Circular No. 176/2009/TT-BTC guiding the reduction of personal income tax for individuals working in economic zones

CIRCULAR

Guidelines on reducing personal income tax for individuals working in economic zones

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Pursuant to the Law on Personal Income Tax No. 04/2007/QH12 dated November 21, 2007, and Decree No. 100/2008/NĐ-CP dated September 8, 2008 of the Government detailing the implementation of certain provisions of the Law on Personal Income Tax;

Pursuant to the Law on Tax Administration No. 78/2006/QH11 dated November 29, 2006, and Decree No. 85/2007/NĐ-CP dated May 25, 2007 of the Government detailing the implementation of certain provisions of the Law on Tax Administration;

Pursuant to Decree No. 100/2008/NĐ-CP dated September 8, 2008 of the Government detailing certain provisions of the Law on Personal Income Tax;

Pursuant to Clause 5, Article 16 of Decree No. 29/2008/NĐ-CP dated March 14, 2008 of the Government regarding industrial parks, export processing zones, and economic zones;

Pursuant to Article 10 of Decision No. 33/2009/QĐ-TTg dated March 2, 2009 of the Prime Minister on issuing financial mechanisms and policies for border economic zones;

Pursuant to Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Implementing the directives of the Prime Minister in Circulars No. 502/VPCP-KTTH dated January 20, 2009, and No. 3045/VPCP-KTTH dated June 11, 2009 of the Government Office on guiding the implementation of personal income tax;
The Ministry of Finance guides the reduction of personal income tax for individuals working in economic zones and border economic zones (hereinafter referred to collectively as economic zones) as follows:

Article 1. Scope of application:

1. The subjects eligible for the reduction of personal income tax under this Circular include individuals, including Vietnamese citizens and foreign residents or non-residents in Vietnam according to tax laws, directly working in economic zones, specifically:

a) Officials, civil servants, and those who have signed labor contracts with the Management Board of the economic zone, state management agencies located within the economic zone, and actually work in the economic zone.

b) Workers who have signed labor contracts with organizations and individuals having business establishments in the economic zone and actually work within the economic zone's territory.

c) Workers employed by organizations and individuals outside the economic zone but assigned to work in the economic zone to implement economic contracts signed between their employers and the Management Board of the economic zone or with organizations and individuals conducting investment and business activities within the economic zone.

d) Individuals or groups of individuals operating businesses with fixed locations in the economic zone, carrying out production and business activities according to business registration certificates issued by the economic zone, and generating taxable income from such activities according to the Law on Personal Income Tax.

2. Officials, civil servants, and workers signing labor contracts with the Management Board of the economic zone, state management agencies, and organizations and individuals conducting investment and business activities within the economic zone, but not directly working in the economic zone, are not eligible for the tax reduction under this Circular.

Article 2. Taxable income as the basis for tax reduction:

The taxable income serving as the basis for calculating the reduced personal income tax under this Circular includes:

- Taxable income from salaries and wages earned by individuals working in the economic zone paid by state management agencies, organizations, and individuals with business establishments in the economic zone, or by organizations and individuals outside the economic zone paying salaries and wages to individuals assigned to work in the economic zone to implement economic contracts signed with the Management Board of the economic zone or with organizations and individuals conducting investment and business activities within the economic zone;

- Taxable income from business operations conducted by individuals or groups of individuals operating businesses in the economic zone with business registration certificates issued by the economic zone;

From January 1, 2009, income from salaries and wages, and income from direct production and business activities in the economic zone, shall be determined according to the guidelines set forth in Circular No. 84/2008/TT-BTC dated September 30, 2008, and Circular No. 62/2009/TT-BTC dated March 27, 2009, both issued by the Ministry of Finance, amending and supplementing Circular No. 84/2008/TT-BTC dated September 30, 2008.

In cases where the Ministry of Finance issues different regulations on methods for determining taxable income for personal income tax, such regulations shall be followed.

Article 3. Declaration of temporarily submitted tax amount, settlement of reduced tax amount:

Individuals working in economic zones with taxable income as guided in Article 2 of this Circular shall have their individual income tax for the year reduced by 50%, and settle the reduced tax amount at the end of the year, specifically as follows:

1. Declaration of temporarily submitted tax amount:

1.1. For individuals with income from salaries and wages, each month, based on the total taxable income from salaries and wages paid to workers employed in economic zones, the organization or individual paying the income calculates the personal income tax that must be withheld according to regulations. Based on the amount of tax to be withheld, the organization or individual paying the income shall submit 50% of the withheld tax to the state budget. The reduced tax amount shall be paid to the worker by the organization or individual paying the income.

Each month, when declaring the tax amount to be withheld and submitted to the budget, the organization or individual paying the income shall declare the personal income tax according to Form No. 02/KK-TNCN issued together with Circular No. 84/2008/TT-BTC dated September 30, 2008 of the Ministry of Finance, where the total tax amount already withheld (item [13]) reflects the actual total tax amount to be submitted to the budget after reducing by 50% for individuals eligible for exemption or reduction.

Individuals with income from salaries and wages who are required to directly declare monthly tax to the tax authority shall, based on the temporarily submitted tax declaration each month, submit 50% of the tax due to the state budget according to regulations.

On Form No. 07/KK-TNCN issued together with Circular No. 84/2008/TT-BTC dated September 30, 2008 of the Ministry of Finance, the total tax amount to be paid during the period (item [19]) reflects the tax amount to be paid after reducing by 50% as guided in this Circular.

1.2. For individuals or groups of individuals with income from business operations:

- Quarterly, individuals or groups of individuals engaged in business operations who are subject to a 50% reduction in personal income tax shall calculate the temporarily reduced tax amount, the remaining tax amount to be paid, and submit it to the state budget according to regulations.

On Form No. 08/KK-TNCN (applicable to individuals engaged in business operations) and Form No. 08A/KK-TNCN (applicable to groups of individuals engaged in business operations) issued together with Circular No. 84/2008/TT-BTC dated September 30, 2008 of the Ministry of Finance, the temporary personal income tax amount to be paid during the period should accurately reflect the tax amount to be submitted to the state budget after reducing by 50%.

- For individuals or groups of individuals engaged in business operations who pay taxes under the fixed-amount method, based on Form No. 10/KK-TNCN (applicable to individuals engaged in business operations) and Form No. 10A/KK-TNCN (applicable to groups of individuals engaged in business operations) issued together with Circular No. 84/2008/TT-BTC dated September 30, 2008 of the Ministry of Finance, the tax authority will determine the personal income tax amount to be paid, the reduced tax amount, and notify the individuals or groups of individuals engaged in business operations of the tax amount still to be paid to the state budget.

2. Settlement of the reduced tax amount:

2.1. For organizations or individuals paying income:

From 2009, organizations or individuals paying income shall settle personal income tax according to Circular No. 84/2008/TT-BTC dated September 30, 2008 of the Ministry of Finance.

The settlement documents include those specified for each type of income in the above Circulars, and in addition, organizations or individuals paying income must prepare a list of individuals eligible for tax reduction according to the Appendix for Personal Income Tax Reduction for Organizations and Individuals Paying Income to Individuals Working in Economic Zones (Form No. 01/KKQT-TNCN) issued together with this Circular.

In cases where organizations or individuals paying income located outside economic zones send workers to work in economic zones to fulfill economic contracts signed with the Management Board of the economic zone or with organizations and individuals operating investment and production activities within the economic zone, these organizations or individuals paying income need to retain the economic contracts signed with the Management Board of the economic zone or with organizations and individuals operating investment and production activities within the economic zone, as well as the documents transferring workers to work in the economic zone, and must present them upon request for inspection by the tax authority.

2.2. For individuals with income:

a) Non-resident individuals eligible for tax reduction are not required to settle tax.

b) Resident individuals eligible for tax reduction must settle the reduced tax amount if there is a tax payable amount greater than the tax already paid, or if they request a refund of excess tax paid or offset against future periods.

- Resident individuals eligible for tax reduction with income from salaries and wages shall settle tax directly with the tax authority managing the organization or individual paying the income.

The tax settlement documents shall be implemented according to the guidance at Point 2.3, Section II, Part D of Circular No. 84/2008/TT-BTC dated September 30, 2008 of the Ministry of Finance. In the tax reduction documents, individuals must attach the Appendix for Personal Income Tax Reduction for Organizations and Individuals Paying Income to Individuals Working in Economic Zones or the Appendix for Personal Income Tax Reduction for Individuals Declaring Directly to the Tax Authority for Income Earned in Economic Zones (Form No. 02/KKQT-TNCN) issued together with this Circular.

- Resident individuals eligible for tax reduction with income from business operations shall settle tax directly with the Tax District where the economic zone is located.

In cases where individuals have business locations both inside and outside economic zones, tax settlement shall take place at the location where the individual has registered for family allowance deduction.

In addition to the documents specified at Point 2.2, Section II, Part D of Circular No. 84/2008/TT-BTC dated September 30, 2008 of the Ministry of Finance, individuals must also provide a copy of the business registration certificate as evidence of their business operations in economic zones and attach the Appendix for Personal Income Tax Reduction for Individuals Engaged in Business Operations in Economic Zones (Form No. 03/KKQT-TNCN) issued together with this Circular.

3. Determination of the reduced tax amount:

3.1. For Vietnamese residents and foreign residents in Vietnam:

a) In cases where resident individuals only have income from salaries and wages and income from business operations arising in economic zones:

The reduced personal income tax amount equals the total personal income tax amount payable multiplied by 50%.

Where: The total personal income tax amount payable mentioned above is the personal income tax amount payable according to regulations.

b) In cases where a resident individual has income from salaries and wages as well as income from business activities occurring within an economic zone, and also has income generated outside the economic zone, the amount of personal income tax reduction due to working within the economic zone shall be determined as follows:

Where: The amount of personal income tax payable in a year is determined based on the total income subject to tax arising during the tax year.

3.2. For non-resident individuals:

The amount of personal income tax payable = Total income subject to tax arising from work within the economic zone multiplied by (x) the applicable tax rate for non-resident individuals multiplied by (x) 50%.

Article 4. Implementation:

1. This Circular takes effect 45 days from the date of signature and applies a 50% reduction in the amount of personal income tax payable for individuals with income generated within the economic zone starting from January 1, 2009.

2. Individuals with income from salaries and wages within the economic zone from the date the Government Decree No. 29/2008/NĐ-CP dated March 14, 2008 comes into force until December 31, 2008, who are subject to taxation under the high-income earners' tax regime, shall also enjoy a 50% reduction in the amount of personal income tax payable. The finalization of the high-income earners' tax will be carried out according to the guidance provided in Circular No. 81/2004/TT-BTC dated August 13, 2004 issued by the Ministry of Finance.

Individuals with income from working in economic zones that were established by a Prime Minister's Decision before the effective date of Government Decree No. 29/2008/NĐ-CP, which stipulates a 50% reduction in the amount of personal income tax payable for high-income earners, shall implement tax reductions according to the financial system guidelines specific to each economic zone up to the effective date of Government Decree No. 29/2008/NĐ-CP, and shall follow the guidance provided in this Circular for tax reductions from the effective date of Government Decree No. 29/2008/NĐ-CP.

3. Individuals engaged in business within the economic zone before January 1, 2009, who have ongoing business income and are currently enjoying investment incentives under the Corporate Income Tax Law regulations until December 31, 2008, and are still within the period exempted from corporate income tax, shall continue to enjoy exemption from personal income tax for the remaining exempt period, and thereafter shall benefit from a 50% reduction in personal income tax according to the guidance provided in this Circular.

Any issues arising during implementation should be reported to the Ministry of Finance for consideration and decision./.