PERSONAL INCOME TAX FINALIZATION WITH terra
TIME SAVING - TRANSPARENT - ACCURATE

Understanding tax settlement regulations has become one of the top priorities for businesses. This article will help you understand the concept and process of tax settlement, while also pointing out important considerations to ensure legal compliance and optimize tax obligations. 

From preparing documents to handling arising issues, this article will provide you with useful knowledge to carry out tax settlement accurately and efficiently.

I. Definition of Tax Settlement

• Definition

Tax settlement is the process of consolidating and reporting the income, expenses, and tax obligations of an individual or organization during a specific financial year. This process helps determine the amount of tax owed or any tax refunds due.

• Purpose and Benefits

The main purpose of tax settlement is to ensure that individuals or organizations fulfill their tax obligations fully and accurately. The benefits include:

• Ensuring transparency in financial operations.
• Helping detect and correct errors in tax declarations.
• Facilitating the process for tax refunds, if applicable.

Tax settlement helps individuals and organizations clearly determine their tax liabilities, thus avoiding legal risks related to tax evasion or incorrect reporting. This not only protects the interests of individuals but also helps organizations meet their obligations, contributing to the state budget.

• Common Types of Taxes in Tax Finalization 

1. Personal Income Tax

Personal income tax (PIT) is a tax levied on individuals’ income from various sources such as wages, bonuses, and investment income. Tax finalization for PIT helps individuals determine the amount of tax payable based on total income for the year and allowable deductions.

2. Corporate Tax

Corporate tax is a tax imposed on the profits of businesses. Corporate tax finalization involves determining the taxable profit and calculating the tax payable to the government. Businesses need to finalize taxes on time to ensure compliance with legal regulations.

3. Other Types of Taxes

In addition to PIT and corporate tax, there are several other taxes that may apply in tax finalization, including:

• Value-Added Tax (VAT): Tax on the value added to goods and services.
• Special Consumption Tax: Applied to certain goods and services such as alcohol, tobacco, and automobiles.
• Property Tax: Tax on real estate and other types of property.

II. What is Personal Income Tax (PIT) Finalization?

• Definition and Purpose

1. Definition of PIT Finalization

PIT finalization is the process of compiling and reporting an individual’s income, legitimate expenses, and tax obligations over a specific financial year. Through this, individuals can determine the amount of PIT they need to pay or the refund they may receive from the tax authorities.

2. Why PIT Finalization is Needed

There are several important reasons for PIT finalization:

• Ensuring Tax Obligations: Helps individuals fulfill their tax duties according to the law, avoiding legal risks.
• Determining the Tax Amount Payable: Ensures that individuals know exactly how much PIT they need to pay, preventing underpayment or overpayment.
• Receiving Tax Refund: If individuals have overpaid their taxes, finalization allows them to claim a refund.
• Financial Transparency: PIT finalization also contributes to the transparency of an individual’s financial activities, building trust with tax authorities.

• Applicable Subjects 

Individuals: The process applies to individuals with income from multiple sources who must personally file PIT finalization.

EnterprisesThe process applies to organizations and enterprises responsible for paying income to employees and withholding tax at the source.

• For Individuals:

Resident Individuals: These are individuals who stay in Vietnam for 183 days or more within a calendar year, or have a permanent residence in Vietnam.

Non-resident Individuals: These are individuals who do not meet the above conditions but have income sourced from Vietnam.

Individuals: This includes employees under labor contracts, work contracts, or other types of labor agreements.

Individuals with Multiple Sources of Income: This includes income from wages, salaries, business activities, property rentals, capital gains from property transactions, and other sources of income.

• For Enterprises:

Enterprises with Tax Withholding Obligations: Enterprises are required to withhold PIT from employees’ income and must file PIT finalization for these individuals.

Enterprises Engaged in Activities with Taxable PIT Income: Enterprises with individuals working for or receiving income from them, where these individuals must comply with PIT finalization obligations.

Enterprises Engaged in Property Rentals: If an enterprise rents out property and earns income from this activity, it must file PIT finalization for the individuals involved.

• Types of Taxable Income

1. Income from Wages and Salaries

This is the primary source of income for many individuals, including wages, salaries, allowances, and bonuses from employment. This income is typically calculated and taxed at the source, and it is one of the main types of income in PIT finalization.

2. Investment Income

Investment income includes profits from stocks, bonds, real estate, and other forms of financial investments. These income sources are also subject to PIT and need to be reported in the PIT finalization. Individuals should be aware of the tax regulations concerning investment income, as there may be tax incentives involved.

3. Other Sources of Income

Apart from income from wages and investments, there are other income sources, including:

• Income from Property Rentals: Payments received from renting out houses, land, or other assets.
• Income from Prizes and Lottery Winnings: Income from prizes or contests.
• Income from Freelance Professions: Income from self-employed professions such as law, medicine, or other freelance services.

III. Personal Income Tax Finalization Process

• Personal Income Tax Finalization Process for Individuals Quyết Toán Thuế TNCN cho Cá Nhân

Step 1: Prepare Necessary Documents

• Tax finalization declaration form : Use form 02/QTT-TNCN.

• Taxable income statement (form 03/TNCN)

• Appendix (if applicable)

• Related documents

– Income documents

+ Salary sheet, employment contract.

+ Documents of income from business, asset rental, real estate transfer, etc.

– Deductions documents

+ Social insurance, health insurance, and unemployment insurance invoices.

+ Documents proving dependents (if any).

– Accounting records: For individuals with business activities.

Step 2: Calculate Taxable Income 

• Determine total income:

Summarize all sources of income for the year, including:

• Salary and wages.
• Business income.
• Income from asset rental
• Income from real estate transfer.
• Other income.

• Determine deductions::

• Personal deductions:
  • 11 million VND/month for the individual.
  • 4.4 million VND/month for each dependent.
• Insurance deductions::
  • Social insurance, health insurance, and unemployment insurance contributions.

• Calculate taxable income::

Taxable income calculation formula:

• Calculate personal income tax:

Apply the progressive tax rate table to calculate personal income tax based on taxable income.

Current personal income tax table (calculated monthly):

• Tax Calculation Formula:
  Personal Income Tax (PIT) = (Taxable Income * Corresponding Tax Rate)

Example:

Suppose you have a total annual income of 600 million VND, with reasonable expenses of 150 million VND. The taxable income is calculated as follows:

Taxable Income = 600 million – 150 million = 450 million VND

Applying the tax rate table:

• First 5 million: 5% x 5 million = 250,000 VND 
• Next 5 million: 10% x 5 million = 500,000 VND 
• Next 8 million: 15% x 8 million = 1,200,000 VND 
• Next 14 million: 20% x 14 million = 2,800,000 VND 
• Next 20 million: 25% x 20 million = 5,000,000 VND 
• Next 28 million: 30% x 28 million = 8,400,000 VND 
• Remaining 170 million: 35% x 170 million = 59,500,000 VND

Total tax payable is:

250,000 + 500,000 + 1,200,000 + 2,800,000 + 5,000,000 + 8,400,000 + 59,500,000 = 77,650,000 VND

Additionally, individuals can check their tax obligations through the eTax Mobile app.

Step 3: Complete the Finalization File

• Fill in the information on the tax finalization form.
• Double-check the information to ensure accuracy.

Step 4: Submit the Finalization File

Submit the file to the managing tax authority (it can be submitted online). Read more about the submission deadlines and methods below.

Step 5: Receive Notification from the Tax Authority

• Monitor the notification regarding the finalization results from the tax authority.
• If there is tax owed, make sure to pay it on time.
• If there is a tax refund, track it to receive the refund.

• Tax Finalization Process for Corporate Personal Income Tax

Step 1: Prepare Necessary Documents

Before proceeding with tax finalization, the company needs to prepare the following documents:

• PIT Finalization Form: Use Form 05/QTT-TNCN or Form 02/QTT-TNCN to declare tax for each individual.
• Employee List: Detailed information about each employee, including:
  • Full name
  • Employee tax code
  • Total income for the year
  • Dependent information (if any)
• Data includes:
  • Monthly payroll showing employee income.
  • Employment contracts and other related income documents.
• Deduction Documents:
  • Social insurance, health insurance, and unemployment insurance invoices.
  • Documents proving dependents (if any).

Step 2: Calculate Taxable Income for Employees

• Determine Total Income:

Compile all income sources from salaries and wages of employees, including:

• Basic salary
• Bonuses, allowances, and other income (if any).

• Determine Deductions

• Personal Deductions:

• • 11 million VND/month for the individual.
  • 4.4 million VND/month for each dependent.
• Insurance deductions::
  • Contributions made to social insurance, health insurance, and unemployment insurance.

• Calculate taxable income::
  Formula:

• Calculate personal income tax:

Apply the progressive tax rate table to calculate personal income tax based on taxable income.

Current personal income tax table (calculated monthly):

• Tax Calculation Formula:
  Personal Income Tax (PIT) = (Taxable Income * Corresponding Tax Rate)

Step 3: Complete the Finalization File

• Fill in the Declaration: Accurately declare all information in the personal income tax finalization form.
• Check Information: Ensure that all entered information is correct and complete.

Step 4: Submit the Finalization File

• Submit Documents: Send the personal income tax finalization declaration to the relevant tax authority.
• Submission Method: Submit online through the General Department of Taxation’s electronic portal. The company needs to have an account to perform online submission.

Step 5: Receive Notification from the Tax Authority

• Monitor Finalization Results: After submission, the company will receive a notification from the tax authority regarding the finalization results.
• Tax Amount Owed: If there is tax owed, the company should fulfill its tax payment obligations as instructed.
• Tax Refund Amount: If the company is entitled to a tax refund, it should monitor to receive the refund as per regulations.

Step 6: Fulfill Tax Obligations

• Pay Taxes (if applicable): If there is tax owed, the company will make the payment according to the tax authority’s guidance.
• Receive Refund (if applicable): If there is a tax refund, the company should monitor to receive the refund as per regulations.

• Review and Confirmation

In the personal income tax (PIT) finalization process, the review and confirmation step plays a crucial role in ensuring the accuracy and validity of the declared information and figures.

1. Check the Validity of the Declaration

First, the taxpayer needs to review all information in the finalization form. This includes checking personal details such as name, ID number, address, and phone number. Additionally, it is essential to verify the declared income sources, ensuring that all income, including salary, bonuses, and other earnings, is fully and accurately recorded. Any errors in this information could lead to incorrect tax calculations.

2. Cross-Check Deductions

Next, the taxpayer should confirm the deductions claimed, including personal deductions for themselves and dependents, as well as contributions to social and health insurance. This not only helps calculate taxable income accurately but also ensures that the taxpayer receives all legal benefits as prescribed by regulations.

3. Calculate PIT

After checking the information and deductions, the next step is to calculate the PIT owed. The taxpayer needs to use the progressive tax rate schedule to determine the amount of tax based on the established taxable income. This step is vital to ensure that tax obligations are fulfilled in accordance with legal requirements.

4. Confirm with the Tax Authority

Finally, after completing all review and calculation steps, the taxpayer will submit the finalization form to the tax authority. Here, the tax authority will recheck the declared information and cross-reference it with relevant records and documents. If everything is valid, the tax authority will confirm the declaration and notify the taxpayer of the tax owed or any refund (if applicable).

Important Notes When Finalizing Personal Income Tax

A. Finalization Timeline 

1. Deadline for Submitting the Finalization File

For individuals who self-file and organizations or businesses filing on behalf of individuals: The deadline for submitting the PIT finalization file must be completed by March 31 of the following year.

For individuals who owe additional tax: The final deadline is April 30 of the following year. If April 30 falls on a holiday or weekend, the deadline will be extended to the next working day.

*Note: If a refund is due, the deadline is 5 years.

Adhering to this timeline not only helps you avoid penalties but also allows the tax authority sufficient time to process and verify the information.

2. Method of Submitting the Declaration

Online Submission: This is a convenient method that allows taxpayers to submit their forms via the tax authority’s electronic portal. Online filing saves time and effort, and makes it easier to track the status of the declaration.

See more: In addition, there are certain situations where individuals must directly finalize their personal income tax . Workers can refer to the following four cases to consider for self-finalizing their personal income tax..

B. Consequences of Not Finalizing as Required

According to Article 5, Clause 5 of Decree 125/2020/ND-CP regarding administrative penalties related to tax and invoices:

• For the same act of administrative violation regarding tax and invoices, the monetary penalty for organizations will be double that for individuals, except for cases specified in Articles 16, 17, and 18 of this decree.

Failing to finalize personal income tax will incur administrative penalties. The lightest penalty in this case is a warning.

Additionally, the monetary penalty for not finalizing PIT will range from 2,000,000 VND to 25,000,000 VND for individuals, and from 4,000,000 VND to 50,000,000 VND for organizations. The specific form and amount of the penalty will depend on the length of the delay in submitting the file.

According to Article 13 of Decree 125/2020/ND-CP, penalties for violations concerning the deadline for tax declaration submissions (for individuals) are as follows:

1. Warning: Applies to cases of late submission by 1 to 5 days with mitigating circumstances.
2. Monetary Penalty:

• 2,000,000 VND to 5,000,000 VND for late submissions of 1 to 30 days, excluding specified cases.
• 5,000,000 VND to 8,000,000 VND for late submissions of 31 to 60 days.
• 8,000,000 VND to 15,000,000 VND for:
  • Late submissions of 61 to 90 days
  • Late submissions exceeding 91 days without tax liability
  • Failure to submit tax declarations without tax liability
  • Failure to submit required annexes for enterprises with related transactions alongside the PIT finalization file.
• 15,000,000 VND to 25,000,000 VND for late submissions exceeding 90 days with tax liability, if the taxpayer has paid the tax and late payment penalties to the state budget before the tax authority conducts an inspection or issues a report regarding the late submission.

• If the penalty amount exceeds the tax liability in the declaration, the maximum penalty will equal the tax liability but not be less than the average of the defined penalty range.

1. Corrective Measures:
   • The taxpayer must pay the full amount of late tax into the state budget for violations leading to late tax payments.
   • The taxpayer must submit tax declarations and accompanying annexes for failure to submit as required.

C. Common Errors

1. Errors in Preparing the Finalization File

Common errors when preparing the PIT finalization file include various mistakes that individuals need to be aware of. First, errors in personal information such as name, address, or ID number can lead to the file being rejected. Additionally, failing to declare all income sources, such as salary, bonuses, or business income, is also a common issue. Moreover, selecting the wrong tax authority for finalization can complicate the processing of the file. Finally, not attaching all necessary documents such as invoices, receipts, or proof of income can hinder verification processes. These mistakes can delay the finalization process and may lead to unwanted legal issues. Therefore, understanding and correcting these errors is crucial to ensuring a smooth tax finalization process.

2. Errors in Income Calculation

Mistakes in calculating income are also common. Many taxpayers may forget to report certain income sources or may miscalculate deductions. Failing to fully report income, such as salary, bonuses, or business activity income, will result in inaccurate tax calculations. Furthermore, when calculating personal deductions or social insurance contributions, many people may not update information about dependents or contributions made, leading to incorrect taxable income. To avoid these errors, taxpayers should regularly compile and cross-check income sources and thoroughly review deductions before performing calculations. Carefulness in this stage will help minimize risks and ensure a smooth tax finalization process.

D. New Terms and Regulations

1. Changes in Tax Law

Recently, the personal income tax (PIT) law in Vietnam has undergone significant adjustments aimed at improving fairness and transparency in the tax system. One of the notable changes is the increase in personal and dependent deductions, which helps reduce the tax burden for individuals with low incomes. Specifically, the deduction amounts have been adjusted to reflect current economic conditions and living standards, allowing many people to receive substantial tax reductions. Additionally, some non-salary income sources, such as income from stock investments, have also been re-evaluated regarding their tax calculations to ensure a more equitable and reasonable taxation process. These changes not only facilitate taxpayers but also promote transparency in the government’s tax management.

2. Impact on PIT Finalization

These new terms and regulations significantly affect the PIT finalization process. Taxpayers need to update and familiarize themselves with these changes to ensure compliance with the new regulations. Higher personal deductions will lead to a reduction in the tax owed for many individuals, meaning that the calculation of taxable income must be adjusted accordingly. 

Furthermore, with changes in the tax calculation methods for other income sources, taxpayers may need to revise their reported figures and finalization processes. These changes imply that taxpayers must be more diligent in compiling and verifying their income and deductions. 

Failing to understand the new regulations could result in errors in declarations, leading to complications during the tax finalization process. Therefore, keeping abreast of and thoroughly understanding these changes is crucial to ensuring legal compliance and optimizing one’s tax benefits.

E. Cases Where Employees Must Self-Finalize Personal Income Tax

There are several scenarios in which employees must perform their own personal income tax finalization:

1. You have at least two sources of income but have not authorized your primary income source to handle the finalization, or you have authorized but fall under the circumstances below.
2. Even though you have multiple income sources, some temporary incomes have not had the 10% PIT deducted at the time of receipt.
3. You have two or more sources of income, with total temporary income exceeding 120 million VND per year (you must self-finalize even if you have authorized and had 10% withheld).
4. You have earned income during the year but have left your job at the time of finalization and are not working for any entity, thus cannot authorize anyone for the finalization.
5. If you only have temporary income (or have worked for over three months at multiple companies), and it has been either subject to 10% tax withholding or not withheld at all.
6. Your eTax mobile account displays fictitious income, increasing your taxable income and potentially leading to unwanted tax obligations.
7. You have not finalized taxes for several years, and when checking eTax mobile, you discover there are years eligible for refunds and others that require additional tax payments.
8. You are not required to self-finalize, but you may still be eligible for a tax refund. To receive this refund, you need to complete all finalization procedures.

The personal income tax finalization process can become complex and challenging, especially for those unfamiliar with tax regulations and procedures. With multiple steps involved, such as declaring personal information, calculating income, determining deductions, and submitting the declaration on time, taxpayers may encounter various difficulties and errors. Understanding this, Terra provides professional PIT finalization services, helping clients easily navigate the challenges of this process.

Why Choose terra’s Personal Income Tax Finalization Services

terra’s PIT finalization service is designed to assist individuals and businesses in completing tax procedures accurately and efficiently. Our team of experts has extensive knowledge of current tax regulations and is always up to date with the latest changes. We are committed to providing our clients with optimal solutions, from filing declarations to calculating taxes owed.

A. In-Depth Knowledge of Tax Regulations

1. Experts With Deep Understanding of Tax Regulations and Rules

terra boasts a team of experienced professionals who have a thorough understanding of current tax regulations. This ensures that all aspects related to tax finalization are handled accurately and effectively.

2. Latest Tax Information Updates and Effective Application

terra’s services are regularly updated with changes in tax policy. This allows clients to benefit from the latest information, helping to optimize the tax finalization process and minimize legal risks.

B. Consulting Support and Clarification on Personal Income Tax Finalization

1. Consultation and Support from Experts During the Tax Finalization Process

terra provides dedicated consulting services from tax experts, helping clients understand the finalization process and necessary requirements. This ensures that clients always receive timely and accurate support at each step.

2. Clarifying Questions and Providing Relevant Tax Information

terra’s consulting team is ready to answer all client inquiries regarding PIT. Clients can receive detailed and useful information, from specific regulations to effective tax-saving strategies.

C. Ensuring Compliance with Tax Laws

1. Ensuring Compliance with Current Tax Regulations and Rules

terra’s services are committed to strictly adhering to current tax regulations and rules. This ensures that clients can rest assured that all tax records and reports are completed in accordance with the requirements of the tax authorities.

2. Minimizing Tax Violation Risks and Addressing Legal Issues

terra helps clients identify and minimize tax violation risks through thorough review and examination of tax documents. In the event of legal issues arising, our team of experts will assist in handling and advising on appropriate solutions to protect the client’s interests.

When using terra’s services, businesses will be able to:

• Minimize Risks: With support from our team of experts, clients can be confident that all declared information is accurate, reducing the likelihood of encountering legal issues.
• Save Time: terra’s services help clients save time and effort during the tax finalization process.
• Optimize Tax Benefits: terra is committed to finding and applying the most optimal deductions for clients, helping to reduce their tax burden.

With terra’s personal income tax finalization services, you will no longer worry about the complexities of the tax finalization process. Let terra accompany you, ensuring peace of mind and achieving the best results in fulfilling your tax obligations.

Frequently Asked Questions About Personal Income Tax Finalization

• When to finalize personal income tax?

• What are the benefits of tax finalization?

• Where to submit the tax finalization documents?

• What does tax finalization involve?

• What is the timeline and frequency for personal income tax finalization?

• What is required for corporate tax finalization?

• How long after a company is established should it finalize its taxes?

• When must the corporate income tax (CIT) finalization declaration be submitted?

• What is the penalty for individuals or organizations that submit personal income tax (PIT) declarations or finalizations late?

• What is the cost of hiring personal income tax finalization services?