The government of Vietnam has announced that it will implement the country's first broad-based law on personal income tax next year, a reform which aims to extend the personal income tax base and change the residency rules.
The personal income tax law (PIT) was passed by parliament in November 2007 and will be implemented as a result of a decree issued by the government on September 8, 2008.
The principal changes brought about by the PIT will be to the definition of tax residency, but many more forms of income will be subject to tax.
Under the new law, both resident and expat taxpayers will be subject to the same sliding rate of income tax which rises from 5% to 35% depending on the level of income, with five brackets in between.
The new law will also tax many more forms of income, and from next year interest (except on bank deposits and life insurance polices), dividends, gains from the sale of shares, securities and real estate, inheritances and overseas remittances will be taxed for the first time. Those considered resident in Vietnam must also declare their worldwide income under the new law.
In addition, certain other benefits-in-kind, including fees, allowances, housing and education compensation paid by employers will be subject to personal income tax.
As a result of the decree issued earlier this month, the PIT is scheduled to go into effect in January. However, certain details of how the new system will operate in practice, such as the exact definition of permanent residence, have still to be finalised.
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