Pham Trang Phuong Dung’s Company (in Hochimimh City) is working to prepare to ceasing operating in Vietnam. She and the company will sign an agreement to terminate the labor contract (previously she signed an indefinite contract).

In the agreement on termination of employment, the company will provide Ms. Dung with a severance allowance in accordance with applicable laws and a financial support that the company will pay more (in addition to the Labor Code and Social Insurance Law) after the termination of employment contract.

Ms. Dung would like to ask, how will her company have to deduct PIT?

Regarding this issue, the Tax Department of Ho Chi Minh City has the following opinion: 

Pursuant to Clause 2, Article 2 of the Ministry of Finance's Circular No. 111/2013 / TT-BTC dated August 15, 2013, guiding PIT regulations on income from salaries and wages:

“Incomes from wages and remunerations (hereinafter referred to as wages) are incomes paid to workers from employers, including:

a) Wages, remunerations, and the other amounts paid as wages or remunerations in cash or not in cash. b) Allowances and benefits, except for:

b.6) Irregular allowances for difficulties, occupational accident benefits, occupational illness benefits, lump-sum allowances for childbirth or adoption, maternity leave benefits, postmaternity recovery benefits, benefits for reduction in work ability, lump-sum pension, monthly widow’s pension, severance pay, redundancy pay, unemployment benefits, and other benefits according to the Labor Code and the Law on Social insurance.

đ) dd) Other benefits in cash or not in cash apart from wages paid to the taxpayer by the employer in any shape or form::...”.

In Clause 1, Article 25 of Circular No. 111/2013 / TT-BTC of the Ministry of Finance stipulating tax deduction:

1. Tax withholding:

Tax withholding is the income payer’s calculating and withholding the tax payable from the taxpayer’s income before paying the income to the tax payer.:...

b) Incomes from wages

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.

b.2) The income payer shall still withhold tax from the incomes earned residents that sign labor contracts for 03 months but resign before such labor contracts expire according to the progressive tax table.

 i) Withholding tax in other cases

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.

In her case as presented, she and the company will agree to terminate the employment contract:

- For severance allowances under the provisions of the Social Insurance Law and the Labor Code, it is not included in taxable income from salaries and wages.

- For the financial support paid by the company to her (beyond the provisions of the Labor Code and the Social Insurance Law) after the termination of the labor contract and she has quit her job, the company is responsible for deducting Personal income tax at 10% of the total payment of 2 million or more.

City Tax Department. Ho Chi Minh informed that she knew to comply with the provisions of the legal documents cited in this document.