How to calculate detailed personal income tax in 2023

Personal income tax is a direct tax and is applied to individual income. In this article, 1C Vietnam will introduce in detail the concepts, regulations as well as a simple and quick way to calculate personal income tax .

1. What is personal income tax?

Personal income tax is an amount of money that must be paid into the state budget after family deductions have been made. This type of tax is levied on individual income including income from salaries, wages, business income, and investment income.

2. Regulations on paying personal income tax

Regarding the payment of personal income tax, the law has specific and clear regulations for each subject and case as follows:

2.1. Individual income tax payers

According to Article 2 of the Personal Income Tax Law promulgated and amended in 2012, there are 2 subjects who must pay personal income tax, including:

Subject 1: Resident individuals

A resident individual is a person who has an actual connection with Vietnam as follows:

• Have a house or rent a house regularly in Vietnam according to the provisions of law and have a rental term of more than 183 days in the tax year.
• Have a permanent residence in Vietnam for 183 days or more in a year or 12 months from the time of presence in Vietnam.

For resident individuals, there are 2 cases where personal income tax must be paid:

• The person signing a labor contract with the enterprise/organization for 3 months or more.
• People who sign a labor contract for less than 03 months or do not sign a labor contract and have a total income payment of 2 million VND/time or more.

Subject 2: Non-resident individuals

A non-resident individual is an individual who does not qualify as a resident individual. Usually, these are foreign residents who come to Vietnam to live and work.

2.2. Legal basis for calculating personal income tax

Personal income tax is a type of tax collected directly on each person's income. The legal basis for calculating personal income tax is specified in the following documents:

• The 2007 Personal Income Tax Law regulates subjects, tax bases, tax rates, tax calculation methods, tax payment deadlines, tax administration and other issues related to personal income tax.
• Law amending and supplementing the Law on Personal Income Tax 2012 is a legal document adjusting and supplementing a number of articles of the Law on Personal Income Tax 2007.
• Circular 111/2013/TT-BTC is a document guiding the implementation of the Personal Income Tax Law 2007 and the Law amending and supplementing the Personal Income Tax Law 2012.
• Resolution 954/2020/UBTVQH14 is a resolution of the National Assembly Standing Committee on adjusting the level of family deductions for personal income taxpayers.

2.3. Personal income tax rate

Determining personal income tax rates is divided into two types: partially progressive tax schedule and full tax schedule.

The partially progressive tax schedule applies to taxable income from wages, salaries, and business of individuals and organizations. Tax rates are applied according to the partially progressive tax schedule as follows:

Full tax is a method of calculating personal income tax applied to income from investments, capital transfers, real estate transfers, trade, winning prizes, income from copyrights, inheritance or property. present. Personal income tax rates for these incomes are prescribed as follows:

3. How to calculate personal income tax

For each group of subjects, the personal income tax calculation formula will have certain differences, specifically:

3.1. How to calculate personal income tax for resident individuals

Case 1: How to calculate personal income tax for resident individuals who have signed a labor contract of more than 03 months.

Personal income tax (PIT) for resident individuals with labor contracts of more than 3 months and income from wages and salaries is calculated according to the following formula:

Personal income tax to be paid = Taxable income x Tax rate

In there:

• Taxable income is taxable income after deducting deductions.
• Taxable income is the total income from salaries and wages received after deducting tax-exempt amounts.
• Tax rate is the tax rate payable according to each level of taxable income.

To calculate personal income tax, resident individuals with labor contracts of more than 3 months and income from wages and salaries need to follow these steps:

• Step 1: Calculate total personal income from salaries and wages received.
• Step 2: Add up the total tax-exempt amounts.
• Step 3: Calculate taxable income according to the formula:

Taxable income = Total personal income from salaries and wages received - Tax-exempt amounts

• Step 4: Determine the deductions prescribed by law.
• Step 5: Calculate taxable income:

Taxable income = Taxable income - Deductions

• Step 6: Determine the tax rate according to the partially progressive tax schedule.
• Step 7: Calculate personal income tax.

Case 2: How to calculate personal income tax for individuals who do not sign a labor contract or sign a labor contract of less than 3 months

At Point i, Clause 1 in Article 25 of Circular 111/2013/TT-BTC stipulates that resident individuals sign labor contracts of less than 03 months or do not sign labor contracts but have an income of less than 3 months. 2 million VND/month does not have to pay personal income tax.

As for the case of a resident individual who signs a labor contract with an enterprise/organization for a term of less than 3 months or does not sign a contract and has an income of over 2 million VND/month, they must pay tax. personal income with a tax rate of 10%.

Personal income tax calculation formula for this case:

Personal income tax payable = 10% x Total income before payment

In which: Total income before payment is the total income that the individual receives from the organization paying the income, including allowances, subsidies, bonuses,...

Note, an individual can make a commitment to the income-paying organization to not have to deduct personal income tax if it is estimated that after deducting family circumstances, the individual's total taxable income does not reach the level to be paid. tax. In addition, at the end of the tax year, individuals are responsible for finalizing personal income tax with the tax authority.

3.2. How to calculate personal income tax for non-resident individuals

Individuals who do not reside in Vietnam are not eligible for family deductions, so as long as they have income from salaries or wages arising in Vietnam, they are subject to personal income tax at a tax rate of 20%. However, non-resident individuals are still entitled to deductions for some contributions such as insurance, pension funds, study promotion, and volunteer work.

How to calculate personal income tax for non-resident individuals is as follows:

Personal income tax payable = 20% x Taxable income

In which: Taxable income is the total amount of salaries, wages and other revenues received by the tax payer during the tax period.

4. Taxable income and deductions

Taxable income is the total amount of money paid by an individual, excluding lunches, midday meals, telephone allowances, uniform allowances, per diems and income. from wages that workers work overtime.

Deductions are amounts deducted from taxable income before calculating personal income tax. Deductions include:

• Family allowances:

• Deduction for taxpayers themselves: The deduction level is 11 million VND/month (132 million VND/year).
• Deduction for each dependent: The deduction is 4.4 million VND/month.

• Deductions for insurance contributions and voluntary pension funds:

• Social insurance (SI), health insurance (HI), unemployment insurance (UI): Deduction level is 1.5 million VND/month.
• Voluntary pension fund: Deduction level is 2.25 million VND/month.

• Deductions for charitable, humanitarian, and educational contributions: The maximum deduction is 10% of total taxable income but does not exceed 32 million VND/year.

To qualify for family deductions for dependents, the following two conditions need to be met:

• The taxpayer has registered and received a tax code.
• Taxpayers need to submit documents proving dependents such as birth certificates, adoption and education certificates, health insurance cards, etc.

Above is the detailed personal income tax calculation in 2023. Depending on the situation, personal income may or may not be taxable. Don't forget to follow other articles on 1C Vietnam's website to update useful content on corporate governance.