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 current amount is 15,500,000 VND per month (186,000,000 VND per year).

③ Dependent Deduction

If certain conditions are met, taxpayers may apply dependent deductions for eligible dependents.
The current amount is 6,200,000 VND per month for each qualifying dependent.

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

Type of Deduction	Former (until Dec 2025)	Current (from Jan 2026)
Personal deduction	11,000,000 VND/month	15,500,000 VND/month
Dependent deduction (per dependent)	4,400,000 VND/month	6,200,000 VND/month

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 (from July 1, 2026)

Vietnam’s Personal Income Tax applies progressive tax rates to taxable income.
Under the amended PIT Law (Law No. 109/2025/QH15), effective July 1, 2026, the brackets were simplified from seven to five. The table below shows the current tax rates based on monthly taxable income.

Monthly Taxable Income	Tax Rate
Up to 10,000,000 VND	5%
10,000,001 – 30,000,000 VND	10%
30,000,001 – 60,000,000 VND	20%
60,000,001 – 100,000,000 VND	30%
Over 100,000,000 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.

What Changed (Comparison with the Former Rates)

Compared with the former seven-bracket structure that applied until June 30, 2026, the changes are as follows:

Item	Former (until June 30, 2026)	Current (from July 1, 2026)
Number of brackets	7	5
Applicable rates	5 / 10 / 15 / 20 / 25 / 30 / 35%	5 / 10 / 20 / 30 / 35%
Threshold for the top 35% rate	Over 80,000,000 VND	Over 100,000,000 VND

The amendment reduces the tax burden mainly for middle-income earners. For expatriates on net salary (take-home guarantee) contracts, it also lowers the employer’s cost in gross-up calculations.

Note that the rate for non-residents (individuals present in Vietnam for fewer than 183 days in a calendar year) remains a flat 20% on Vietnam-sourced income, unchanged by the amendment.

Common Practical Pitfalls

These issues are commonly pointed out during tax audits.

Relationship with PIT Law Amendments

The amended PIT Law (Law No. 109/2025/QH15) has been in force since July 1, 2026.
Please also refer to the following article for details of the amendment and practical guidance.

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

Implementing decrees and circulars may still be issued or updated, so please continue to confirm the latest regulations.

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.

Following the amendment effective July 1, 2026, there are now five tax brackets, with a personal deduction of 15,500,000 VND and a dependent deduction of 6,200,000 VND. We recommend reviewing whether your payroll system settings reflect these current values.

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