Understanding Vietnam’s Personal Income Tax (PIT): How It Works and the Calculation Steps — Explained Clearly with Deductions and Tax Rates

For Japanese companies operating subsidiaries in Vietnam, Personal Income Tax (PIT) is an essential system to understand, alongside payroll calculations.
The taxable amount can vary significantly depending on social insurance contributions, various allowances, and dependent deductions, and misunderstandings may lead to tax compliance risks.

In this article, we explain Vietnam’s PIT system from its basic structure to deductions and calculation steps in a clear and practical manner.

What Is Personal Income Tax (PIT) in Vietnam?

Personal Income Tax (PIT) is a tax imposed on income earned by individuals.
In Vietnam, income derived from employment, such as salaries, bonuses, and allowances, is the primary taxable income.

In payroll operations, PIT is calculated and withheld on a monthly basis at source, and the employer is responsible for remitting it to the tax authorities.

Main Types of Income Subject to PIT

The following types of payroll-related income are generally subject to PIT:

On the other hand, reimbursements and welfare-type benefits may be treated as non-taxable if certain conditions are met.

Concept of Deductions in PIT Calculation

PIT is not calculated simply by applying tax rates to gross income.
Tax rates are applied to taxable income after deductions, as outlined below.

① Social Insurance Contributions

The following employee-borne social insurance contributions are deductible when calculating PIT:

② Personal Deduction

Vietnam allows a fixed monthly personal deduction for each taxpayer.

*The deduction amount may change due to legal amendments.*

③ Dependent Deduction

If certain conditions are met, taxpayers may apply dependent deductions for eligible dependents.

To claim dependent deductions, prior registration and proper documentation are essential.

PIT Calculation Steps (Practical Workflow)

In payroll practice, PIT is calculated using the following steps:

Vietnam applies progressive tax rates, meaning higher income levels are subject to higher marginal tax rates.

Current Progressive PIT Tax Rates

Vietnam’s Personal Income Tax applies progressive tax rates to taxable income.
The table below shows the current tax rates based on monthly taxable income.

Monthly Taxable Income	Tax Rate
Up to 5,000,000 VND	5%
5,000,001 – 10,000,000 VND	10%
10,000,001 – 18,000,000 VND	15%
18,000,001 – 32,000,000 VND	20%
32,000,001 – 52,000,000 VND	25%
52,000,001 – 80,000,000 VND	30%
Over 80,000,000 VND	35%

It is important to note that these rates are applied progressively by income bracket.
Even for high taxable income, the highest tax rate does not apply to the entire amount.

Please note that deduction amounts and tax rates may change due to legal amendments, so it is important to confirm the latest regulations.

Common Practical Pitfalls

These issues are commonly pointed out during tax audits.

Relationship with PIT Law Amendments

PIT deduction amounts and calculation rules may be revised due to amendments to tax laws.
Please also refer to the following article for the latest updates.

▶ Related article: Vietnam National Assembly Passes Personal Income Tax Law Amendment — Effective July 1, 2026

Relationship with Overall Payroll Processing

PIT is closely related to payroll calculations, overtime pay, allowances, and social insurance.
Rather than understanding each system in isolation, it is important to view PIT as part of the overall payroll process.

▶ Related articles:
Vietnam Payroll Calculation Rules: Complete Guide
Allowances in Vietnam: Tax and Social Insurance Treatment

Summary

By correctly understanding the deduction mechanisms and calculation steps of Vietnam’s Personal Income Tax (PIT), companies can ensure accurate and compliant tax processing.

Managing PIT together with payroll structure, allowances, and social insurance in an integrated manner is key to reducing tax and labor compliance risks.