DEDUCTIONS UNDER THE LATEST PERSONAL INCOME TAX CALCULATION REGULATIONS

Deductions are amounts deducted from an individual's taxable income before determining taxable income from wages or salaries.

Pursuant to Article 9 of Circular 111/2013/TT-BTC, Article 15 of Circular 92/2015/TT-BTC of the Ministry of Finance, Official Dispatch 801/TCT-TNCN and Resolution No. 954/2020/UBTVQH14 regulating on family deductions, including:

👉 Family deductions

👉 Deductions for insurance contributions, Voluntary retirement fund

👉 Deductions for charitable, humanitarian and study promotion contributions.

Regulations on each deduction when calculating PIT are as follows:

1. Family deductions:

a) Family deductions are the amounts deducted from an individual's taxable income before determining taxable income from wages or salaries of taxpayers who are residents.

b) The personal deductions their dependents deductions rate:

📌 Before July 1, 2020, the deduction is as follows:

+ For taxpayers, it is 9 million VND/month (108 million VND/year).

+ For each dependent: 3.6 million VND/month

📌 From July 1, 2020 onwards, the deduction is as follows:

+ For taxpayers: 11 million VND/month (132 million VND/year)

+ For each dependent: 4.4 million VND/month.

According to the new tax law, the personal deduction has increased to 2 million VND/month; dependents deduction also increased to 800,000 VND/month compared to the old tax law.

Note: When the taxpayer has paid personal income tax with family deductions rate as previously prescribed, it will be recalculated when making personal income tax finalization at the end of 2020. Besides, the deadline for personal income tax finalization 2020 has been extended by 1 month which is April 30, 2021.

c) Personal deductions and dependents deductions calculation:

📌 Personal deductions rate:

- Taxpayers who have many income sources from salaries and wages, at a time (calculated by full month) taxpayers choose to calculate personal deductions in one place.

- In case in the tax year, individuals has not yet made a personal deduction or has made a personal deduction for less than 12 months, they will be entitled to a full 12 month deduction when making tax finalization.

- For foreigners who are residents in Vietnam, personal deductions are calculated from January or from the month of arrival in Vietnam in case the individual is present in Vietnam for the first time until the month ending the labor contract and leaving Vietnam in the tax year (calculated by full month).

📌 Dependents deductions rate:

- Taxpayers are entitled to dependents deductions if the taxpayer has registered and have been granted a dependent tax identification number.

- When the taxpayer registers for dependents deductions, the tax authority will issue a tax identification number for the dependent and be temporarily calculated for family deduction for this year from the date of registration.

- In case the taxpayer has not yet calculated the dependents deductions in the tax year, the deduction for the dependents shall be calculated from the month in which the maintenance obligation arises when the taxpayer makes the tax finalization and registered dependents deductions.

Particularly for other dependents as guided in Item d.2, Point d, Clause 1 of this Article; the deadline for registration of family deduction is December 31 of the tax year, over this time limit shall not be entitled to family deduction for that tax year.

⭕ Each dependent is only entitled to one deduction for each taxpayer in the tax year

⭕ In case many taxpayers have the same dependents to take care of, the taxpayers self-agree to register for family deduction in one taxpayer.

2. Insurance and voluntary retirement funds deductions:

a) Insurance include: social insurance, health insurance, unemployment insurance, professional liability insurance for a number of professions requiring compulsory insurance participation.

b) Contributions to the voluntary retirement fund, purchase of voluntary retirement insurance, the level of contributions to the voluntary retirement fund and purchase of voluntary retirement insurance shall be deducted from taxable income according to the actual arising but maximum of one (01) million dong/month for employees participating in voluntary retirement products under the guidance of the Ministry of Finance, including the amount paid by the employer to the employee and also the amount paid by the employee (if any), even in the case participate in many funds. The basis for determining deductible income is a photocopy of payment receipt (or fee payment) issued by a voluntary pension fund or an insurance enterprise.

c) Foreigners who are residents in Vietnam, Vietnamese are residents but work abroad and earn incomes from overseas salaries and wages and have participated in paying compulsory insurance according to the regulations of the country where the individual resides, holds the nationality or works similar to the provisions of Vietnamese law such as social insurance, health insurance, unemployment insurance, compulsory professional liability insurance and other compulsory insurances (if any), such premiums may be deducted from taxable incomes from wages and salaries when calculating personal income tax. Foreigners and Vietnamese participating in the above-mentioned insurance contributions abroad will be temporarily deducted from their income for tax deduction in the year (if they have vouchers) and calculated according to the official number if individuals make tax finalization according to regulations. In case there are no vouchers to temporarily reduce the deduction in the year, the deduction will be made once upon tax finalization.

d) Insurance contributions, contributions to the voluntary retirement fund of any year shall be deducted from the taxable income of that year.

e) The proof of the above-mentioned deductible insurance amounts is a photocopy of the payment receipt of the insurance organization or the certification of the income-paying organization of the amount of insurance deductible and paid (in case of organizations paying income on behalf of).

3. Charitable, humanitarian and study promotion contributions deduction:

a) Charity, humanitarian and study promotion contributions are deducted from taxable income for income from salaríe and wages before tax calculation of taxpayers who are residents, including:

☑️ Contributions to organizations and facilities that take care and nurture children in extremely difficult circumstances, the disabled, and the elderly without support. Organizations that take care and nurture children with difficult circumstances and people with disabilities must be established and operate according to the provisions of Decree No. 68/2008/ND-CP dated May 30, 2008 of the Government prescribe conditions and procedures for the establishment, organization, operation and dissolution of social protection establishments; Decree No. 81/2012/ND-CP dated October 8, 2012 of the Government amending and supplementing Decree 68/2008/ND-CP of May 30, 2008 stipulating the conditions and procedures for establishment, organization, operation and dissolution of social protection establishments and Decree No. 109/2002/ND-CP dated December 27, 2002 of the Government amending and supplementing a number of articles of Decree No. 195/CP dated December 31, 1994 detailing and guiding the implementation of a number of articles of the Labor Law on working time and rest time. Documents to prove contributions to organizations and facilities that take care of and nurture children with extremely difficult circumstances, disabled people, and elderly people without support are legal receipts of organizations or institutions.

=> Thus, 2 conditions are needed: the establishment is recognized according to regulations and legal receipts (receipts or payment orders).

☑️ Contributions to charity funds, humanitarian funds, study promotion funds established and operating under the provisions of Decree No. 30/2012/ND-CP dated April 12, 2012 of the Government on the organization and operation of social funds, charity funds, charity activities, humanitarian, study promotion with non-profit purposes and regulations in other documents related to the management , using funding sources. Documents evidencing charitable, humanitarian or study promotion contributions are documents of lawful receipts granted by organizations and funds of the central or provincial governments.

b) Charity, humanitarian and study promotion contributions arising in any year are deducted from the taxable income of that tax year. If the deduction is not exhausted, it is not deducted from the taxable income of the next tax year. The maximum deduction must not exceed the taxable income from salaries and wages of the tax year in which charitable, humanitarian and study promotion contributions are generated.

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