 |
| From the 2026 tax year, a resident taxpayer may claim a personal deduction of VND 15.5 million per month, equivalent to VND 186 million per year __Photo: tuoitre.vn |
Law 109/2025/QH15 on Personal Income Tax takes effect on July 1, together with Government Decree 253/2026/ND-CP and Ministry of Finance Circular 87/2026/TT-BTC. However, the provisions governing business income and employment income earned by resident individuals apply from the 2026 tax year.
The changes are particularly significant for foreign nationals working in Vietnam, whose tax liabilities continue to depend primarily on whether they are classified as resident or non-resident individuals.
Residence status remains decisive
A foreign national will be regarded as a resident individual if he is present in Vietnam for at least 183 days in a calendar year or during 12 consecutive months from the first date of arrival. A person may also be treated as resident if he has a habitual residence in Vietnam, including a registered permanent residence or rented accommodation under a fixed-term lease.
A foreign national who meets none of these conditions will be treated as a non-resident individual. Resident individuals are subject to the progressive tax schedule and may claim applicable deductions, while non-residents generally pay tax at a flat rate of 20 per cent on employment income attributable to jobs performed in Vietnam.
Accurately determining residence status is therefore essential, particularly for employees who arrive in or leave Vietnam during a tax year, work in several countries or receive part of their remuneration from an overseas employer.
Rules applicable to resident taxpayers
Higher personal and dependant deductions
One of the most significant changes is the increase in personal and dependant deductions.
From the 2026 tax year, a resident taxpayer may claim a personal deduction of VND 15.5 million per month, equivalent to VND 186 million per year. The deduction for each eligible dependant rises to VND 6.2 million per month. The previous amounts were VND 11 million and VND 4.4 million, respectively.
The progressive tax schedule has also been reduced from seven bands to five:
- Band 1: five percent, for taxable income of up to VND 10 million per month;
- Band 2: ten percent, for taxable income of over VND 10 million to VND 30 million per month;
- Band 3: twenty per cent, for taxable income of over VND 30 million to VND 60 million per month;
- Band 4: thirty per cent, for taxable income of over VND 60 million to VND 100 million per month; and,
- Band 5: thirty-five per cent, for taxable income exceeding VND 100 million per month.
The highest rate remains unchanged, but the wider bands and lower intermediate rates are intended to reduce tax liabilities and simplify tax calculation.
Broader eligibility for dependant deductions
The monthly income ceiling used to determine whether a person qualifies as a dependant has been raised from VND 1 million to VND 3 million. The ceiling is calculated on the basis of the dependant’s average monthly income from all sources during the year.
Eligible dependants include minor children and adult children who are unable to work. They may also include children attending upper-secondary school, university, college, vocational secondary school or vocational training courses, provided that they have no income or their average monthly income does not exceed VND 3 million.
A taxpayer’s spouse, parents, step-parents, adoptive parents, parents-in-law and other relatives whom the taxpayer directly supports may also qualify. Those of working age must generally be unable to work and meet the income condition, while those beyond working age must be the persons having no income or with the average monthly income not exceeding the law-prescribed ceiling.
Taxpayers are responsible for registering their dependants, retaining the required supporting documents and ensuring that the information declared is accurate. Each dependant may be claimed by only one taxpayer in a tax year.
New treatment of meal allowances
The revised rules set a tax-exempt ceiling of VND 1.2 million per employee per month for meal or lunch allowances paid in cash. Only the amount exceeding that ceiling is included in taxable employment income.
Where an employer directly provides meals, purchases prepared meals or gives employees meal vouchers, the benefit is not included in taxable income. These rules apply from July 1.
Healthcare and education expenses become deductible
Resident taxpayers may now deduct certain healthcare and education expenses incurred for themselves and their dependants before their taxable income is calculated.
Eligible medical expenses incurred at healthcare establishments in Vietnam and on the list of services covered by health insurance may be deducted up to an aggregate maximum of VND 23 million per year.
Eligible education and training expenses incurred at education institutions in Vietnam may be deducted up to VND 24 million per year. These include tuition fees for early childhood education, general education, vocational education and higher education in accordance with law.
To claim these deductions, taxpayers must retain legally valid invoices and supporting documents bearing the details of the taxpayer or dependant concerned. Claims for medical expenses must also be accompanied by the prescribed statement of medical examination and treatment expenses.
Expenses reimbursed or paid from another source, including the state budget, social insurance or health insurance funds, donations or payments made on the taxpayer’s behalf, may not be deducted again.
Higher withholding threshold for short-term payments
Organisations and individuals paying salaries, remuneration or similar income to a resident individual who has no employment contract or has an employment contract shorter than three months must withhold tax at 10 per cent when each payment amounts to VND 5 million or more. The previous threshold was VND 2 million.
For payments below VND 5 million, the income payer may apply the 10 per cent withholding only at the recipient’s request. Separate rules allow eligible individuals whose estimated taxable income remains below the tax liability threshold to submit a declaration requesting that tax not be provisionally withheld.
A resident individual receiving additional income from another payer is not required to include that income in the annual tax finalisation if it averages no more than VND 15 million per month during the year, has already been subject to 10 per cent withholding and the individual does not request finalisation of that income.
Rules applicable to non-resident foreign workers
Employment income earned by a non-resident individual is generally taxed at 20 per cent. The tax is calculated on the total salary, wages, remuneration and other employment-related benefits received for jobs performed in Vietnam, irrespective of where the income is paid.
Taxable income is generally determined at the time the organisation or individual pays the income or the non-resident receives it.
Where a non-resident works both in Vietnam and overseas and the portion of income arising in Vietnam cannot be separately determined, the taxable amount must be apportioned.
For a foreign individual who is not physically present in Vietnam, Vietnam-sourced income is calculated by multiplying worldwide pre-tax employment income by the ratio of working days for jobs performed in Vietnam to the total number of working days in the year. Other pre-tax taxable benefits arising in Vietnam are then added.
For a foreign individual who is physically present in Vietnam, worldwide pre-tax employment income is apportioned according to the number of days spent in Vietnam divided by 365. Other Vietnam-sourced pre-tax taxable benefits are then added to the resulting amount.
These additional benefits may be monetary or non-monetary and include amounts paid directly by the employer or paid on the employee’s behalf.
Income from capital investment and transfer
Income from capital investment continues to be taxed at 5 per cent. Taxable income in this category includes interest on loans, dividends and returns from other forms of capital investment.
Interest on deposits at credit institutions and interest on government or municipal bonds remain exempt from personal income tax and are therefore not treated as taxable investment income.
Income from securities transfers is taxed at 0.1 per cent of the transfer price for each transaction. The rules also apply to transactions involving derivative securities.
For transfers of capital contributions, such as interests in limited liability companies or shares in unlisted companies, tax is generally charged at 20 per cent of the gains, calculated as the selling price minus the acquisition cost and eligible transfer expenses.
Where the acquisition price and related expenses cannot be established, tax is calculated at 2 per cent of the transfer price.
Emerging assets brought within the tax net
The revised law expressly adds several categories of taxable income reflecting the development of digital and environmental markets.
These include income from transferring the right to use a Vietnamese national “.vn” domain name; income from transfers of greenhouse gas emission reductions and carbon credits; income from transfers of vehicle registration plates obtained through auction; and income from transfers of digital assets, including virtual assets, crypto-assets and other digital assets recognised under legislation governing the digital technology industry.
The first transfer of a greenhouse gas emission reduction or carbon credit granted to, or officially recognised for, an individual is tax-exempt. Subsequent transfers may be taxable.
The law also lists income from transfers of gold bullion as taxable income. The Government is responsible for determining the taxable value threshold, implementation timetable and applicable tax rate in accordance with the roadmap for managing the gold market.
For foreign employees and investors, the revised regime provides higher deductions and a simpler progressive tax schedule, but it also expands reporting obligations and the range of assets potentially subject to tax. Individuals receiving income from several countries, employers or investment channels should therefore review their residence status, employment arrangements and supporting records carefully before completing their tax finalisation for 2026.- (VLLF)
