company regulations. For example: Signing a labor contract with employee A, telephone allowance in agreement is 300,000/month. Then employee A will be exempted 300,000 of the telephone allowance. If this person receive more than 300,000 then the higher part will be charged into taxable income when calculating individual income tax. (According to Official Document No. 5274/TCT - TNCN on December 09, 2015).

(According to Official Document 1166/TCT - TNCN issued on March 21, 2016)

+ If allowance for actual consumption: Entirely exempted (must present the telephone bill bearing company name, address and tax code of company paying salary)

- Clothing allowance:

+ If receiving money: Exempted by 5 million/year at maximum

+ If receiving item: Entirely exempted

+ If receiving both cash and item: item receipt part is entirely exempted and money receipt is exempted by 5 million/year at maximum.- Overnight and overtime working pay are higher than daytime and office hours. For example, daytime working is paid 4 thousand/h but overnight working is paid 7 thousand/h => the 3 thousand/h difference is tax immuned.

- Welfare allowances:

+ Amount of money received for employees’ and their families’ mourning and wedding under the general regulations of the organization and individual paying income and in accordance with the business taxable income determination, according to the documents guiding law implementation of business income tax. (According to clause 5, article 11 of the Circular 92/2015/TT - BTC)

+ The employee’s direct payments are included in taxable income to calculate individual income tax. (According to the Official Document 34440/CT - HTr, dated June 05, 2015 by Hanoi Tax Department)- About expenses: In case of expenses such as air tickets, accommodations, taxi fares and meals of individuals during business trips are included in the deductible expenses when determining business taxable income according to the regulations of the law about business income tax and the guiding documents of current law on business income tax, these expense payments are deductible income when determining individual taxable income.

(According to Official Document 1166/TCT - PIT issued on March 21, 2016)

Besides, there are a lot of other nontaxable incomes, please see here:

* The deductions are regulated in Article 9, Circular 111/2013/TT- BCTC :

- Family circumstance deductions:

+ Taxpayers themselves: 9 million/month.

+ Dependent persons: 3.6 million/person/month (have to be registered with Tax. See more: procedure for dependent person registration)- The insurances participating in: social insurance, health insurance, unemployment insurance, professional liability insurance is compulsory for some careers, voluntary pension Fund, and voluntary pension insurance.
Premiums on voluntary pension Fund and voluntary pension insurance are subtracted from income when determining taxable income, maximum not over 01 million/month, including both the employer’s and employee’s amount of money (if any). (According to Point 3, Clause 8, Article 2 of Decree 12/2015/ND-CP on February 12, 2015 – guiding implementation of some modified and supplemented articles about tax (Revised law No 71/2014/QH13) (This Decree came into force from January 01, 2015)

  - In the payment period, if taxpayers donate to charity, humanitarian, education promotion, they will be deducted, but require certificates from the organizations.

The tax rate to calculate the individual income tax is the tax rate due to progressive tax tariff, it means calculating for each income level, each income level has a corresponding tax rate. It is clearly stipulated in Clause 2, Article 7 and Appendix: 01 / PL - TNCN as follows:

To help new accountants easily understand individual income tax, LHD LAW FIRM Accounting will summarize the calculation steps as follows:

The individual income tax formulas to remember:

1. Payable individual income tax = Taxable income xTax rate X ( 1 )

2. Taxable income = Assessable income - deductions ( 2 )

3. Assessable income = Gross salary – Non-taxations ( 3 )

Steps to calculate invidual income tax :

Step 1: Calculate the gross income: adding all the payments in month.

Step 2: Determine the non-taxations (including allowances = > determine the non-taxations, specific level of each one) = > Summarize step 1 anh step 2, then we can determine the assessable income. (Formula 3)

Step 3: Determine deductions: Each person is deducted at one place only, so if the employee signs up for 2 places or more which are all from 3 months, then this person has to choose one place for deduction. The others are no longer deductible.

+ Themselves: 9M/month (not registered)

+ Dependent persons: If the employee registeres dependent persons, then determining the number of dependent persons based on form 02/ĐK- NPT - TNCN then multiplying with 3,6M.

Step 4: Calculate the assessable income - Formula 2

+ Case 1: the negative assessable income = > this employee has not reached the level of payable tax = > Individual income tax will not be subtracted.

 + Case 2: the positive assessable income = > calculate payable individual income tax at step 5.

Step 5: Calculate payable individual income tax

After calculating the amount of positive taxable income at step 4, we will collate that assessable income with tax rate table by the progressive tax tariff to determine tax level or calculate payable individual income tax.

For example: The assessable income of the employee A is 7 million, then looking at the tax rate table we can find: 7 million is at level 2 (for assessable income from 5 to 10 million) = > aligning sideways, we can determine the formula (both fomulas are applicable)

For example, LHD LAW FIRM Accounting chooses option 2, then the fomula is: 10% * assessable income– 0.25M.

After determining the formula, we take the assessable income into the formula, then we can calculate the payable individual income tax of this person.

Payable individual income tax of employee A = 10 % * 7.000.000 – 250.000 = 450.000

To help you understand more clearly about how to calculate the individual income tax of a specific person, lhd law  Accounting will guide you how to calculate by a following specific example:

Example: Mrs.Bac signed a labor contract of 1-year term at lhd law Accounting Company, in January 2016, she received the earnings as follows:

+ Salary by total actual working days: 30.000.000

+ Lunch allowance: 800.000

+ Telephone allowance: 300.000

+ She received a New Year 2016 bonus in January 2016: 500.000.

Mrs Bac paid for the insurance by her salary: of 23.000.000

See details here:

-       Mrs.Bac has 2 children registered dependent persons at lhd law Accounting Company.
 

Calculating payable individual income tax of Mrs.Bac in January 2016
     
1. Determine the taxable income of Mrs.Bac:

Mrs. Bac’s gross income in January was:

30,000,000 + 800,000 + 300,000 + 500,000 = 31,600,000

In which, she was exempted from:

 - Telephone allowance: 300,000

- Lunch allowance: 680,000 (Therefore with 800,000 she received, 680,000 was nontaxable and 120,000 was taxable) Note: If her lunch allowance was not 800,000, but was 500,000, then she was only exempted 500,000 – as the company’s allowance)

So her taxable income were:

31.600.000 - 300000-680000 = 30,620,000

2. Deductions:

- Herself: 9.000.000

- Dependent persons: 2 children were: 2 x 3.600.000 = 7.200.000

- Insurance payments: 2.415.000

=> Total deductions were: 9.000.000 + 7.200.000 + 2.415.000 = 18.615.000

3. Her assessable income was:

Assessable income = Taxable income – deductions

30.620.000     –      18.615.000      =  12.005.000

Now we will calculate her payable individual income tax by putting her assessable income 12.005.000 into the tax calculation table by progressive tariff above:

Calculating quickly with case 2 at appendix table: 01/PL-TNCN:

We can see her individual taxable income were: 12.005.000 at level 3 in the tax tariff, and the fomula is: 15% * assessable income - 0,75M

ð  Mrs.Bac payable individual income tax in January 2016 were:

15% X 12.005.000 – 750.000 = 1.050.750

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Points need to consider when calculating individual income tax from salary and wage:

1. Time to calculate individual income tax: is the time of income payment.

Example: 12/2015 salary was paid in January 2016, then it would be calculate on taxable income of January 2016 (As final settlement of individual income tax was also calculated in 2016)

(Refer to clause 1, Section III, Official Document No. 187/TCT – TNCN dated January 15, 2013 by General Department of Taxation, Official Document 380 /CT-TTHT dated January 14, 2015)

2. Summarize income: Including all incomes that employee received in the taxable period (Including holiday and Tet bonuses like 13th month salary, or 30/4, 1/5, 2/9...calculated into the taxable income of that month). Then, determining the non-taxations and deductions.

3. There are 2 methods to calculate individual income tax: Calculated by the progressive tax tariff at source (10% - for resident individuals, 20 % - for non-resident individuals). It must be based on the duration of labor contract:

- Calculated by the progressive tax tariff: for employee who signs labor contract from 3-month or more.

+ For a resident individual signing labor contract from three (03) months or more, paying organization and individual deducts tax by progressive tax tariff, including the case that individual signs labor contract from three (03) months or more in many places.

(Note: Each person can be deducted at one place only, the dependent persons (if any) will be registed at the company where he/she received personal deduction.

+ For the resident individuals signing labor contract from three (03) months or more, but stop working before the labor contract ending, the paying organization and individual has to deduct tax by progressive tax tariff.

(According to point b, Clause 1, Article 25 of Circular 111/2013/TT - BTC) .

- 10% Deduction: For non-contracted employee (under the guidance at Point c, d, Clause 2, Article 2 of Circular 111) or labor contract of less than three (03) months with a total payment income from two million (2,000,000)/time or more, then deducting 10% of tax on income before paying for the individual.

In case of  individual having a sole income subjected to the tax deduction by the rate mentioned above, but total taxable income estimation of this individual after subtracting the family circumstance is not enough to pay tax, then that individual has to submit a commitment (commitment 02/CK-TNCN) to income payment organization as a temporary basis for not deducting individual income tax .

(Commitment 02/CK – TNCN as sample in Circular 92/2015/TT-BTC: Coming into force from 30/07/2015 – Earlier, we use commitment 23 / ​​CK – TNCN according to Circular 156 / 2013 / - BTC )

( Require tax code of the person commiting at that time)

Based on the commitment of salary receivers, organization pays income without deduction. At the end of the taxing year, organization still has to summarize list and income of individuals not reaching tax deduction level (into the form issued with guideline on tax administration) and submit to the tax authorities. Individuals submitting commitments must take responsibility for their commitment, in case detecting of fraud they will be disciplined under the provisions of the Law on Tax Administration. Individuals making commitments under the guidance at this point have to register tax and tax code at the time of commitment.

- 20% deduction: For non-resident individuals, determined by the taxable income from salaries and wages of employee (x) with the rate of 20%.

When having finished individual income tax calculation for employees in your company, you need to form individual income tax declaration periodically (monthly or quarterly) to submit to the tax authorities.

See here:

See more: The calculation of individual income tax for employees in trial period - temporary (non-contracted individuals, non-contracted and less than 3 months)

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