Many companies assume that any overtime or night-shift premium paid to employees is entirely exempt from personal income tax (PIT). That is not quite the case — the exemption is tied directly to the working-time limits and pay rates set out in the Labour Code. Official Letter No. 10311/NBI-QLDN1 dated 7 August 2026 issued by the Ninh Binh Provincial Tax Department provides detailed guidance on situations that HR and payroll teams encounter regularly. Trustlineax has summarised it for reference.
1. Legal basis
- Decree No. 253/2026/ND-CP dated 30 June 2026 — Article 26 (PIT exemption for night-shift and overtime pay), Articles 49, 50 and 51 (deductions and tax withholding).
- Labour Code No. 45/2019/QH14 — Article 107 (overtime), Article 98 (night-shift pay and overtime worked at night).
- Official Letter No. 10311/NBI-QLDN1 dated 7 August 2026 of the Ninh Binh Provincial Tax Department.
2. The general principle
Under Clauses 1 and 3, Article 26 of Decree No. 253/2026/ND-CP:
“1. PIT is exempted on wages and remuneration for night work and overtime at the workplace that comply with the conditions and working-time limits prescribed by labour law… 3. Where wages for night work, overtime, or wages paid for untaken leave days exceed the levels prescribed by law, the excess portion is included in the individual’s taxable income.”
In short: the premium paid for night work and overtime is exempt only if the overtime or night work complies with the conditions and time limits under labour law, and the rate paid follows the statutory level. Any portion exceeding the working-time limits or the statutory pay rate must be included in taxable income.
3. Overtime pay
3.1. Overtime limits under the Labour Code
Under Article 107 of Labour Code No. 45/2019/QH14:
- Overtime must not exceed 50% of normal working hours in a day (where calculated weekly: total normal and overtime hours must not exceed 12 hours per day); and must not exceed 40 hours per month.
- Overtime must not exceed 200 hours per year, except for certain sectors permitted up to 300 hours per year (for example: manufacturing and export processing of textiles, garments, leather, footwear, electrical and electronic products, and processing of agricultural, forestry, salt and aquatic products), provided the employer has notified the provincial labour authority in writing.
3.2. Four scenarios for determining taxable overtime pay
Official Letter No. 10311/NBI-QLDN1 addresses four specific scenarios, applied to a company in a sector permitted to work up to 300 overtime hours per year (the enterprise raising the query operates in the electronics sector):
| Scenario | How the taxable portion is determined |
|---|---|
| (1) Exceeds 40 hours in the month | The wage portion corresponding to overtime hours beyond 40 in that month is not exempt and must be included in taxable income for the month in which it arises. |
| (2) Within 40 hours in the month but cumulative annual overtime has passed 300 hours | Even if the monthly limit is not breached, once cumulative overtime for the year reaches the 300-hour ceiling, the wage portion corresponding to hours beyond that annual limit is not exempt. |
| (3) Exceeds 40 hours in the month but the annual 300-hour limit has not been reached | The wage portion corresponding to hours beyond 40 in the month remains non-exempt, even though the cumulative annual total is still within 300 hours. |
| (4) Both the monthly and annual limits are exceeded | Taxable income is determined by reference to actual overtime worked from the point at which either limit ceases to be met. |
3.3. Worked example
Assume an employee in the electronics sector (subject to the 300-hour annual limit) works 45 overtime hours in a month and receives VND 3,000,000 of overtime pay for all 45 hours, against a monthly limit of 40 hours. The wage portion attributable to the 5 excess hours is allocated pro rata: (3,000,000 ÷ 45 hours) × 5 hours = VND 333,333 — this amount must be included in the employee’s taxable income for the month. The remaining VND 2,666,667 (corresponding to the 40 hours within the limit) is exempt, provided the overtime conditions under labour law are satisfied.
Note: this example was prepared by Trustlineax to illustrate pro-rata allocation by hours. It is not a formula prescribed in the official letter — companies should reconcile it against the guidance and their own payroll practice.
4. Night-shift pay
Under Clauses 2 and 3, Article 98 of the 2019 Labour Code, employees working at night are entitled to an additional payment of at least 30% of the wage calculated by unit price or the actual wage for a normal working day. Where an employee works overtime at night, an additional 20% of the wage calculated by unit price or the wage for a normal working day applies, on top of the night-work and overtime components.
The Ninh Binh Provincial Tax Department set out the principle as follows: night-shift pay that is consistent with labour law when paid is exempt from PIT; any amount paid above the prescribed level must be included in taxable income.
Practical example cited in the official letter: the enterprise in question paid night-shift premiums at 35% of the wage used as the calculation basis. Of that:
- The portion corresponding to the 30% statutory minimum (determined under Article 56 of Decree No. 145/2020/ND-CP) → exempt from PIT.
- The portion paid above the prescribed level (the remaining 5% differential) → must be included in the employee’s taxable income.
5. Related point: deductions for medical and education expenses
Official Letter No. 10311/NBI-QLDN1 also addresses deductions for medical and education or training expenses under Article 49 of Decree No. 253/2026/ND-CP:
- Medical expenses (examination and treatment at domestic facilities, within the health insurance coverage list): capped at VND 23 million per year.
- Education and training expenses (tuition for preschool, general, vocational and university education, and other professional skills at domestic institutions): capped at VND 24 million per year.
- Conditions: valid invoices and supporting documents are required (medical expenses additionally require a statement of examination and treatment costs as prescribed by the Ministry of Health); the documents must show the details of the taxpayer or their dependant; and the expense must not have been funded from another source such as sponsorship, State budget or insurance.
- The deduction cap is determined on an annual basis and is not apportioned evenly across months.
- Important: an employee claiming these deductions must file their own PIT finalisation (under Clause 3, Article 51 of Decree No. 253/2026/ND-CP) and cannot authorise the employer to finalise on their behalf for the year in which the deduction is claimed.
6. What companies should do
- Track each employee’s overtime against both thresholds — 40 hours per month and 200 or 300 hours per year depending on the sector — so that exempt and taxable overtime pay are separated correctly in the month it arises.
- Review night-shift pay rates: the portion at the statutory minimum (30%, plus the additional 20% where overtime is worked at night) is exempt, while any amount paid above that under internal policy or a collective labour agreement must be added to the employee’s taxable income.
- Companies in sectors permitted the 300-hour annual overtime limit should confirm that written notification has been given to the provincial labour authority under Clause 4, Article 107 of the Labour Code — this also underpins the correct exemption threshold.
- Where employees wish to claim medical or education expense deductions, guide them on the documentation required and make clear that they must file their own PIT finalisation and cannot authorise the company to do so for that year.
This article was compiled by Trustlineax based on Official Letter No. 10311/NBI-QLDN1 dated 7 August 2026 of the Ninh Binh Provincial Tax Department, Decree No. 253/2026/ND-CP (Articles 26, 49, 50, 51) and Labour Code No. 45/2019/QH14 (Articles 98, 107). The calculation in section 3.3 was prepared by Trustlineax to illustrate pro-rata allocation and is not quoted from the official letter. This content is for general reference only and does not replace the original legal documents or tax advice tailored to a specific case.