CHANGES IN THE METHOD OF DETERMINING PERSONAL INCOME TAX ON SALARIES AND WAGES FROM 2026

In the context of Vietnam's increasingly developing and deeply integrating economy, the implementation of tax policies consistently plays a crucial role in regulating state budget revenue, promoting social equity, and ensuring social security for citizens. One of the tax policies that directly impacts the lives of the vast majority of the workforce is the personal income tax (PIT).

On December 10, 2025, the National Assembly of Vietnam passed the Law on Personal Income Tax (amended), replacing the 2007 Law on Personal Income Tax. The new law will officially take effect on July 01, 2026. This is considered a significant milestone marking a comprehensive and positive transformation in tax administration policy during the innovation period to further clarify the legal framework, minimize the tax burden for workers, and ensure a tax environment that is fair, flexible, and more suitable for a diverse range of subjects, from salaried employees and individual business households to enterprises.

1. How is Personal Income Tax (PIT) understood?

Personal income tax (PIT) can be understood as a direct tax levied by the State on the taxable income of individuals generated over a specific period, determined based on the taxpayer's ability to pay, after deducting exemptions, reductions, and family circumstance deductions in accordance with the law.

Personal income tax plays a crucial role in regulating income among social classes, ensuring the principle of social equity, implementing social security policies, and generating revenue for the state budget.

2. Taxpayers:

Personal income taxpayers include:

A resident individual is a person who meets one of the following conditions; if the conditions are not met, the individual is considered a non-resident:

Legal basis: Article 2 of the 2025 Law on Personal Income Tax

3. Taxable income from salaries and wages:

Income from salaries and wages subject to personal income tax includes:

Legal basis: Clause 2, Article 3 of the 2025 Law on Personal Income Tax

4. Methods of determining personal income tax for income from salaries and wages:

4.1. For resident individuals:

Personal income tax on income from salaries and wages of resident individuals is calculated according to the following formula:

Payable PIT = Assessable income x Tax rate (Applying the partially progressive tax schedule)

Where:

Assessable income = Total taxable income (Total income from salaries and wages) - Insurance contributions and deductions (including: social insurance, health insurance, unemployment insurance, professional liability insurance for certain sectors and occupations requiring mandatory insurance, supplementary pension insurance under the Law on Social Insurance, voluntary pension insurance, life insurance not exceeding the level prescribed by the Government; family circumstance deductions; deductions for charitable and humanitarian contributions; deductions for health and education-training expenses; ...)

4.2. For non-resident individuals:

Personal income tax on income from salaries and wages of non-resident individuals is calculated according to the following formula:

Payable PIT = Total salaries and wages from performing work in Vietnam x Tax rate of 20%

4.3. Changes in methods of determining personal income tax for income from salaries and wages from 2026:

a. Adjusting the determination of taxable income, adding deductible items:

The 2025 Law on Personal Income Tax has narrowed the scope of taxable income for salaries and wages by removing certain forms of income generation from taxable income, such as: Money received from participating in business associations, boards of directors, supervisory boards, management councils, and other organizations; Benefits received by taxpayers in cash or in kind; Bonuses.

Besides, the new Law has added deductible items including:

b. Increasing family circumstance deductions:

The family circumstance deduction is the amount deducted from taxable income prior to calculating tax on income from salaries and wages for taxpayers who are resident individuals. The new family circumstance deduction levels are stipulated as follows:

c. Adjusting the partially progressive tax schedule:

The 2025 Law on Personal Income Tax has adjusted the partially progressive tax schedule from 07 brackets down to 05 brackets:

Through reducing the number of brackets in the partially progressive tax schedule, the new Law has increased the income level subject to the 35% tax rate from "over 80 million VND" to "over 100 million VND".

4.4. Applying the method of determining personal income tax on income from salaries and wages through an example:

Assume:

Income from salary is 30 million VND/month ;

Mandatory insurance is 3 million VND ;

No dependents.

-> Assessable income = 30 million VND (Salary) – 15.5 million VND (Family circumstance deduction) – 3 million VND (Insurance contributions) = 11.5 million VND

=> 11.5 million VND is determined:

+ The first 10 million VND : 10 × 5% Tax rate = 0.5 million VND (1)

+ The remaining 1.5 million VND: 1.5 × 10% Tax rate = 0.15 million VND (2)

The total payable PIT amount is (1) + (2) = 0.65 million VND/month.

The changes in the method of determining personal income tax for income from salaries and wages reflect the State's efforts in perfecting the tax legal framework to be more suitable with the socio-economic development context. From a legal perspective, these changes contribute to overcoming the shortcomings existing in the mechanism for determining personal income tax on salaries and wages in the previous period, especially the disproportion between tax obligations and the actual living standards of workers, as well as the difficulties in uniformly applying legal provisions. Simultaneously, innovating the tax determination method also creates a favorable legal basis for tax administration, enhancing the efficiency of income control and limiting tax evasion behaviors. However, for the new regulations to be effective in practice, there needs to be detailed and synchronous guidance from state management agencies, as well as law dissemination and propagation efforts to raise the awareness and compliance consciousness of taxpayers.

DL PINNACLE LAW FIRM LLC