Are 13th month salary and bonus subject to tax?

According to the Hanoi Tax Department, Article 103 of the Labor Code No. 10/2012/QH13 stipulates that bonuses are the amount of money that employers give to employees based on annual production and business results and the level of work completion of employees. Bonus regulations are decided by employers and publicly announced at the workplace after consulting with the organization representing the labor collective at the facility.

Article 2 of Circular No. 111/2013/TT-BTC dated August 15, 2013 of the Ministry of Finance guiding the implementation of the Law on Personal Income Tax (PIT), the Law amending and supplementing a number of articles of the Law on PIT and Decree No. 65/2013/ND-CP of the Government stipulates that income from wages and salaries is the income that employees receive from employers, including: Wages, salaries and amounts of the nature of wages and salaries in the form of money or non-money.

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Income from capital investment includes: income received from capital contribution to limited liability companies, partnerships, cooperatives, joint ventures, business cooperation contracts and other forms of business as prescribed by the Law on Enterprises and the Law on Cooperatives; income received from capital contribution to establish credit institutions as prescribed by the Law on Credit Institutions; capital contribution to securities investment funds and other investment funds established and operating as prescribed by law; income from dividends paid in shares, income from capital increase profits.

Article 4 of Circular No. 96/2015/TT-BTC dated June 22, 2015 of the Ministry of Finance guiding on corporate income tax (CIT) in Decree No. 12/2015/ND-CP dated February 12, 2015 of the Government detailing the implementation of the Law amending and supplementing a number of articles of the Laws on tax and amending and supplementing a number of articles of the Decrees on tax stipulates as follows: Expenses that are not deductible when determining taxable income include salaries, wages, and bonuses for employees in one of the following cases:

- Salaries, bonuses, and life insurance expenses for employees that do not have specific conditions and levels of entitlement stated in one of the following documents: Labor contract; Collective labor agreement; Financial regulations of the Company, Corporation, Group; Bonus regulations prescribed by the Chairman of the Board of Directors, General Director, Director according to the financial regulations of the Company, Corporation.

- Expenses that do not correspond to taxable revenue, except for welfare expenses paid directly to employees such as: Funeral and wedding expenses of the employee and his/her family; vacation expenses, treatment support expenses; expenses to support additional knowledge and study at training facilities; expenses to support employees' families affected by natural disasters, war, accidents, and illness; expenses to reward employees' children with good academic achievements; expenses to support travel expenses on holidays and Tet for employees; expenses for accident insurance, health insurance, other voluntary insurance for employees and other welfare expenses. The total of the above welfare expenses shall not exceed 1 month's average actual salary in the tax year of the enterprise.

Clause 6, Article 11 of Circular No. 92/2015/TT-BTC dated June 15, 2015 of the Ministry of Finance guiding the implementation of value added tax and personal income tax for resident individuals with business activities; guiding the implementation of a number of amended and supplemented contents on personal income tax stipulated in the law amending and supplementing a number of articles of tax laws stipulating that capital investment profits of private enterprises and single-member limited liability companies owned by individuals shall not be included in taxable income.

Based on the above regulations, the Hanoi Tax Department said that in case an enterprise pays the 13th month salary to its employees, if the conditions for entitlement and the level of entitlement are specifically recorded in one of the following documents: Labor contract; Collective labor agreement; Financial regulations of the Company, Corporation, Group; Bonus regulations prescribed by the Chairman of the Board of Directors, General Director, Director according to the financial regulations of the Company, Corporation, it can be accounted for as reasonable expenses when determining corporate income tax (not included in the welfare expenses according to the instructions in Article 4 of Circular No. 96/2015/TT-BTC mentioned above).

The 13th month salary income of employees is subject to personal income tax from salaries and wages of individuals.

In case an individual is a capital contributing member of a company that generates income from capital increase profits, he/she is subject to personal income tax on capital investment activities except for profits of private enterprises and single-member limited liability companies owned by the individual.