For every employee and business owner (especially for startups and SME), personal income tax (PIT) and annual tax finalization regulations are an extremely necessary knowledge to help business owners. It's easier to run the business and employees can protect their financial interests while at work. However, not everyone understands these procedures to do it right. This article will introduce you to important information to know.
What is PIT?
To put it simply, this is the amount of money that income-earning individuals must deduct from salaries and wages to contribute to the State budget. For employees working at businesses (DN), this tax will always appear in an entry on the payroll (illustration below).
Show PIT in the company's payroll
For resident individuals, taxable income is calculated as the income generated both outside and within the territory of Vietnam, regardless of where the income is paid.
For individuals who are considered as non-residents, the taxable income is only income generated while working in Vietnam, regardless of where the income is paid and received.
Distinguish between taxable income and taxable income
Taxable income and taxable income are two different concepts – which a lot of people confuse. Taxable income is income from salaries, wages and other taxable incomes of the nature of wages and salaries that the paying agency has paid to the individual. Taxable income is taxable income after deducting relevant amounts such as personal deductions, family circumstances, insurance premiums, etc.
Taxable income = Taxable income – deductions (family background, self, dependents)
1. Family circumstances deduction:
- For myself is 11,000,000 VND/person/month.
- For dependents, it is VND 4,400,000/person/month.
2. Compulsory insurances such as social insurance, health insurance, unemployment insurance and occupational insurance in some special fields.
3. Charitable, humanitarian or study promotion contributions.
Time to calculate personal income tax
The time for calculating PIT is the time when the Employee receives income payment from the enterprise. For example: The salary of December 2019 received in January 2020 will be included in the taxable income of January 2020.
What is PIT finalization and the deadline for settlement?
Every month, the salary that employees receive from the company is deducted an amount called "temporary/temporary payment" of PIT, equivalent to 12 deductions. After such deduction, you have to go to "finalize personal income tax", understand simply to recalculate whether the amount of tax "temporary/temporary payment" during the past year is insufficient, sufficient or excess. with the actual amount of PIT payable.
- In case of underpayment: Must pay the missing amount
- In case of full payment: Don't have to do anything else
- In case of overpayment: Returned (tax refund procedures)
According to the provisions of Clause 2, Article 32 of the Law on Tax Administration, the deadline for submitting tax finalization dossiers is the 90th day from the end of the calendar year. For example: The deadline for PIT finalization of 2021 for income of 2020 will be on March 30, 2021.
Who has to do the PIT finalization?
If an employee has only one source of income from one company:
- Your company will be responsible for declaring and finalizing PIT for employees according to the provisions of Article 21 Circular 92/2015/TT-BTC. If there is a lack of tax, the company will make up for it, if there is a surplus, the company will return it to the employee.
If the employee has a source of income in many workplaces or transfers jobs in different companies:
- Individuals must do the settlement by themselves. Companies withhold 10% wages of employees and issue them "PIT withholding" invoices. At the end of the year, employees contact the accounting department of the companies to ask for an invoice "withholding PIT" and then make their own PIT finalization.
How to calculate personal income tax
To determine the method of calculating PIT for employees in the Company, it is necessary to determine whether the employee is a resident or non-resident individual first. If the individual is a resident, the term of the contract is considered to be from 3 months or more or less than 3 months. The article will focus on how to calculate tax for resident individuals.
Subject 1: Resident individuals who have signed a labor contract of 3 months or more (usually Vietnamese)
Calculating personal income tax according to the progressive schedule of each part:
Calculation formula: [PIT payable = PIT taxable income x Tax rate]
Progressive tax rate table:
|tax bracket||Taxable income/month (million VND)||Tax rate (%)||How to calculate payable tax (million VND)|
|1||Up to 5||5||5% x TNTT|
|2||Over 5 to 10||10||10% x TNT – 0.25|
|3||Over 10 to 18||15||15% x TNT – 0.75|
|4||Over 18 to 32||20||20% x TNT – 1.65|
|5||Above 32 to 52||25||25% x TNT – 3.25|
|6||Above 52 to 80||30||30% x TNT – 5.85|
|7||Over 80||35||35% x TNT – 9.85|
Mr. A receives a salary of 40 million VND in October 2020 (when he receives his salary from the company, Mr. A has been deducted by the company to pay the compulsory insurance premium - so it is not deducted when calculating taxable income). Mr. A has 02 dependents. In the month, Mr. A does not contribute to charity, humanitarian or study promotion. Mr. A's personal income tax temporarily paid in the month is calculated as follows:
– Mr. A's taxable income is VND 40 million.
Mr. A is entitled to the following deductions:
+ Personal deduction: 11 million VND
+ Family deduction for 02 dependents (2 children): 4.4 million VND × 2 = 8.8 million VND
=> Total deductions are: 11 million VND + 8.8 million VND = 19.8 million VND.
=> Mr. A's taxable income is: 40 million VND - 19.8 million VND = 20.2 million VND
Taxable income in the month of VND 20.2 million is a taxable income of level 4. The payable personal income tax amount is as follows:
20.2 million VND × 20% – 1.65 million VND = 2.39 million VND.
Subject 2: Resident individuals who have signed a labor contract of less than 3 months or do not sign a labor contract
For these individuals, PIT withholding shall be made for each payment of income from 2,000,000 VND or more as follows: 10% of total income paid/time (regardless of tax code or not) .
Formula: [PIT payable = Taxable income x 10%]
Mr. A signs a 1-month seasonal labor contract with Company B. The salary for his position as a forwarder includes: the main salary is 4,700,000 VND, the lunch allowance is 780,000 VND, the fuel allowance is 700,000 VND.
– Mr. A's total income is: VND 6,180,000
– Because the Company pays an income of more than VND 2,000,000, when paying Mr. A's salary, the Accountant must deduct PIT at source 10% as follows:
Withholding PIT = (4.700.000 + 780,000+700,000) * 10% = 618,000 VND
(Meals and overtime wages of current employees (signed under 3 months) are not exempt from PIT. Official Letter No. 4217/CT-TTHT of Ho Chi Minh City Tax Department on personal income tax)
How to calculate personal income tax in seconds:
How to calculate personal income tax if in the correct order as above, it takes a lot of time. To help employees know if they have to pay taxes or how much they have to pay, LuatVietnam has launched an online tax calculator. Simply follow these steps:
Step 1: Accessed at https://luatvietnam.vn/tinh-thue-thu-nhap-ca-nhan.html
Step 2: Enter the total monthly income. Note: Income deducted 10.5% compulsory insurance.
Step 3: Enter the number of dependents (if any)
Step 4: Get results. Note: If the amount is not displayed, the employee does not have to pay tax.
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