For foreign companies operating in Vietnam, personal income tax (PIT) is one of the most frequently mismanaged compliance areas — not because the rules are unclear, but because they change regularly and apply differently depending on the employee’s residency status, contract type, and income structure.
In 2026, Law 109/2025/QH15 introduces the biggest PIT reform since 2012. The bracket system is reduced from 7 to 5, deduction thresholds are raised significantly, and new exemptions are added. Companies with expatriate staff need to recalculate payroll and update withholding immediately.
Tax resident vs non-resident: the most important distinction
Everything in Vietnam PIT starts with residency status.
| Category | Condition | PIT rate | Income scope |
|---|---|---|---|
| Tax resident | Present in Vietnam ≥ 183 days in a calendar year or any consecutive 12-month period | Progressive 5–35% | Worldwide income |
| Non-resident | Present in Vietnam < 183 days | Flat 20% | Vietnam-sourced income only |
New PIT brackets from 2026 — 5 brackets replacing 7
Law 109/2025 reduces the progressive PIT schedule from 7 brackets to 5, effective from the 2026 tax year. Applies to monthly taxable income after deductions:
| Bracket | Monthly taxable income (VNĐ) | Tax rate |
|---|---|---|
| 1 | 0 – 10,000,000 | 5% |
| 2 | 10,000,001 – 30,000,000 | 10% |
| 3 | 30,000,001 – 60,000,000 | 20% |
| 4 | 60,000,001 – 100,000,000 | 30% |
| 5 | Above 100,000,000 | 35% |
Old vs new — key changes
| Old (7 brackets, before 2026) | New (5 brackets, from 2026) | |
|---|---|---|
| Lowest bracket ceiling | VNĐ 5,000,000/month | VNĐ 10,000,000/month |
| Top bracket threshold | Above VNĐ 80,000,000/month | Above VNĐ 100,000,000/month |
| Rates | 5%, 10%, 15%, 20%, 25%, 30%, 35% | 5%, 10%, 20%, 30%, 35% |
| Who benefits most | — | Earners in VNĐ 20–60M/month range |
Personal deduction thresholds — raised from January 2026
| Deduction type | Before 2026 (VNĐ/month) | From 2026 (VNĐ/month) | Increase |
|---|---|---|---|
| Personal deduction (taxpayer) | 11,000,000 | 15,500,000 | +4,500,000 |
| Dependent deduction (per registered dependent) | 4,400,000 | 6,200,000 | +1,800,000 |
Taxable income (2025): 60,000,000 − 11,000,000 − 4,400,000 = VNĐ 44,600,000
Taxable income (2026): 60,000,000 − 15,500,000 − 6,200,000 = VNĐ 38,300,000
Companies should recalculate gross-up amounts to reflect the updated thresholds.
PIT treatment of common expat allowances
| Income / benefit type | PIT treatment | Condition |
|---|---|---|
| Base salary | Fully taxable | — |
| Housing allowance (cash) | Taxable | Cash payments always taxable |
| Housing (employer pays landlord directly) | Exempt up to cap | Max 15% of total taxable income |
| School fees for children | Exempt | Paid directly to school by employer |
| One-time relocation allowance | Exempt | Reasonable amount with documentation |
| Home leave airfare | Exempt | Once per year per employee |
| Business travel reimbursement | Exempt | Must have receipts; flat allowances taxable |
| Overtime pay | Exempt on excess portion | Portion above standard rate is exempt |
| Stock options / equity | Taxable at 20% flat | Taxed when exercised |
Employer withholding obligations
| Payment type | Withholding rate | Deadline |
|---|---|---|
| Employment income — tax residents | Progressive 5–35% | 20th of following month |
| Employment income — non-residents | Flat 20% | 20th of following month |
| Freelancers / contractors | Flat 10% | Per transaction > VNĐ 2,000,000 |
| Dividends / investment income | 5% or 10% (varies) | Per payment |
Annual PIT finalization
| Who | Obligation | Deadline |
|---|---|---|
| Tax-resident employees (self-filing) | File annual PIT return | 31 March of following year |
| Tax-resident employees (employer files on behalf) | Authorized finalization | 31 March of following year |
| Non-resident employees | No annual return required | Tax settled via 20% monthly withholding |
Common compliance risks for FDI employers
| Risk area | Common mistake | Consequence |
|---|---|---|
| Residency classification | Treating 183-day resident as non-resident | Systematic under-withholding, penalties |
| Housing allowance | Treating cash allowance as exempt | PIT underpayment, back-tax on audit |
| Dependent deduction | Claiming without prior registration | Deduction rejected, additional PIT due |
| Deduction thresholds | Using old VNĐ 11M / 4.4M in 2026 | Over-withholding from employees |
| Global income | Expat residents not declaring overseas income | Audit exposure, penalties up to 3× tax due |
| Contractor withholding | Not withholding 10% on freelancer payments | Employer liable for unpaid PIT |
At TrustlineAX Advisory, we manage the full PIT cycle for foreign-invested companies — monthly payroll and PIT withholding, dependent registration, annual finalization, residency reviews, and gross-up calculations. Contact us for a free consultation.
This article reflects Vietnamese PIT regulations under Law 109/2025/QH15, effective from the 2026 tax year. Implementing decrees and circulars may provide further guidance. Please consult a qualified tax advisor for your specific situation.