Accordingly, upon the acceptance of the completed work for the first phase, Mr. Tung's company made a cash payment to the team leader after deducting 10% for personal income tax (PIT).

The accompanying documents include: Labor subcontracting contract; authorization letter from the workers to the representative who signed the contract with the company; the individual's identification card; attendance records; a report of confirmation of the completed work's volume and value (for the first phase); purchase ledger for goods (Form 01/TNDN); cash payment vouchers; and documents for the deduction of PIT.

Mr. Tung asks whether the above documents are complete and valid. Does his company need to submit Form 05/KK-TNCN and settle taxes in this case?

The Tax Department of Le Chan - Dương Kinh, Hai Phong City, responded as follows:

Based on Circular No. 111/2013/TT-BTC dated August 15, 2013, guiding the implementation of the Personal Income Tax Law, the Law on amendments and supplements to certain articles of the Personal Income Tax Law, and Decree No. 65/2013/ND-CP dated June 27, 2013, of the Government, detailing a number of articles of the Personal Income Tax Law and the Law on amendments and supplements to certain articles of the Personal Income Tax Law:

- Clause 2, Article 2, stipulates the taxable income as follows:

"2. Income from salaries, wages

Income from salaries, wages is the income received by employees from employers, including:

a) Salaries, wages, and amounts with salary or wage nature in forms of money or non-money.

... c) Remuneration received in forms such as: Sales commission for selling goods as an agent, brokerage commission; remuneration for participation in scientific, technical research projects; remuneration for participation in projects; author's remuneration according to the provisions of the law on remuneration; remuneration for participating in teaching activities; remuneration for participating in cultural, artistic, physical education, and sports activities; advertising service fees; other service fees, and other remuneration."

- Article 25 stipulates tax deduction and tax deduction vouchers as follows:

"Article 25. Tax Deduction and Tax Deduction Vouchers

... i) Tax deduction in some other cases

Organizations and individuals paying wages, remuneration, and other expenses to individuals who are residents and do not sign labor contracts (as instructed in Point c, Point d, Clause 2, Article 2 of this Circular) or sign labor contracts for less than three (03) months, with a total income payment of two million (2,000,000) dong or more per time, must deduct tax at the rate of 10% on the income before paying to the individuals...

... 2. Tax Deduction Vouchers

a) Organizations and individuals who make income payments subject to tax deduction as instructed in Clause 1 of this Article must issue tax deduction vouchers upon the request of the individuals subject to deduction. In the case where the individual authorizes tax settlement, tax deduction vouchers are not required to be issued.

b) Issuance of tax deduction vouchers in some specific cases is as follows:

b.1) For individuals who do not sign labor contracts or sign labor contracts for less than three (03) months: Individuals have the right to request organizations or individuals paying income to issue tax deduction vouchers for each tax deduction or issue one tax deduction voucher for multiple tax deductions within a tax calculation period..."

Based on Point d.2, Clause 6, Article 8 of Decree No. 126/2020/ND-CP dated October 19, 2020, of the Government, detailing certain provisions of the Law on Tax Administration, the regulation on the authorization of personal income tax settlement is applied.

Based on Article 4 of Decree No. 123/2020/ND-CP dated October 19, 2020, of the Government, which provides regulations on invoices and documents, the following are the principles of issuing, managing, and using invoices and documents:

... 2. When deducting personal income tax (PIT) or collecting tax, fees, the organizations deducting tax, the organizations collecting fees and taxes must issue tax deduction vouchers, tax receipts, fee receipts to individuals subject to tax deduction, taxpayers, and fee payers, including complete information as prescribed in Article 32 of this Decree. In the case of using electronic receipts, they must follow the data standard format of the tax authorities. In the case of individuals authorizing tax settlement, tax deduction vouchers for personal income tax are not required.

For individuals who do not sign labor contracts or sign labor contracts for less than three (03) months, the organization or individual paying income has the option to issue tax deduction vouchers for each deduction or issue one tax deduction voucher for multiple tax deductions within a tax calculation period. For individuals who sign labor contracts for three months or more, the organization or individual paying income can only issue one tax deduction voucher to the individual in one tax calculation period.

Based on Clause 1, Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015, of the Ministry of Finance amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014, of the Ministry of Finance, which provides regulations on deductible and non-deductible expenses when determining taxable income, the following are the points related to deductible expenses:

"1. Deductible expenses, except for the expenses not allowed to be deducted as mentioned in Clause 2 of this Article, include all expenses that meet the following conditions:

a) The actual expenses related to the production and business activities of the enterprise.

b) The expenses have sufficient invoices and legitimate documents as required by law.

c) The expenses that have invoices for purchasing goods or services each time with a value of twenty million dong or more (including VAT) must have non-cash payment vouchers when making payments.

Non-cash payment vouchers shall be implemented according to the provisions of legal documents on VAT.

... 2. Non-deductible expenses when determining taxable income include:

… 2.4. The costs of purchasing goods and services (without invoices, permitted to make purchase ledger for purchased goods and services according to Form 01/TNDN attached to Circular No. 78/2014/TT-BTC) but not making purchase ledger with payment vouchers for sellers, service providers in the following cases:

- Purchasing agricultural, forestry, aquatic products directly from producers, or catchers for resale;

... The list of purchased goods and services, signed by the legal representative or authorized person of the enterprise, is responsible for accuracy and honesty under the law. The enterprise is allowed to make this list and include it as deductible expenses. These expenses are not required to have non-cash payment vouchers. If the purchase prices of goods and services on the list are higher than the market prices at the time of purchase, the tax authorities will determine the cost again based on the market prices of similar goods and services at the time of purchase when calculating the deductible expenses for taxable income...

Based on the above references, in the case where Mr. Do Thanh Tung's company enters into contracts with individuals (without business registration) to carry out construction projects, the income received by individuals falls under the tax regulations for salaries and wages.

Accordingly, the company is responsible for deducting personal income tax (PIT) at a tax rate of 10% before paying the individuals or the representative of the group of individuals. Additionally, the company must issue tax deduction vouchers as stipulated in Article 4 of Decree No. 123/2020/ND-CP dated October 19, 2020, of the Government.

To include the expenses of hiring labor for the aforementioned construction projects as deductible expenses for determining the taxable income, Mr. Tung's company needs to have the following related documents:

 - Contracts signed with individuals or representatives of the group of individuals.

- Attendance records.

- List of purchased goods and services purchased according to Form 01/TNCN.

- Payment vouchers for labor costs.

- Certified copies of identification cards (citizen identity cards) of the individuals.

- Tax deduction vouchers and other related documents (if applicable).

The company must declare and pay PIT for the 10% tax deduction mentioned above on the monthly (quarterly) PIT return and the annual PIT settlement return of the company. The company does not need to perform the PIT settlement on behalf of these individuals as they do not fall under the category of authorized PIT settlement cases.