VI Tax-exempt income is one of the key components of tax policy aimed at reducing financial burdens and encouraging and protecting taxpayers in specific employment circumstances. Under the 2025 Law on Personal Income Tax, the list of tax-exempt income has been revised and supplemented to align with the 2019 Labour Code and reflect the practical development of the socio-economic environment. To ensure proper compliance with the law and optimize the benefits available to them, both employees and employers need to clearly understand the regulations on the conditions and scope of application of certain types of tax-exempt income. Let Pham Consult walk you through the key legal regulations concerning the exemption from Personal Income Tax (PIT) applicable to overtime pay, night work pay, and payments for unused annual leave.
- Tax exemption for salary and wages for night work and overtime work
Pursuant to Clause 8, Article 4 of the 2025 Law on Personal Income Tax, salary and wages earned from night work and overtime work in accordance with the law are classified as tax-exempt income.
Under the detailed guidance provided in Decree No. 253/2026/ND-CP of the Government, the entire amount of salary and wages received by an employee for night work and overtime work shall be fully exempt from PIT. Instead of the previous mechanism, under which only the amount exceeding the salary applicable to normal daytime or regular working hours was exempt from tax, the new regulations provide that the entire income arising from overtime work or night work shall be treated as tax-exempt income.
Note: Pursuant to Clause 3, Article 26 of Decree No. 253/2026/ND-CP, where salary and wages for night work and overtime work exceed the amounts prescribed by law, the excess amount shall be included in the individual’s taxable income.
Pursuant to Clause 1, Article 26 of Decree No. 253/2026/ND-CP, in order to apply this PIT exemption mechanism, the enterprise must be able to demonstrate the following conditions:
– The enterprise’s assignment of employees to work at night or work overtime must comply with the statutory working time limits under labour regulations, including the maximum number of working hours per day, month, and year, and must be subject to the employee’s consent.
– The enterprise must prepare a statement clearly reflecting the employees’ night working hours and overtime hours at the workplace, as well as the corresponding salary and wages paid for such night work and overtime work. This statement must be retained by the income-paying organization or enterprise and presented upon request by the tax authority.
Note: Where a separate statement is not prepared, the enterprise shall be responsible for evidencing the salary and wages paid for night work and overtime work at the workplace through payroll records, timesheets, employment contracts, and other lawful supporting documents.
Overtime work and night work require employees to expend greater physical effort and sacrifice more rest time than under standard working arrangements. The State’s recognition and compensation of these circumstances through preferential tax treatment for the corresponding income represents a positive development in the current legal policy.
- Tax exemption for salary and wages paid for unused annual leave
From 1 July 2026, the application of the PIT exemption to salary and wages paid for unused annual leave is specifically regulated to fully protect the fruits of employees’ labour and their legitimate entitlements.
Pursuant to Clause 8, Article 4 of the 2025 Law on Personal Income Tax, salary and wages paid for unused annual leave in accordance with the law constitute tax-exempt income. Specifically, this income includes salary paid by an enterprise for unused annual leave where an employee resigns or loses their job without having taken their annual leave or without having fully taken their annual leave entitlement, in accordance with Clause 3, Article 113 of the 2019 Labour Code.
Note: Pursuant to Clause 3, Article 26 of Decree No. 253/2026/ND-CP, where salary and wages paid for unused annual leave exceed the amounts prescribed by law, the excess amount shall be included in the individual’s taxable income.
Annual leave is a fundamental entitlement intended to enable employees to recover and maintain their working capacity. However, due to objective reasons such as resignation, job loss, or work requirements, an employee may not have taken, or may not have fully taken, their annual leave entitlement. In such cases, the law provides that the employee remains entitled to receive salary and wages from the enterprise for the unused leave days. This provision provides direct income support to employees during periods of transition between employment.
- Determination of salary for night work and overtime work
Pursuant to Clause 1, Article 98 of the 2019 Labour Code, an employee working overtime shall be paid at a rate calculated based on the applicable hourly wage or the actual salary paid for the work being performed, as follows:
– On normal working days: at least 150%;
– On weekly days off: at least 200%;
– On public holidays, New Year’s holidays, and paid days off: at least 300%, exclusive of the salary for the public holiday, New Year’s holiday, or paid day off applicable to employees receiving daily wages.
Where an employee works at night, the employee shall be paid an additional amount of at least 30% of the salary calculated based on the applicable hourly wage or the actual salary paid for the work performed during a normal working day. In addition, where an employee works overtime at night, in addition to the overtime pay prescribed above, the employee shall receive an additional 20% of the salary calculated based on the applicable hourly wage or the salary for the work performed during the daytime of a normal working day, weekly day off, or public holiday or New Year’s holiday.
