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April 2024 Tax Updates: Minimum Wage Hike and recent changes.

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April 2024 tax updates: minimum wage hike and recent changes

This April 2024 publication of our Tax and Accounting Updates focuses on the proposed increase in the Minimum Monthly Wage for regional areas from 1 July 2024, tax exemption and incentive policies for innovative startup enterprises in Ho Chi Minh City, list of industries, trade and production and business establishments encouraged for investment and relocation in industrial clusters and our regular review of recent Official Letters released by the tax authorities.

Proposed increase in the Minimum Monthly Wage from 1 July 2024

On 22 March 2024, the Ministry of Labour, War Invalids and Social Affairs announced a draft of Decree regulating the Minimum Monthly Wages for employees working under labour contracts. According to the draft, the Minimum Monthly Wages in regional areas will increase 6% on average as follows:

ZONEMinimum Monthly Wages (VND)Increase
Until 30 June 2024 (expected)From 1 July 2024 (expected)
Zone I4,680,0004,960,000280,000
Zone II4,160,0004,410,000250,000
Zone III3,640,0003,860,000220,000
Zone IV3,250,0003,450,000200,000

And Minimum Hourly Wages will increase as follows:

ZONEMinimum Monthly Wages (VND)Increase
Until 30 June 2024 (expected)From 1 July 2024 (expected)
Zone I22,50023,8001,300
Zone II20,00021,2001,200
Zone III17,50018,6001,100
Zone IV15,60016,6001,000

Minimum Monthly Wages forms the basis for salary calculations and negotiations between commercial employers & employees, which is evidenced in labour contracts. It is also used as a threshold upon which the maximum payment for Unemployment Insurance (UI) is calculated. Minimum Monthly Wages are applied at different rates using “zones” to align with areas with different economic and living standards.

This increase is expected to be applied from 1 July 2024. Although it is still awaiting final approval from the National Assembly, history shows that this proposal will likely pass and we suggest that enterprises should take this proposed increase into account for their budget planning, along with updating payroll calculations in terms of Unemployment Insurance contributed by employers and employees.

Tax Exemption and Incentive Policies for Innovative Startup Enterprises in Ho Chi Minh City

In pursuit of fostering innovation, entrepreneurship, and economic growth, and in alignment with the provisions of Resolution 98/2023/QH15 by the National Assembly, a framework that pilots specific mechanisms and policies for the development of Ho Chi Minh City, the Vietnamese Government enacted Decree 11/2024/ND-CP on 2 February 2024. This decree introduces favourable tax policies aimed at supporting innovative startup enterprises, science and technology organizations, innovation centres, and intermediary entities that facilitate the growth of innovative startups.

Following the Decree 11, key tax incentives for eligible entities include:

  • Corporate Income Tax (CIT) Exemption for 5 years: innovative startup enterprises in Ho Chi Minh City are granted a 5-year CIT exemption from the time they incur CIT payable related to innovative start-up activities.
  • Tax exemption for capital transfer: individuals and organizations deriving income from the transfer of capital or capital contribution rights in innovative startup enterprises are eligible for Personal Income Tax (PIT) and CIT exemptions. However, this exemption does not apply to income from the transfer of stocks, bonds, fund certificates, or other securities as per regulations.

Please stay tuned for further details of the decree, which will be covered in our upcoming article released in the coming days on Acclime Vietnam website.

The Decree took effect from 1 August 2023.

List of industries, trade and production and business establishments encouraged for investment and relocation in industrial clusters

On 15 March 2024, the Government issued Decree 32/2024/ND-CP, delineating the management and enhancement of industrial clusters. This decree specifies the sectors, trade activities, and business entities that are incentivised for investment and relocation to these clusters.

The decree particularly encourages the following entities to invest and relocate to industrial clusters:

  • Processing and manufacturing sectors related to agriculture; mechanical industries including automobile, agricultural machinery, construction and industrial equipment, electrical and medical equipment; as well as supporting, textile, and footwear industries.
    Information technology and telecommunications sectors, electronics, smart energy, digital technology, automation, advanced equipment, novel materials, and biotechnology.
  • Local industries and cottage industries required to be preserved and developed; services such as warehousing, packaging, goods transportation, and repair and maintenance of machinery and industrial equipment and other services support manufacturing industries, local cottage industries provided they do not exceed 10% of the total industrial cluster area.
  • Industries adopting high, environment-friendly technology, low energy consumption, high added value, and sustainable development practices.
  • Industrial establishments and cottage industries that cause pollution or pose a pollution risk in craft villages and residential areas are encouraged to relocate to industrial clusters.

Accordingly, compared to the previous regulations, Decree 32 has added many new industries such as warehousing services, packaging, goods transportation, information technology and telecommunications industry, and electronics industry.

Decree 32/2024/ND-CP will come into force on 1 May 2024, superseding Decree 68/2017/ND-CP from 25 May 2017 and Decree 66/2020/ND-CP from 11 June 2020.

Official letters released

Official Letters are releases showing tax and other authorities’ interpretation and application of Vietnam’s Taxation Laws, providing guidance to taxpayers in Vietnam.

Allocation of input Value-Added Tax shared between taxable and non-taxable

On 2 April 2024, the Hanoi Tax Department disseminated Official Letter 16889/CTHN-TTHT concerning asset liquidation. It states that companies engaged in the production and trade of goods and services exempt from value-added tax (VAT), which also undertake VAT-liable activities, may deduct the input VAT on goods and services utilised in these taxable activities, provided they maintain distinct accounting records for deductible input VAT in accordance with point a, Clause 9, Article 1 Decree 26/2015/TT-BTC.

The deadline to amend tax declaration documents is within 10 years following the expiration of the tax declaration period in which discrepancies or omissions occurred. However, this must be completed prior to any announcement of an inspection or review by the tax authority or other competent bodies, as outlined in Clause 1, Article 47 of the Tax Administration Law.

The company is required to submit additional VAT and CIT declarations in accordance with Clause 4, Article 7 of Decree 126/2020/ND-CP.

Authorisation for employers to finalise the Personal Income Tax in instances where the employee’s tenure is less than 12 months

On 2 April 2024, the Hanoi Tax Department released Official Letter 16888/CTHN-TTHT on authorisation for employers to finalise the PIT in instances where the employee’s tenure is less than 12 months.

Accordingly, where an individual has income from salary or wages, signs a labour contract of 3 months or more and is actually working at a company at the time the entity executes the Tax finalisation, it is allowed to authorise for the company to perform PIT finalisation on their behalf. This is applicable even in instances where the individual has not worked for the entire 12-month period within the fiscal year. To qualify for such authorisation, the individual must not have been employed by any other entity during the preceding months of the fiscal year, ensuring that the income for the year is exclusively attributed to the authorising employer. In cases where the individual has concurrent income from another source, it must not exceed an average of VND 10 million per month, and a tax at 10% is deducted.

 

For more information on tax updates and other compliance requirements for businesses operating in Vietnam, follow our monthly releases on the website and social media channels at vietnam.acclime.com.

Updated on April 24, 2024
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