Vietnam personal income tax treatment and points to note regarding insurance premiums paid overseas
2024/04/16
- Nguyen Thai Quoc Nam
Introduction
When expatriates are transferred to Vietnam, they usually continue to receive a salary from their overseas parent company outside Vietnam, and often enroll in various insurance programs overseas, such as employee pension insurance, health insurance, and employment insurance. In addition, the Vietnamese corporation may subsequently repay some or all of the salaries paid by the overseas parent company to the parent company. In such cases, when calculating personal income tax in Vietnam, the question is whether insurance premiums paid overseas can be deducted, and in what cases they can be deducted.
This article explains the treatment of insurance premiums paid overseas for Vietnamese personal income tax purposes and points to keep in mind, based on Vietnam’s current regulations, guidance from the General Department of Taxation and local tax bureaus, and practice in tax audits.
1. Insurance items that can be deducted when filing personal income tax in Vietnam
Article 9, paragraph 2, paragraph a) of Circular No. 111/2013/TT-BTC dated August 15, 2013 issued by the Ministry of Finance stipulates that the following items are deductible when calculating personal income tax.
2. Voluntary pension funds and insurance items are deductible.
a) Insurance items include employee pension insurance, health insurance, employment insurance, and liability insurance, which is mandatory for some occupations.
In other words, under the law, compulsory insurance such as employees’ pension insurance, health insurance, and employment insurance is subject to deduction.
2. When compulsory insurance premiums paid overseas can be deducted
Clause 2, Article 9, c) of Circular No. 111/2013/TT-BTC issued by the Ministry of Finance dated August 15, 2013 stipulates when a foreign expatriate becomes a resident of Vietnam and when a Vietnamese national becomes a resident of Vietnam. There are two types of insurance items that can be deducted in cases where a person is a resident but works overseas.
“c) If the expatriate is a resident of Vietnam, or if the Vietnamese national is a resident of Vietnam but works abroad, he receives salary or remuneration from abroad and is subject to the same compulsions as in Vietnam according to local regulations. If you are enrolled in social insurance overseas:
This insurance includes employee pension insurance, health insurance, employment insurance, liability insurance that is mandatory for some occupations, and other compulsory insurance (if any). In this case, the insurance premium can be deducted from taxable income when calculating personal income tax in Vietnam. For Vietnamese and expatriates who have subscribed to the above insurance overseas, if they have proof of insurance premiums deducted overseas (Japanese pay slip, etc.), it will be deducted from their taxable income when calculating personal income tax. It is possible to subtract. If you are unable to prepare the documents immediately, you can deduct the deduction all at once when filing your tax return.
According to the above regulations, it can be interpreted that insurance premiums purchased overseas can be deducted when calculating personal income tax in Vietnam if the following conditions are met:
(i) The person receives salary or remuneration from overseas.
(ii) The insurance items purchased overseas are compulsory insurance according to the regulations of the local country and are similar to compulsory insurance in Vietnam.
Therefore, if the Japanese parent company pays the expatriate’s salary and then requests the Vietnamese corporation to repay the entire amount, there is a risk that the insurance premium will not be deductible when calculating the expatriate’s personal income tax. This is because the Vietnamese corporation will be responsible for the salaries of the expatriate employees, and it is considered that the condition (i) above will not be met. This is despite the fact that Vietnamese legal documents do not clearly state the concept of overseas salary and Vietnamese salary.
*This article was translated by Yarakuzen.
