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Vietnam: Law on Personal Income Tax

(Apr. 2, 2008) The National Assembly of the Socialist Republic of Vietnam approved the country's first Personal Income Tax Law on November 21, 2007 (Law No. 04/2007/QH12). It was promulgated by Decree No. 13/2007/L-CTN on December 5, 2007, and published in the OFFICIAL GAZETTE on January 13, 2008. It is scheduled to take effect on September 1, 2009. The Law is in 35 articles divided among four chapters, covering general provisions, the basis for calculation of resident individuals' tax, the basis for calculation of non-resident individuals' tax, and implementing provisions. (Agency for SME Development, SRV Ministry of Planning and Investment, Personal Income Tax Law, http://www.business.gov.vn/newsevents.aspx?id=6010&LangType=1033 (last visited Mar. 24, 2008).)

As under the current ordinance on personal income tax, any form of employment income is taxable. "However, the language appears to be drafted in a more 'catch all' style, so that those benefits in kind, which hitherto have not been taxable in practice, will now clearly be taxable under the law" (PriceWaterhouseCoopers, Vietnam: New Law on Personal Income Tax ('PIT'), Nov. 2007, available at http://www.pwcias.com/home/eng/vn_pit_law_nov2007.html). Personal income subject to taxation under the Law includes income from salary, wages, investments and capital transfers, real estate transfers, lottery proceeds, copyright, commercial concessions, inheritance, and doing business. The latter encompasses income from production activities, trading in goods and services, and independent professional activities as permitted by law. The lowest rate of taxation is 2%, applicable to income from real estate transfers; the highest is 30%, on income above VND624 million (about US$40,350) up to 960 million (about US$61,100) per year. (Personal Income Tax Law, supra).

Among other significant changes are the following:

• There are now common progressive tax rates for both foreign and Vietnamese resident individuals;

• The top income tax rate for tax residents has been reduced from 40% to 35% and for non-tax residents, from 25% to 20%;

• The definition of tax residents is broadened to include those having a permanent residence in Vietnam and Vietnamese nationality is removed as a criterion for determination of tax residency.

• For the first time non-employment income, such as gains from the sale of securities or real estate, interest (except bank interest), and dividends will be taxable.

(Oliver Massman, Vietnam – The Year's Milestones Summary – Firms Sharpen Pencils to Draw Out New Tax Strategies, VIETNAM TRADE – INVESTMENT – LAW, http://www.vietnam-trade-investment-law.sino.net/news/2008/2/607.php (last visited Mar. 25, 2008).)