VI In the course of workforce management and tax compliance, businesses often face uncertainties regarding which salary and wage expenses are deductible for Corporate Income Tax (CIT) purposes and which employment-related income is subject to Personal Income Tax (PIT). In particular, items such as bonuses, accrued but unpaid salaries, housing allowances, tuition fees for employees’ children, and payments for unused annual leave are subject to specific tax treatments. Join Pham Consult as we explore these issues.
What salary and wage expenses paid to employees are non-deductible when determining CIT taxable income?
Pursuant to Clause 8, Article 10 of Decree No. 320/2025/ND-CP, the following salary and wage expenses are not deductible when determining taxable income for Corporate Income Tax purposes:
- Salaries, wages, and other amounts payable to employees that have been recorded as production and business expenses during the tax period but have not actually been paid or are not supported by valid payment documents as required by law;
- Salaries, wages, and bonuses paid to employees where the eligibility conditions and benefit levels are not specifically stipulated in one of the following documents:
- Employment contracts or documents issued by foreign enterprises assigning employees to work in Vietnam (applicable to foreign employees transferred within a group, between a parent company and its subsidiary);
- Collective Labour Agreements;
- Financial Regulations of the company, corporation, or group;
- Bonus Regulations issued by the Chairman of the Board of Directors, the General Director, or the Director in accordance with the company’s financial regulations.
Exceptions:
- Where an employment contract with a foreign employee expressly provides that the employer will pay tuition fees for the employee’s children studying in Vietnam from preschool through upper secondary education, and such payments constitute salary or wage income and are supported by valid invoices and documents, these expenses are deductible for CIT purposes;
- Where an employment contract specifies that the employer will bear the employee’s housing expenses, and such payments are salary or wage in nature and supported by valid invoices and documents, the expenses are deductible for CIT purposes;
- Where a Vietnamese enterprise enters into a contract with a foreign enterprise clearly stating that the Vietnamese enterprise is responsible for accommodation expenses for foreign experts during their assignment in Vietnam, the rental expenses paid by the Vietnamese enterprise for such experts shall be deductible for CIT purposes.
- Salaries, wages, and allowances payable to employees that remain unpaid by the deadline for filing the annual corporate income tax finalization, except where the enterprise has established a salary reserve fund. The annual reserve is determined by the enterprise but must not exceed 17% of the actual payroll.
The establishment of a salary reserve fund must ensure that the enterprise does not incur a loss after making the provision. If the enterprise is already operating at a loss, it may not make the full 17% provision. Where a salary reserve fund established in the previous year remains unused or only partially used after six months from the end of the tax period, the unused amount must be reversed and reduce deductible expenses in the following year.
- Salaries and wages paid to the owner of a sole proprietorship or to the owner of a single-member limited liability company wholly owned by an individual; remuneration paid to founders or members of the Members’ Council or Board of Directors who do not directly participate in the management and operation of the business.
Which employment income is subject to Personal Income Tax?
Pursuant to Clause 2, Article 3 of the Law on Personal Income Tax 2025, taxable employment income (except for tax-exempt income provided under Article 4 of the Law) includes:
- Salaries, wages, and other remuneration of a salary or wage nature;
- Fees, remuneration, and benefits received in cash or in kind under any form;
- Allowances, subsidies, and other income, except for the following:
- Allowances and subsidies granted under laws on preferential treatment for persons with meritorious services;
- National defense and security allowances;
- Hazardous or dangerous working condition allowances;
- Attraction and regional allowances as prescribed by law;
- Allowances, subsidies, and living expenses paid by Vietnamese authorities to personnel working overseas;
- Emergency hardship allowances; occupational accident and occupational disease allowances; one-time childbirth or adoption allowances; allowances due to reduced working capacity; one-time retirement allowances; monthly survivors’ benefits; and other allowances prescribed by the laws on social insurance;
- Severance pay and job-loss allowances;
- Social assistance benefits; and
- Other allowances, subsidies, and income not of a salary or wage nature as prescribed by the Government.
Is payment for unused annual leave exempt from Personal Income Tax?
Pursuant to Clause 8, Article 4 of the Law on Personal Income Tax 2025, tax-exempt income includes:
“Night-shift pay, overtime pay, and salaries or wages paid in respect of unused annual leave in accordance with the law.”
Accordingly, salary or wage payments made to employees for unused annual leave in accordance with the applicable labour laws are exempt from Personal Income Tax.
