Vietnam's revised Personal Income Tax (PIT) framework, comprising PIT Law No. 109, Decree No. 253/2026/ND-CP and Circular No. 87/2026/TT-BTC, took effect on 1 July 2026 and applies retrospectively to the 2026 tax year.
The reforms introduce higher personal deductions, new deductible expense categories and broader tax exemptions for certain employment income. While these measures are generally favourable for employees, they also require employers to review payroll processes, withholding calculations and supporting documentation to ensure compliance during the annual tax finalisation.
1. Revised family circumstance deductions
The family circumstance deduction has increased from VND 11 million to VND 15.5 million per month for taxpayers and from VND 4.4 million to VND 6.2 million per registered dependant. These revised thresholds should be reflected in monthly payroll and PIT withholding calculations.
Some media reports have suggested that monthly income below VND 28 million is exempt from PIT. This interpretation is misleading. The figure assumes taxpayers will also claim the newly introduced deductions for medical and education expenses, which are only available during the annual tax finalisation process and are subject to statutory conditions and documentary evidence. They do not apply to monthly withholding.
The revised legislation also simplifies the progressive PIT schedule by reducing the number of tax brackets from 7 to 5, resulting in lower tax liabilities for many employees.
Employer considerations
- Update payroll systems to reflect the revised deduction levels and tax brackets.
- Apply only statutory monthly deductions when calculating PIT withholding.
- Ensure employees understand the distinction between monthly withholding and deductions available only during annual tax finalisation.
2. PIT exemption for overtime and night-shift pay
The new legislation expands the PIT exemption for overtime and night-shift remuneration. Previously, only the additional amount paid above the normal salary was exempt. From the 2026 tax year onwards, the entire amount paid for overtime, night-shift work and unused annual leave paid upon termination is exempt from PIT.
Employers should ensure that overtime hours and related payments are properly documented. Although no prescribed format exists, supporting records should clearly demonstrate the hours worked and the corresponding remuneration in the event of a tax audit.
Employers should also continue to monitor compliance with statutory overtime limits under the Labour Code. Where overtime exceeds the permitted annual thresholds, the excess remuneration may have adverse tax consequences, including the potential disallowance of the expense for corporate income tax purposes and the loss of the PIT exemption.
Employer considerations
- Update payroll systems to apply the revised PIT exemption.
- Maintain comprehensive records supporting overtime and night-shift payments.
- Monitor compliance with statutory overtime limits and any applicable registration requirements.
3. New deductions for medical and education expenses
For the first time, taxpayers may claim deductions for qualifying medical expenses of up to VND 23 million per year and qualifying education expenses of up to VND 24 million per year for themselves or registered dependants.
These deductions are only available during annual tax finalisation and require valid invoices and supporting documentation. In practice, employers should exercise caution when administering these deductions on behalf of employees, particularly where the supporting documentation cannot be independently verified.
Examples include expenses paid by another family member, duplicate claims following a change of employer during the tax year, or medical expenses that have been partially reimbursed by private insurance. In each case, insufficient or inaccurate documentation could result in adjustments during a tax audit.
As a result, some employers may choose to limit company-managed tax finalisation to standard employment income while allowing employees claiming additional deductions to complete their own annual PIT finalisation directly with the tax authorities.
Employer considerations
- Establish internal procedures for reviewing supporting documentation where the company performs annual tax finalisation.
- Assess whether company-managed finalisation should include the new deduction categories.
- Inform employees of their responsibilities where individual tax finalisation is required.
4. Director remuneration in single-member companies
The tax treatment of remuneration paid to the owner of a single-member limited liability company continues to require careful consideration.
Although the legislation distinguishes between the roles of owner and director, tax authorities generally challenge salary payments where both positions are held by the same individual. In these circumstances, the salary expense may be disallowed for corporate income tax purposes while remaining subject to PIT at the individual level.
This treatment differs from companies with multiple capital-contributing members, where remuneration paid to a director who is also a shareholder is generally deductible, provided the applicable legal and tax requirements are satisfied.
Employers should also note that mandatory social insurance obligations may continue to apply irrespective of whether a salary is paid.
Employer considerations
- Review remuneration arrangements for sole owners who also act as directors.
- Assess the corporate income tax implications before implementing salary payments.
- Consider whether alternative remuneration structures are more appropriate.
5. PIT withholding on payments to individuals
The revised rules reaffirm that payments made to individuals for services are assessed according to their substance rather than the title of the agreement. Renaming an agreement as a consultancy, collaboration or service contract does not, in itself, remove the obligation to withhold PIT where the payment constitutes taxable employment income under the legislation.
The new rules also increase the threshold for applying the 10% withholding regime on certain irregular payments from VND 2 million to VND 5 million per payment, subject to the statutory conditions.
Businesses should also avoid structuring payments solely to remain below the withholding threshold. Tax authorities may assess multiple instalments or related contracts as a single payment where the underlying transaction indicates that they form part of the same arrangement.
Employer considerations
- Review agreements with consultants, collaborators and other individuals providing services.
- Confirm that withholding procedures reflect the revised threshold and statutory requirements.
- Ensure payment structures accurately reflect the commercial arrangement and are supported by appropriate documentation.
Fidinam can help
Vietnam's 2026 personal income tax reform introduces several measures that reduce the tax burden for individuals while increasing the importance of accurate payroll administration and supporting documentation.
Employers should review their payroll systems, withholding procedures, employment documentation and internal tax compliance processes to ensure they align with the revised legislation. Early preparation can help minimise compliance risks during the annual tax finalisation process and provide greater certainty for both employers and employees.
Fidinam Vietnam assists businesses with payroll compliance, personal income tax matters and broader employment tax advisory. If you would like to assess how these reforms may affect your organisation, our team is available to provide tailored guidance.
Contact us via the form below to schedule an initial consultation.
