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Common Mistakes When Calculating Personal Income Tax (Part 1)



 

Treating union fee as a deductible item in the same way as compulsory insurance when calculating PIT

According to Point a, Clause 4, Article 7, Circular No. 111/2013/TT-BTC on the implementation of the law on PIT:

“Deductions include personal deductions, insurance premiums, contributions to the voluntary pension fund, and charitable donations as guided in Article 9 of this Circular.”

Therefore, union fee is not be counted as a deduction since it does not belong to the list above. Therefore, it must not be withheld before calculating PIT.

 

Do not withhold PIT before paying income

According to Point i, Clause 1, Article 25, Circular No. 111/2013/TT-BTC, “The organization or person that pays a total income from 2 million VND to a resident that does not sign a labor contract (as guided in Point c and Point d Clause 2 Article 2 of this Circular) or that signs a labor contract for less than 03 months shall withhold 10% tax on the income before it is paid to the person.

Salaries and remuneration are collectively referred to as current income, such as real estate brokerage; fees from consulting services such as tax, accounting, marketing, design, etc.; payment from teaching activities; payment from outsourcing services such as loading, shipping; wages for workers without labor contracts or labor contracts of less than three (03) months.

If the enterprise does not withhold PIT, the tax authority will recalculate on the basis that the payment amount is the income received after tax.

For example:

if an enterprise pays three million VND (VND 3,000,000) to a sales broker, if the individual pays taxes (or if the enterprise
proactively withhold PIT), the tax payable is VND 3,000,000 x 10% = VND 300,000;
however, in case the enterprise does not withhold employee’s PIT (which means pay in full VND 3,000,000),
after the tax authority recalculates, the PIT amount that the enterprise has to pay is
(VND 3,000,000 / 0.95) x 10% = VND 315,789.

Therefore, when paying current income, enterprises must withhold PIT from individuals, for each payment of over two
million VND
(VND 2,000,000) (not applicable when the payment is less than VND two million).
In case an individual estimates that his income in a year is not taxable (under VND 108 million/year), he shall prepare
a written low-income commitment so that the enterprise temporarily does not withhold his PIT.

 

Low-income commitment to be signed at an inappropriate point of time or at the time the employee haven’t been granted a PIT code

Pursuant to Point i, Clause 1, Article 25, Circular No. 111/2013/TT-BTC guiding about PIT:

“For the person that earns only a taxable income as stated above but the total taxable income estimated after personal deductions are made does not reach the taxable level, the person shall make and send a commitment (the form is provided in the guiding documents on tax administration) to the income payer as the basis for temporarily exempting the income from personal income tax.
[…]
The persons that make commitments as guided in this Point shall obtain tax registration and have tax codes when the commitments are made.

At the time of payment of salaries and remuneration to employees subjected to tax deduction at the rate of 10%, the enterprise must withhold PIT for the employees, except for cases where the employee has a low-income commitment.

Therefore, the time to sign low-income commitment is the time when the employee receives the first income payment.
At the time 
of signing the commitment, the employee must have a PIT code; otherwise the tax authority will not accept
the commitment if it is made before the employee obtains a personal income tax code.

 

The employee signs a labor contract from three (03) months or longer and works at various places, but the enterprise only withhold PIT at the rate of 10%

Pursuant to Point b, Clause 1, Article 25, Circular No. 111/2013/TT-BTC guiding about PIT:

“b.1) The income payer shall deduct tax from incomes of residents that sign labor contracts for 03 months or longer according to the progressive tax table, including the persons that sign such contracts at various places.

Thus, in the case the employees working in many places, at each enterprise, the payer still deduct PIT according to
the progressive tax table.
The employee may choose to apply personal deductions at one enterprise; the other enterprises
will calculate PIT in accordance with the progressive schedule without deducting personal deductions.

 

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Common Mistakes When Calculating Personal Income Tax (Part 3)

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ASTC: Financial Accounting Services

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