Personal Income Tax (PIT) on salaries and wages is one of the most critical statutory deductions that both businesses and employees must clearly understand. Accurately identifying the taxpayer category, the timing of tax assessment, and applying the correct formula not only ensures legal compliance but also optimizes financial benefits for all parties involved.

What is Personal Income Tax (PIT)?

Personal Income Tax is a direct tax levied on the income of individuals. It is the portion of earnings that an individual must contribute from their salary, wages, or other taxable sources to the state budget after eligible tax deductions (such as family relief and compulsory insurance) have been applied.

For income derived from salaries and wages, the employer is responsible for withholding PIT directly from the employee’s gross income before making the monthly payout and remitting it to the tax authority (withholding tax at source).

Vietnam Legal Framework for the 2026 Tax Year:

• Law on Personal Income Tax No. 109/2025/QH15 (amended and supplemented by Law No. 09/2026/QH16), issued on December 10, 2025, effective from July 1, 2026 (provisions concerning income from business, salaries, and wages of resident individuals apply throughout the 2026 tax year).
• Decree No. 253/2026/ND-CP detailing and guiding the implementation of the Law on Personal Income Tax, issued on June 30, 2026, effective from July 1, 2026.
• Circular No. 87/2026/TT-BTC detailing the Law on Personal Income Tax and Decree No. 253/2026/ND-CP, issued on June 30, 2026, effective from July 1, 2026.

Timing of PIT Assessment on Salaries and Wages

The core principle of PIT management is: The business assesses and calculates PIT in the month the income is actually paid (correspondingly, the employee is subject to PIT in the month they actually receive the income).

This is applied as follows:

• For employees receiving monthly salaries:
  • Example: A company pays the salary for June 2026 on July 5, 2026. Since the income is actually paid in July, the business calculates the PIT in July 2026 and declares this income in the Q3/2026 tax filing cycle.
• For employees paid per occurrence or on a project basis:
  • Example: A company pays contract worker A on August 10, 2026. At the time of payment (August 10, 2026), the business must calculate and withhold PIT for worker A. This income will be consolidated and declared in the Q3/2026 tax filing cycle.

Vietnam PIT Calculation Formulas for 3 Taxpayer Groups

Depending on the employment contract term and residency status, PIT calculation is divided into three distinct groups:

Group 1: Resident individuals signing Labor Contracts of 3 months or more

This is the most common group, where tax is calculated using the Progressive Tax Rate Scale.

Main Tax Formula: PIT Payable = Taxable Income × Progressive Tax Rate 

Where the components are calculated sequentially as follows:

1. Taxable Income: Taxable Income = Assessable Income − Tax Deductions
2. Assessable Income: Assessable Income = Gross Income − (Tax-Exempt Income)

 Detailed Components:

• Assessable Income includes:
  • Salaries, wages, and other items of a salary or wage nature.
  • Remuneration, benefits in cash or non-cash forms under any designation.
  • Allowances, subsidies, and other income. (Excluding: preferential subsidies for meritorious persons; national defense/security allowances; toxic/hazardous work allowances; attraction/regional allowances; sudden hardship allowances, occupational accident/disease subsidies; maternity/child adoption benefits; severance/job-loss allowances, and other social welfare benefits as prescribed by law).
• Gross Income: The total income received by the employee during the tax period (including holiday and Tet bonuses). This is determined based on the Salary Payroll Sheet (or individual pay slips) and the Bonus Sheet (if any).
• Tax Deductions: [Click to view details]
• Tax-Exempt Income: [Click to view details]

 Progressive Tax Rate Scale (Applicable from the 2026 Tax Year)

Under the Law on PIT No. 109/2025/QH15, the progressive tax rates on income from salaries and wages are structured as follows:

Group 2: Resident individuals signing Labor Contracts under 3 months or other contract types

For employees on service contracts or labor contracts under 3 months, businesses withhold a flat rate of 10% on each payment (applicable to payments that meet the minimum threshold required by law).

Tax Formula: PIT Payable = Gross Income × 10%

How to calculate personal income tax for subcontracted work, services, and collaborators: [Click to view details]

 Group 3: Non-resident individuals

For foreign employees or individuals classified as non-residents in Vietnam, PIT is withheld at a flat rate of 20% on the gross assessable income earned within Vietnam.

Tax Formula: PIT Payable = Gross Income × 20%

3. Step-by-Step PIT Calculation Process

• • Step 1: Determine the taxpayer category and the appropriate tax calculation method for the employee.
  • Step 2: Determine the Gross Income actually received during the tax period.
  • Step 3: Identify and deduct Tax-Exempt Income.
  • Step 4: Calculate Assessable Income
  • Step 5: Determine the total value of eligible Tax Deductions (family relief, compulsory insurance, charitable contributions, etc.).
  • Step 6: Calculate Taxable Income
  • Step 7: Match the Taxable Income against the Progressive Tax Rate Scale to determine the corresponding tax bracket and quick-calculation formula.
  • Step 8: Apply the formula to calculate the exact PIT payable and withhold it before paying out the net salary.

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