Guidance for individuals who are residents of Vietnam to deduct taxes paid abroad from taxes payable in Vietnam

Individuals who are residents of Vietnam and have paid taxes in the Contracting State to a Tax Agreement with Vietnam in accordance with regulations will have the amount of tax paid (or deemed to have been paid) in the Contracting State to a Tax Agreement with Vietnam deducted from the amount of tax payable in Vietnam.

Pursuant to Article 1 and Point e, Clause 2, Article 26 of Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance guiding the implementation of the Law on Personal Income Tax, the Law amending and supplementing a number of articles of the Law on Personal Income Tax and Decree No. 65/2013/ND-CP of the Government detailing a number of articles of the Law on Personal Income Tax and the Law amending and supplementing a number of articles of the Law on Personal Income Tax (amended and supplemented in Article 2 of Circular No. 119/2014/TT-BTC dated August 25, 2014 of the Ministry of Finance) .

Pursuant to Clause 3, Article 62 of Circular No. 80/2021/TT-BTC dated September 29, 2021 of the Ministry of Finance regulating the deduction of tax paid abroad from tax payable in Vietnam .

Accordingly, Vietnamese residents with income generated abroad who have calculated and paid personal income tax according to regulations will have the tax paid abroad deducted, the deducted tax amount shall not exceed the tax payable calculated according to Vietnam's tax table, allocated to the income generated abroad. The allocation rate is determined by the ratio between the income generated abroad and the total taxable income. Taxable income of Vietnamese residents is income arising within and outside the territory of Vietnam, regardless of where the income is paid.

The procedure for deducting tax paid abroad from tax payable in Vietnam is as follows:

Taxpayers submit a dossier requesting deduction of tax paid (or considered paid) abroad from tax payable in Vietnam to the directly managing tax authority . The dossier includes:

- Application for deduction of foreign tax from tax payable in Vietnam under the Tax Agreement according to form No. 02/HTQT issued with Appendix I of Circular No. 80/2021/TT-BTC , providing information on transactions related to the amount of foreign tax requested to be deducted from the amount of tax payable in Vietnam within the scope of the Tax Agreement.

- Other documents depending on the form of deduction request. Specifically:

* In case of direct deduction: Taxpayers have paid taxes in the Contracting State of the Agreement with Vietnam and are entitled to deduct the tax payable in Vietnam according to the provisions of the Tax Agreement.

+ Copy of Overseas Income Tax Return certified by the taxpayer;

+ Copy of foreign tax payment documents certified by the taxpayer;

+ Original confirmation from foreign tax authority of tax paid.

* Case of deduction of lump sum tax: Taxpayers who have income and should have paid tax in the Contracting State to an Agreement with Vietnam, but according to the provisions of the law of that Contracting State are exempted or reduced as a special preferential measure, are deducted from the tax payable in Vietnam according to the provisions of the Tax Agreement.

+ Copy of Overseas Income Tax Return certified by the taxpayer;

+ Copy of business registration or legal documents confirming business activities abroad with confirmation from the taxpayer;

+ Confirmation letter from the competent foreign authority on the amount of tax exempted or reduced and confirmation that the request for deduction of the lump sum tax is in accordance with the Tax Agreement and the laws of the Contracting State of the relevant Tax Agreement.

Source