Decree No. 78/2001/ND-CP detailing the implementation of the Ordinance on Income Tax for High-Income Individuals

DECREE OF THE GOVERNMENT

Detailed regulations for implementation of the Ordinance on Income Tax for High-Income Individuals

THE GOVERNMENT

Pursuant to the Government Organization Law dated September 30, 1992;

Based on the Ordinance on Income Tax for High-Income Individuals No. 35/2001/PL-UBTVQH10 dated May 19, 2001 of the Standing Committee of the National Assembly;

At the proposal of the Minister of Finance,

DECREE:

PART I

SCOPE OF APPLICATION

Article 1. Pursuant to Article 1 of the Ordinance on Income Tax for High-Income Individuals (hereinafter referred to as the Ordinance on Income Tax), the subjects liable to pay income tax include:

1. Vietnamese citizens residing in Vietnam or working abroad who have income;

2. Individuals who are not Vietnamese citizens but reside permanently in Vietnam and have income;

3. Foreigners working in Vietnam, including foreigners not residing in Vietnam but having income generated in Vietnam.

Article 2. Taxable income includes regular and non-regular income, except for the types of income specified in Article 4 of this Decree.

1. Regular income includes:

a) Income in the form of salaries, wages, and remuneration;

b) Allowances;

c) Payments made on behalf of individuals for rent, electricity, and water. Specifically, rent is calculated based on actual payments made on behalf of the individual but not exceeding 15% of total income from salaries, wages, and remuneration;

d) Cash and non-cash bonuses from various sources;

đ) Other income from participation in business associations and corporate boards;

e) Income from personal activities in production and business services that are not subject to corporate income tax, such as long-term consulting services, vocational training, teaching, test preparation, cultural and artistic performances.

2. Non-regular income includes:

a) Income from gifts and donations in kind transferred from organizations or individuals abroad to individuals in Vietnam under any form;

b) Income from technology transfer including: transfer of ownership or usage rights over industrial property objects; technology transfer through the sale or provision of technical secrets, technological plans, trademarks; performance of technology support and advisory services, transfer of usage or usage rights over industrial, commercial, or scientific equipment, except for gifts;

c) Income from technical design for construction, industrial design, copyright fees, and other services;

d) Lottery winnings and promotional prizes in various forms.

Article 3. Temporary exemption from income tax on income from bank deposit interest, savings deposit interest, bond purchase interest, bill purchase interest, stock purchase interest, income from securities investment activities, and securities trading gains.

Article 4. Specific provisions regarding income exempt from taxation are as follows:

1. Allowances prescribed by the Vietnamese government for income generated in Vietnam, including:

a) Night shift allowances;

b) Hazardous and dangerous job allowances applicable to occupations or jobs with hazardous working conditions;

c) Responsibility allowances;

d) Regional allowances, attraction allowances, and special allowances for certain remote islands and border areas;

đ) Tenure allowances for military personnel; security and defense allowances;

e) Special allowances for certain professions as stipulated by law;

g) Mobility allowances;

h) Preferential allowances for cadres who participated in revolutionary activities before 1945 and other allowances from the state budget.

2. Other income generated in Vietnam includes:

a) Travel expenses;

b) Meal allowances for certain special professions according to state regulations;

c) Social welfare subsidies for beneficiaries of social policies and other subsidies from the state budget;

d) Insurance compensation for personal and property damage;

đ) Severance pay and unemployment benefits as regulated by the state;

e) Relocation allowances for production and business establishments including one-time relocation allowances;

g) Awards for technical improvements, inventions, international awards, national awards organized and recognized by the Government of Vietnam;

h) Bonuses accompanying titles conferred by the State such as Professor, People's Teacher, Labor Hero, People's Armed Forces Hero;

i) Social insurance and health insurance contributions paid from salaries and wages of workers.

3. Income of household business owners that has already been subject to corporate income tax;

4. Regular income of foreign nationals present in Vietnam for less than 30 days within a continuous 12-month period starting from the first day they arrived in Vietnam.

Chapter II

BASIS FOR TAX CALCULATION AND TAX SCHEDULE

Article 5. The basis for calculating income tax includes taxable income and tax rates;

Article 6. Regular income subject to tax is the total income of each individual as stipulated in Clause 1, Article 2 of this Decree, averaged monthly throughout the year, specifically:

1. For Vietnamese citizens working domestically or those working or laboring abroad and other individuals residing in Vietnam, the total income generated in a year is divided by 12 months (Gregorian calendar year). In cases where Vietnamese citizens have worked both domestically and abroad, the taxable income is the total income generated both domestically and abroad.

2. For foreign nationals:

a) If residing in Vietnam for 183 days or more, the total income generated in Vietnam and abroad is divided by 12 months. If the average monthly income reported abroad is lower than in Vietnam without proof, the average monthly income in Vietnam will be used to calculate the time spent abroad. The tax month is assumed to be 30 days;

b) If residing in Vietnam for 30 to 182 days, the taxable income is the total income generated in Vietnam, regardless of the place of receipt;

c) The residence period of foreign nationals in Vietnam is counted as a continuous 12-month period for the first tax year, subsequent years are counted according to the Gregorian calendar, arrival and departure days are counted as one day.

Article 7. Tax rates for regular income:

1. Vietnamese citizens residing in Vietnam and other individuals residing in Vietnam apply the progressive tax rate table specified in Clause 1, Article 10 of the Ordinance on Income Tax, after paying taxes according to this table, if the remaining income exceeds 15,000,000 VND/month, an additional 30% is paid on the amount exceeding 15,000,000 VND;

2. Vietnamese citizens who generate income both domestically and abroad during the tax year, domestic income applies the tax rate table specified in Clause 1, Article 10 of the Ordinance on Income Tax, foreign income applies the tax rate table specified in Clause 2, Article 10 of the Ordinance on Income Tax. Taxable income is determined by dividing annual income by 12 months to apply the corresponding tax table;

3. Foreign nationals residing in Vietnam for 183 days or more and Vietnamese citizens working abroad apply the progressive tax rate table specified in Clause 2, Article 10 of the Ordinance on Income Tax;

4. Foreign nationals residing in Vietnam for 30 to 182 days apply a flat tax rate of 25% on total income generated in Vietnam.

Article 8. Non-regular income subject to tax for each individual is calculated based on each occurrence of income, specifically:

1. For income from gifts and donations in kind transferred from abroad, it is calculated for the person named as the recipient of the gift, including cases where the recipient is a business owner.

2. For income from technology transfer, technical design for construction, industrial design, taxable income shall be calculated based on the value of each contract, regardless of the number of payments made;

3. For income from lottery winnings, promotional prize winnings, such income shall be calculated for each draw and receipt of the prize;.

Article 9. The tax rate applicable to occasional income shall be applied according to the progressive tax rate table prescribed in Clause 1, Article 12 of the Income Tax Ordinance, except for the cases specified below:

1. A tax rate of 5% shall apply to income from technology transfer exceeding 2,000,000 VND per transaction;

2. A tax rate of 10% shall apply to income from lottery winnings, promotional prize winnings exceeding 12,500,000 VND per transaction;

3. A tax rate of 5% shall apply to income from gifts and donations in kind from abroad exceeding 2,000,000 VND per transaction.

Article 10. Income in foreign currency must be converted into Vietnamese Dong at the average exchange rate on the inter-bank foreign exchange market at the time of income generation to calculate taxable income. Income in kind is valued at the local market price at the time of income generation. For gifts and donations in kind from abroad, the price for calculating taxable income shall be determined according to the import tax valuation regulations at the time of receiving the gift.

Chapter III

DECLARATION, PAYMENT OF TAX AND SETTLEMENT OF TAX

Article 11.The declaration and payment of income tax shall be carried out according to the principle of withholding at source. Organizations and individuals paying income have the obligation to withhold tax before paying income to the taxpayer.

Article 12. Registration, declaration of tax payment for regular income shall be calculated based on the average monthly income during the tax year, with provisional tax payments declared monthly based on actual income.

1. Taxpayers are responsible for registering and declaring tax payments to the tax authority through organizations or individuals paying income (in cases where tax is declared and paid according to the withholding at source principle) or authorized agencies collecting income tax. In cases where individuals have taxable income but have not had tax withheld at source, they must declare and pay income tax directly to the tax authority.

2. Organizations or individuals paying income or authorized agencies collecting income tax (hereinafter referred to as the income-paying agency) shall carry out tax declarations and payments in accordance with Clause 1, Article 16 of this Decree.

Article 13.The declaration and payment of tax for occasional income shall be carried out for each occurrence of income.

The income-paying agency has the responsibility to withhold tax before paying income (including income from individuals transferring technology from abroad to Vietnam). Individuals carrying gifts or donations must declare and pay income tax on behalf of the recipient.

Article 14Taxpayers are responsible for fully declaring taxable income; paying taxes in full and on time; annually settling tax returns for regular income in accordance with the regulations of the Ministry of Finance.

Article 15. The Ministry of Finance organizes the collection of income tax, bears the responsibility for directing, guiding, and inspecting organizations in collecting income tax according to the withholding tax at source method before paying income.

The income-paying agency that carries out tax withholding is entitled to a fee of 0.5% calculated on the amount of tax for regular income, and 1% calculated on the amount of tax for occasional income before remitting it to the state budget.

Article 16. The income-paying agency is responsible for:

1. Registering, declaring, withholding, and paying taxes in full and on time into the state budget; compiling a summary declaration, calculating tax, and submitting to the tax authority a list of taxpayers who are required to pay income tax;

2. Guiding taxpayers to receive tax declaration forms, declare and settle tax returns with the tax authority;

3. Keeping books and records related to tax declarations, tax calculations, and tax payments, implementing periodic reporting systems, and annual tax settlement reports with the tax authority;

4. Calculating tax, withholding tax, determining the amount of remuneration to be paid, and remitting tax to the state budget;

5. Issuing receipts to taxpayers, managing, using, and settling tax receipts according to regulations.

Article 17. Organizations managing and paying income to foreign nationals have the responsibility to guide and complete tax payment procedures before processing departure formalities for foreign nationals.

Foreign individuals subject to income tax are responsible for declaring to the income-paying agency or the tax authority about their taxable income, the number of days residing in Vietnam to settle income tax returns, and must pay all due income tax before leaving Vietnam.

Chapter IV

EXEMPTIONS AND REDUCTIONS

Article 18. Eligible for tax reduction or exemption:

1. In cases where taxpayers suffer losses to property, income, and living conditions due to natural disasters, enemy attacks, or accidents; the level of tax exemption or reduction shall correspond to the degree of loss but shall not exceed the amount of tax payable;

2. In special cases, if the payment of tax by an individual affects the economic, political, and social interests of the country, the Ministry of Finance shall submit to the Prime Minister for a decision to exempt or reduce tax for specific cases.

The Ministry of Finance shall stipulate the procedures for tax exemption and reduction under this provision.

Chapter V

IMPLEMENTING PROVISIONS

Article 19.Violations of laws on income tax shall be handled according to the provisions of Articles 21, 22, 23, and Article 24 of the Income Tax Ordinance.

Persons who discover violations of laws on income tax and assist tax authorities in recovering taxes shall be rewarded up to 5% of the recovered tax actually paid into the state budget according to the regulations of the Ministry of Finance.

Article 20. If international treaties to which Vietnam is a party provide for different rules on income tax than those set forth in this Decree, such treaties shall prevail.

Article 21. This Decree takes effect from July 1, 2001 and replaces Decrees No. 05/CP dated January 20, 1995, No. 30/CP dated April 5, 1997, and Decree No. 170/1999/NĐ-CP dated December 6, 1999 of the Government.

Article 22. The Minister of Finance shall guide the implementation of this Decree.

The Ministers, Heads of ministerial-level agencies, Heads of government agencies, Chairpersons of People's Committees of provinces and centrally governed cities are responsible for implementing this Decree./.