Circular No. 10592/TC/TCT regarding the management of personal income tax for high-income individuals

LETTER

ISSUED BY THE MINISTRY OF FINANCE NUMBER 10592 TC/TCT ON OCTOBER 1, 2002
REGARDING THE MANAGEMENT OF INCOME TAX FOR
HIGH-INCOME INDIVIDUALS

Dear: Provincial Tax Departments

On January 17, 2002, the Ministry of Finance issued Circular No. 05/2002/TT-BTC guiding the implementation of Decree No. 78/2001/NĐ-CP dated October 23, 2001 of the Government detailing the implementation of the Ordinance on income tax for high-income individuals (hereinafter referred to as personal income); However, the current management of personal income tax is limited to individuals with high incomes working in state-owned enterprises, foreign-invested enterprises operating under the Law on Investment in Vietnam, representative offices, non-governmental organizations... The work of managing the declaration, calculation, and payment of personal income tax for high-income individuals engaged in service activities not subject to corporate income tax such as long-term consulting services, teaching, vocational training, examination preparation, cultural and artistic performances still has many limitations. Individuals such as singers, exam preparation teachers, individuals working at private clinics, pharmacists, auditors, lawyers, consulting experts... can earn up to 100 million VND per month but the organizations paying their income have not deducted the tax, and these individuals have not settled their taxes at year-end.

In order to strengthen tax collection and improve the capacity to manage personal income tax, the Ministry of Finance guides the following points:

1. Income exempt from tax:

Responsibility allowances as prescribed by the State are non-taxable income as stipulated in Clause 4.1.3, Point 4, Section I of Circular No. 05/2002/TT-BTC dated January 17, 2002 of the Ministry of Finance guiding the implementation of Decree No. 78/2001/NĐ-CP dated October 23, 2001 of the Government detailing the implementation of the Ordinance on income tax for high-income individuals. After receiving comments from the Ministry of Labor, Invalids and Social Affairs in Circular No. 2582/LĐTBXH-TL dated August 6, 2002, the determination of this income is specified as follows:

For state-owned enterprises, individuals holding positions subject to responsibility allowances as prescribed in Decree No. 25/CP dated May 23, 1993, Decree No. 26/CP dated May 23, 1993 of the Government, Decision No. 83/1998/QĐ-TTg dated April 15, 1998 of the Prime Minister, and Circular No. 17/LĐTBXH-TT dated June 2, 1993 of the Ministry of Labor, Invalids and Social Affairs shall be excluded from the calculation of income tax for high-income individuals. This provision also applies to foreign-invested enterprises in Vietnam and enterprises operating under the Enterprise Law if they apply salary scales and allowances similar to those of state-owned enterprises.

For enterprises that independently establish salary scales and allowances, position allowances or responsibility allowances shall not be excluded when calculating income tax for high-income individuals.

2. Tax registration forms and tax declaration forms:

All tax registration forms and tax declaration forms prescribed in Vietnamese tax laws are presented in Vietnamese, making Vietnamese the official language for taxpayers to use for tax registration, declaration, and submission of tax-related documents to tax authorities.

For the names of foreigners and addresses abroad that do not use the Latin alphabet, taxpayers must transliterate them into the Latin alphabet as recorded in their passports next to their native names. The Tax Department must notify taxpayers that tax notifications, letters, and documents (such as Decisions, Inspection Reports, Audit Reports...) sent by tax authorities using the names provided by taxpayers will have legal binding force regarding the taxpayer's tax obligations in Vietnam.

3. Management of taxable income for individuals with regular income taxed in multiple locations:

The Ordinance on income tax for high-income individuals has defined regular taxable income for Vietnamese individuals as income from salaries, wages, honoraria; monetary bonuses and other benefits from various sources; other income from participating in business associations, Boards of Directors... income from individuals' participation in production and service activities not subject to corporate income tax such as long-term consulting services, teaching, vocational training, examination preparation; cultural and artistic performances, sports... Thus, individuals have primary income from their main place of employment and additional income from other places. 1. A film director earning a monthly salary at the Vietnamese Feature Film Studio who earns income from directing two films (one from the Feature Film Studio and one from the Youth Film Studio) during the year, the income from these two films is considered regular taxable income.

Example:

2. An artist earning a salary at the Youth Theater, who earns income from performing in films or other venues during the year, the income from these venues is considered regular taxable income.

3. A writer earning a salary at Publishing House X who publishes several works, the royalties from these works are considered regular taxable income.

4. A teacher earning a salary at University X who teaches at several centers during the year, the income from these centers is considered regular taxable income.

5. A civil servant working at Ministry X who earns income from teaching at School Y and participating in scientific research projects, this income is considered regular taxable income.

6. A lawyer employed by a law firm who earns income from legal services at other places, this income is considered regular taxable income.

7. A doctor working at Hospital X who earns income from private practice during the year, this income is considered regular taxable income.

4. Distinction between the responsibilities of the income payer and the tax obligations of the individual:

The income payer: before disbursing income to the individual, the income payer has the responsibility to deduct income tax. The deduction of income tax is distinguished according to two categories:

The income payer: prior to paying income to an individual, the income payer has the responsibility to deduct income tax. The deduction of income tax is distinguished into two categories:

4.1. Where the subject is an individual receiving salary at the income-paying entity, the total amount of taxable income for the month shall be aggregated, and compared with the progressive tax rate table to determine the amount of tax to be withheld. In cases where the individual does not receive salary from the paying entity, the individual shall be responsible for registering to pay taxes at one income-paying entity or registering with the tax authority.

4.2. Where the subject is an individual not receiving salary at the income-paying entity, a temporary withholding of 10% on the amount of income shall be applied. This 10% withholding shall apply to payments exceeding 300,000 dong per payment made at one location. The amount withheld at the end of the month shall be summarized by the paying entity and submitted to the State Budget. The paying entity shall issue a receipt to the individual for annual settlement purposes. This receipt shall be directly managed and issued by the tax authority to the income-paying entity, and at year-end, the paying entity shall settle the receipt with the tax authority. At the end of the month, this amount is summarized and submitted to the State Budget by the paying entity. The paying entity is responsible for issuing receipts to individuals for annual settlement purposes. These receipts are directly managed and issued by the tax authority to the income-paying entity, and at year-end, the paying entity settles the receipts with the tax authority.

Example: Director A receives salary at Film Studio A.

During the year, each month Director A has income from salary and other taxable income at the studio totaling 2 million dong. In February, there was an additional income of 4 million dong from Film Studio A. In July, Director A received 16 million dong from Young Film Studio. Therefore, based on the progressive tax rate table, Film Studio A calculates that Director A must pay 0.1 million dong in tax for February. However, for the 16 million dong income from Young Film Studio, Young Film Studio must withhold 10%, which is 1.6 million dong, and pay Director A 14.4 million dong. Young Film Studio issues a receipt indicating the withholding of 1.6 million dong. At year-end, Director A will aggregate all income from salary, wages, and the receipt from Young Film Studio to settle tax with Film Studio A.

Specifically, the total income of Director A for 12 months is:

22 million + 4 million + 16 million = 42 million

Average monthly income: 42 / 12 = 3.6 million

Tax payable ((3.6 million - 3 million) x 10%) = 0.06 million x 12 months = 0.72 million.

Total tax paid (declared by the paying entity) 0.1 million + 1.6 million = 1.7 million

Refundable tax for Director A 1.7 million - 0.72 million = 0.98 million

5. Income-paying entities shall withhold and remit personal income tax to the State Budget.

- For income-paying entities that have monthly personal income tax payable below 5 million dong, they may remit personal income tax to the State Budget quarterly, but the withholding of tax must be done monthly.

6. Responsibilities and benefits of income-paying entities

6.1. Responsibilities

- Income-paying entities shall declare to the local tax authority regarding the income of individuals within their unit that falls under the taxable threshold, withhold tax, and remit it to the State Budget. Issue tax receipts for individuals who do not settle personal income tax at the unit.

- If income-paying entities fail to declare, report individuals subject to tax, or fail to withhold tax before paying income, causing loss to the State Budget, they shall bear responsibility for compensating the State Budget for the lost tax and be subject to administrative penalties for tax violations. If the income-paying entity is a business, the tax and penalty amounts to be compensated cannot be included in the deductible expenses when determining corporate income tax.

6.2. Benefits

Income-paying entities are entitled to a fee of 0.5% for regular personal income tax and 1% for non-regular personal income tax. This fee is deducted before remitting to the State Budget and used to cover costs related to organizing tax collection and rewarding individuals for outstanding performance in tax collection.

7. Annual tax settlement for individuals with income from multiple sources.

The Tax Department should promptly settle personal income tax for individuals, and if a refund is due, it should be returned promptly, specifically:

7.1. Individuals settling tax at the income-paying entity: When settling, if the individual has overpaid tax, the income-paying entity shall be responsible for refunding by offsetting against future tax liabilities. The income-paying entity must report the handling of personal income tax upon settlement (according to the attached form).

In cases where the individual works at the income-paying entity and has overpaid tax, but no longer works at the entity, the refund procedures shall be carried out at the tax authority: the individual must submit a declaration of tax payable, tax withheld, tax requested for refund, and tax receipt with confirmation from the income-paying entity to the tax authority for refund procedures.

7.2. Individuals directly settling tax at the tax authority must pay any outstanding tax within 15 days from the date of submitting the tax settlement declaration. If there is an overpayment, it can be refunded by offsetting against future tax liabilities. If there is no future tax liability, the refund shall be processed.

The process and documentation for refunding high-income earners' personal income tax already paid into the budget shall be implemented according to Circular No. 68/2001/TT-BTC dated August 24, 2001, issued by the Ministry of Finance, guiding the refund of amounts already paid into the State Budget.

It is recommended that the Tax Departments implement according to the above guidance. Any difficulties encountered during implementation should be reported promptly to the Ministry of Finance (General Department of Taxation) for research and resolution.

REPORT ON HANDLING ANNUAL SETTLEMENT OF REGULAR PERSONAL INCOME TAX

Year...

1. Taxpayer code of the income-paying entity...

2. Name of the income-paying entity...

3. Address...

4. Account number of the income-paying entity

In year..., the entity declared:

Personal income tax of...individuals.

Amount of personal income tax withheld and remitted to the State Budget...

Where:

- ...individuals with additional tax payable...

- ...individuals with tax refundable...

Request for offset between remaining tax payable and tax refundable to determine remaining tax payable:...

Request for offset of tax payable for month...year 200... (in case of excess tax paid only)

(Form 02B - Detailed annex attached)

...fully responsible for the accuracy of the above data.

Date... month... year 200...

Head of the income-paying entity

(Signature, stamp)