An employee resigns, but their final payment — the last month’s salary, bonus, payment for unused annual leave, severance allowance — is often disbursed after the termination date. This raises a question for payroll teams: at the time of payment, the recipient is no longer the company’s employee, so which withholding mechanism applies?
On 26 August 2026, the Ho Chi Minh City Tax Department issued Official Letter No. 12004/TTPHCM-QLDN3, responding to Amazon Web Services Vietnam Co., Ltd. on exactly this issue, based on Law on Personal Income Tax No. 109/2025/QH15 and Decree No. 253/2026/ND-CP.
Quick summary
| Payment to an employee whose labor contract has ended | PIT treatment |
|---|---|
| Employment income (salary, bonus, other income) of VND 5 million/payment or more | 10% withholding on total taxable income before payment — Clause 2, Article 50 of Decree No. 253/2026/ND-CP |
| Payment for unused annual leave meeting Clause 3, Article 113 of the Labor Code, and severance/job-loss allowance as prescribed by law | Tax-exempt — per the official letter’s conclusion; any leave payment exceeding the statutory level is still taxable income |
1. Nature of the payment: still employment income
The official letter cites Article 3 of Law on Personal Income Tax No. 109/2025/QH15: income from salaries and wages includes salaries, wages and amounts of a similar nature; remuneration and benefits in cash or in kind in any form; allowances, subsidies and other income (except certain items listed separately).
Article 8 of Decree No. 253/2026/ND-CP elaborates: employment income includes salaries, wages and amounts of a similar nature that an employee receives from the employer in any form; and remuneration and benefits an individual receives from an organization, individual or employer in any form, including cash or non-cash bonuses (Point i, Clause 2).
The key point: a payment does not change its nature just because it is paid after the termination date. A bonus or the final month’s salary is still employment income. What changes is the withholding mechanism.
2. The 10% withholding mechanism under Clause 2, Article 50
Clause 2, Article 50 of Decree No. 253/2026/ND-CP provides that an organization or individual paying salaries, wages, remuneration or other payments to a resident individual without a labor contract, or with a labor contract of under 3 months — including payments of salary or other income to an employee whose labor contract has ended — where the payment is VND 5 million or more per payment, must withhold tax at a rate of 10% on the income before paying the individual.
Where the payment is under VND 5 million per payment, the paying organization or individual withholds tax at 10% only if the individual requests it.
Even where no withholding occurs, at the end of the tax year the paying organization must still compile a list and the income of individuals below the withholding threshold, in the prescribed form, and submit it to the tax authority.
Based on these rules, the Ho Chi Minh City Tax Department responded on the principle: where a company makes a payment of employment income of VND 5 million or more per payment to an employee after termination of their labor contract, from 1 July 2026, the company is responsible for withholding personal income tax at 10% of total taxable income from salaries and wages.
In other words: a former employee is treated like an individual without a labor contract — no progressive tax schedule, no family circumstance-based deduction applied at the time of withholding, just a flat 10% rate.
3. Unused annual leave: tax-exempt, but only up to the statutory level
Clause 3, Article 113 of the 2019 Labor Code provides that where an employee has not taken, or has not fully taken, their annual leave due to resignation or job loss, the employer must pay salary for the unused leave days.
Clause 8, Article 4 of Law on Personal Income Tax No. 109/2025/QH15 exempts from tax night-shift and overtime pay, and salary paid for unused leave days as prescribed by law.
Article 26 of Decree No. 253/2026/ND-CP clarifies two sides of this:
- Clause 2: exempts from tax salary paid for unused leave days that is consistent with the conditions and level prescribed under Clause 3, Article 113 of the Labor Code and the Law on Cadres and Civil Servants, and the Law on Public Employees.
- Clause 3: where salary paid for unused leave days exceeds the statutory level, the excess is included in the individual’s taxable income.
This is a point employers with more generous leave policies than the statutory minimum should note in particular — for example, more annual leave days under internal policy than the Labor Code’s minimum, or allowing leave to be carried over across multiple years. The portion of payment corresponding to the policy beyond the statutory level is not exempt.
4. Severance and job-loss allowance
The official letter concludes that severance and job-loss allowances paid as prescribed by law are exempt from personal income tax.
The condition to hold onto is the phrase “as prescribed by law.” An allowance the company pays on top of the statutory level — for example, a separately agreed severance support payment — does not automatically receive the same treatment. (See the note on citation basis in Section 7 below.)
5. Illustrative examples
The examples assume the employee is a resident individual and the payment is made on or after 1 July 2026.
Example 1 — A final payment comprising several items
Mr. A’s labor contract ends on 31 July 2026. On 15 August 2026, the company makes a single payment comprising:
- Bonus: VND 20 million
- Payment for unused leave, within the scope of Clause 3, Article 113 of the Labor Code: VND 8 million
- Severance allowance as prescribed by law: VND 30 million
Treatment:
- The VND 8 million leave payment and VND 30 million severance allowance: tax-exempt per the official letter’s conclusion.
- Remaining taxable income: VND 20 million (the bonus).
- Tax the company must withhold before payment: VND 20 million × 10% = VND 2 million.
- Mr. A’s net receipt: 58 − 2 = VND 56 million.
Example 2 — Leave payment exceeding the statutory level
Ms. B resigns, and the company pays VND 15 million for unused leave. Of this, VND 10 million corresponds to the days prescribed under the Labor Code, and VND 5 million corresponds to extra leave days the company grants under its internal policy.
- VND 10 million: tax-exempt under Clause 2, Article 26 of Decree No. 253/2026/ND-CP.
- The VND 5 million excess: included in taxable income under Clause 3, Article 26.
- If this is the entire payment on this occasion, taxable income is VND 5 million and the company withholds 10% = VND 500,000.
Example 3 — A small payment under VND 5 million
After Ms. C resigns, the company discovers a salary shortfall and makes an additional payment of VND 3 million.
- Since the payment is under VND 5 million per payment, the company is not required to withhold; it withholds 10% only if Ms. C requests it.
- Even without withholding, the company must still include Ms. C in the consolidated list of individuals below the withholding threshold at year end.
6. Tax filing and effective date
Filing. The official letter cites Article 22 of Circular No. 89/2026/TT-BTC dated 30 June 2026: an organization paying employment income files quarterly for personal income tax withheld from income recipients, and finalizes annually; the tax filing dossier follows Item 7.1 of Appendix I issued with this Circular. The 10% tax withheld from a former employee is included in the paying organization’s own filing.
Effective date. The official letter cites Clause 1, Article 69 on effectiveness: the Decree takes effect from 1 July 2026; provisions relating to business income and employment income of resident individuals apply from the 2026 tax period. The official letter’s conclusion on the 10% withholding obligation is tied to payments made on or after 1 July 2026.
7. Two notes when citing this official letter
First — Article 69 belongs to the Decree, not the Law. In the official letter, the excerpt of Clause 1, Article 69 is placed directly under the section citing the Law on Personal Income Tax. However, the quoted text clearly states “this Decree takes effect from 1 July 2026,” so this is Article 69 of Decree No. 253/2026/ND-CP. When citing this in documentation, businesses should reference the correct instrument.
Second — the exemption basis for severance/job-loss allowance. The official letter concludes that severance and job-loss allowances are exempt under Clause 8, Article 4 of the Law on Personal Income Tax and Article 26 of Decree No. 253/2026/ND-CP. However, based on the letter’s own quoted text, these two provisions only address night-shift/overtime pay and pay for unused leave days — they do not mention severance or job-loss allowance. The letter does cite Point c, Clause 2, Article 3 of the Law (“allowances, subsidies and other income, except the following: …”) but omits the list of exclusions. Businesses should check the full text of Law No. 109/2025/QH15 to determine the precise basis for this allowance before including it in supporting documentation — whether an item of income is tax-exempt or not taxable income at all can lead to different filing treatments.
8. Checklist for payroll teams
- Break out each component of the final payment separately: salary, bonus, unused leave payment, severance allowance, other support payments.
- For leave payments: check the days and amount against Clause 3, Article 113 of the Labor Code; any excess under internal policy goes into taxable income.
- For allowances: separate the statutory portion from any extra amount the company pays by agreement.
- Apply the 10% rate to the taxable portion where the payment is VND 5 million or more per payment; below that, withhold only if the employee requests it.
- File the withheld tax in the quarterly return and include it in the annual finalization under Article 22 of Circular No. 89/2026/TT-BTC.
- Record individuals below the withholding threshold in the year-end consolidated list.
Disclaimer
This article is based on Official Letter No. 12004/TTPHCM-QLDN3 dated 26 August 2026 issued by the Ho Chi Minh City Tax Department in response to Document No. 0408/2026/CV-AWSVN dated 4 August 2026 from Amazon Web Services Vietnam Co., Ltd., and the regulations cited within it:
- Article 3, Clause 8 Article 4 of Law on Personal Income Tax No. 109/2025/QH15 dated 10 December 2025;
- Clause 3, Article 113 of the Labor Code dated 20 November 2019;
- Article 8, Article 26, Clause 2 Article 50 and Clause 1 Article 69 of Decree No. 253/2026/ND-CP dated 30 June 2026;
- Article 22 of Circular No. 89/2026/TT-BTC dated 30 June 2026.
Some points fall outside the scope of the official letter and require further research:
- Non-resident individuals. The cited Clause 2, Article 50 applies to resident individuals; the withholding treatment for non-resident foreign employees is not addressed.
- Commitment condition for not withholding. The official letter quotes the phrase “based on the individual’s commitment, the paying organization does not withhold tax” but omits the accompanying conditions.
- The VND 5 million/payment threshold — whether it is measured on the total amount paid or on the taxable portion is not clarified in the quoted text.
- The statutory number of annual leave days and the statutory level of severance/job-loss allowance fall under labor law and are not covered in the official letter.
Official Letter No. 12004/TTPHCM-QLDN3 is a response “on principle” to a specific business, not a legal normative document. Other businesses should assess their actual circumstances and check with the guidance of their own managing tax authority.
This article is for reference only, does not replace the original legal text, and does not constitute advice for any specific case. Businesses should verify against the current regulations at the time of application and consult a qualified advisor before making decisions.
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