Without the need for long-term presence, a foreign individual may still generate economic value in Vietnam through business and production activities. However, such activities entail corresponding tax obligations that must be fulfilled in accordance with the law. To ensure transparency and compliance, determining the method of calculating personal income tax in these cases is essential.
1. Determination of Residency Status
Pursuant to Clause 1, Article 2 of the Consolidated Law on Personal Income Tax, non-resident individuals deriving income within the territory of Vietnam are subject to Vietnamese personal income tax.
| Category | Legal Basis | Conditions |
|---|---|---|
| Resident | Clause 2, Article 2 | – Presence in Vietnam for ≥183 days within a calendar year or 12 consecutive months from the first date of entry. – Having a permanent residence in Vietnam (registered permanent residence or a leased residence under a fixed-term lease contract). |
| Non-resident | Clause 3, Article 2 | – Presence in Vietnam for less than 183 days within a calendar year or 12 consecutive months. – No permanent residence in Vietnam. – Only taxable on income derived from production and business activities within Vietnam. |
2. Taxable Income
Article 3 specifies the categories of taxable income, including:
- Income from business activities;
- Income from salaries and wages;
- Income from capital investment and capital transfer;
- Income from real estate transfer, royalties, and franchising;
- Income from winnings, gifts, and inheritances.
Accordingly, if a non-resident foreign individual earns revenue in Vietnam through production or business activities, such income is subject to Vietnamese personal income tax.
3. Method of Tax Calculation
Pursuant to Article 25:
Personal income tax payable = [Revenue from production/business activities] × [Applicable tax rate].
- Revenue includes the total amount arising from the provision of goods and services, including expenses paid on behalf of the non-resident individual by the purchaser of such goods or services that are not reimbursed.
- If the contract does not stipulate tax inclusion, the taxable revenue is the total income received from providing goods or services in Vietnam, regardless of the place of performance.
Applicable tax rates by business sector:
- 1% for trading of goods;
- 5% for service activities;
- 2% for production, construction, transportation, and other business activities.
4. Timing of Tax Determination
Under Article 32, the taxable income is determined at the time the non-resident individual receives the income or at the time the invoice for the supply of goods or services is issued.
According to Clause 2, Article 7, non-resident individuals are responsible for declaring and paying tax each time taxable income arises, including revenue from production and business activities.
Entities or individuals paying income to non-residents must withhold and remit tax to the State budget on a per-occurrence basis for taxable payments, in accordance with Article 33.
5. Notes
- Attention should be paid to the categories of income exempt from tax under Article 4.
- Non-resident foreign individuals may be eligible for tax reduction or refund if the conditions stipulated under Article 5 and Clause 2, Article 8 are satisfied.
The determination and proper application of tax obligations for non-resident individuals not only ensures compliance with Vietnamese law but also contributes to fostering a transparent, stable, and sustainable investment environment. The following analysis clarifies the calculation of personal income tax on business income for this group of taxpayers under the prevailing legal framework of Vietnam.
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