General Department of Taxation issued the Official Letter No. 2267/TCT-TNCN (“OL 2267”) dated 16 July 2013 providing PIT guidance on hypothetical tax (“hypo tax”) for foreign individuals who are residents in Vietnam.

The foreign individual mentioned in OL 2267 currently is a Vietnam tax resident who pays PIT both in Vietnam and in the United States, while being entitled to a tax equalization policy in his home country. In particular, the individual receives a monthly fixed income upon deduction of hypo tax in the US.

OL 2267 outlines the following:

  • In case that foreign individual is a tax resident in Vietnam, receiving income upon deduction of hypo tax, then assessable income shall be determined as net-take-home exclusive of hypo tax (“NET income”). NET income shall be grossed up to arrive at Vietnam taxable income as regulated.
  • For foreign-sourced income, if the individual has already declared and paid corresponding PIT under foreign PIT regulations, he/she would be allowed to deduct PIT paid overseas against PIT liabilities in Vietnam as long as the deductible amount and supporting documents are in accordance with prevailing regulations. Thus, a foreign tax credit may be claimed on foreign-source income taxable in Vietnam to a Vietnam tax resident.

In this case, the individual is not allowed to deduct hypo tax from PIT payable in Vietnam.

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