PERSONAL INCOME TAX LAW 2025: ADDITION OF DEDUCTIONS, INCREASED TAXABLE INCOME THRESHOLDS, AND THE OPTION TO CHOOSE TAX CALCULATION METHODS TO REDUCE TAX BURDEN FOR TAXPAYERS

On 10 December 2025, the National Assembly passed the Personal Income Tax Law No. 109/2025/QH15 (“PIT Law 2025”), replacing the Personal Income Tax Law of 2007 (as amended and supplemented in 2012) (“PIT Law 2007”). Overall, the PIT Law 2025 has been developed with a renewed tax management mindset, ensuring a balance between supporting economic recovery and development while maintaining fairness, transparency, and practicality.

Compared to the current regulations, the PIT Law 2025 introduces and adjusts a number of important provisions, clearly reflecting the direction of personal income tax (“PIT”) policy reform in the new period.

Below are some notable updates summarized by ATA Legal Services:

1. Taxable income and tax-exempt income

1.1. Expansion of taxable income to cover emerging economic activities

The PIT Law 2025 expands the scope of taxable income to include:

• E-commerce activities and platform-based digital business activities;

• Transfers of digital assets;

• Transfers of greenhouse gas emission reduction results and carbon credits;

• Transfers of gold bars under the roadmap for gold market management (tax rate of 0.1% on the transfer value for each transaction);

• Transfers of Vietnam national internet domain names “.vn”;

• Transfers of auctioned vehicle license plates.

Notably, including gold bar transfers within the taxable scope marks a significant shift in gold market management policy, reflecting the trend of regulating high-value asset transactions to limit speculation and enhance market transparency.

1.2. Addition of several tax-exempt income categories

The new law adds a number of income categories eligible for PIT exemption or reduction, including:

• Wages and salaries paid for unused leave days in accordance with the law;

• Income remaining after corporate income tax has been paid by individuals who are owners of private enterprises or single-member limited liability companies;

• Income from the first transfer of greenhouse gas emission reduction results of individuals recognized for emission reductions or granted carbon credits; income from interest on green bonds; income from the first transfer of green bonds after issuance;

• PIT exemption for five (05) years for income from wages and salaries of high-quality digital technology workforce;

• PIT exemption for five (05) years for income from wages and salaries of high-tech personnel engaged in research and development of high technologies or strategic technologies listed in the priority high-tech development list or the list of strategic technologies and products under the law on high technology;

• PIT exemption for transfers of open-ended fund certificates established under securities laws if held for two (02) years or more from the purchase date;

• 50% reduction of PIT on dividends distributed to individual investors from securities investment funds or real estate investment funds established under the Law on Securities within the period prescribed by the Government.

2. Reducing PIT pressure on employment income through additional deductions, higher family circumstance deductions, and increased taxable income thresholds

2.1. Medical and education expenses added as deductible items before tax calculation

Under the PIT Law 2025, taxable income from wages and salaries is determined as the total taxable income received during the tax period minus the following:

• Contributions to social insurance, health insurance, unemployment insurance, and professional liability insurance for professions requiring mandatory insurance;

• Contributions to supplementary pension insurance in accordance with the Law on Social Insurance;

• Voluntary pension insurance and life insurance (within prescribed limits);

• Family circumstance deductions;

• Deductions for charitable and humanitarian contributions;

• Other deductions, such as medical and education expenses of the taxpayer and their dependents.

Thus, the new law introduces additional deductible items such as voluntary pension insurance, life insurance, and medical and education expenses of taxpayers and their dependents. However, detailed deductible limits will be specified by the Government before practical implementation.

2.2. Increase in family circumstance deductions

In line with Resolution No. 110/2025/UBTVQH15, the PIT Law 2025 sets the family deduction levels (applicable from the 2026 tax period) as follows:

In addition, based on fluctuations in prices and income levels, the Government may propose adjustments to the Standing Committee of the National Assembly to revise deduction levels in accordance with socio-economic conditions from time to time.

2.3. Adjustment of taxable income thresholds in the progressive tax schedule

Another notable change is the reduction of the progressive tax brackets from seven (07) to five (05), while expanding the income ranges for each bracket to reduce tax pressure.

Accordingly:

• The lowest tax rate of 5% now applies to income up to VND 120 million/year, compared with the previous threshold of VND 60 million/year.

• The highest tax rate of 35% applies to income exceeding VND 1.2 billion/year, instead of VND 960 million/year.

This adjustment better reflects the current wage and income levels in the Vietnamese labor market and provides greater incentives for employees.

3. Adjustments to PIT on business income to encourage household and individual businesses

3.1. Increased revenue threshold for PIT liability

The PIT Law 2025 increases the revenue threshold subject to PIT. Specifically, household and individual businesses with annual revenue of up to VND 500 million are exempt from PIT, compared to VND 200 million previously.

This clearly reflects the policy direction of reducing compliance burdens and administrative costs for small and micro household businesses, which account for a significant proportion of the economy. In the context of fluctuating input costs and market demand, the higher exemption threshold helps stabilize livelihoods and encourages formal business activities.

3.2. Option to choose tax calculation methods for lower-revenue businesses

For revenue exceeding the above threshold, household and individual businesses with annual revenue from VND 500 million to VND 3 billion may choose one of two PIT calculation methods:

• PIT payable = (Revenue – Expenses) × 15%, or

• PIT payable = (Revenue – 500 million VND) × tax rate (0.5% – 5% depending on the sector).

Allowing taxpayers to choose the calculation method represents a significant improvement compared with the previously rigid approach. Businesses unable to track expenses or lacking sufficient documentation for deductible expenses may opt for the revenue-based method.

4. Fundamental change in PIT calculation for capital transfers

Under the PIT Law 2007:

• Resident individuals: PIT = (Selling price – Purchase price – Reasonable expenses) × 20%;

• Non-resident individuals: PIT = Total transfer proceeds × 0.1%.

Under the PIT Law 2025, the distinction between resident and non-resident individuals is removed and a unified formula is applied:

• If the purchase price and related costs can be determined: PIT = (Selling price – Purchase price – Reasonable expenses) × 20%

• If the purchase price and related costs cannot be determined: PIT = Transfer price × 2%

Thus, if the purchase price and related expenses cannot be verified, PIT on capital transfers will be calculated at 2% of the transfer value, which is significantly higher than the tax rate for securities transfers (0.1% per transaction), which remains unchanged.

5. Taxpayers may choose the timing for determining PIT on real estate transactions

• For individuals leasing real estate (excluding accommodation services): PIT payable = (Revenue – 500 million VND) × 5%

• For real estate transfers, the PIT Law 2025 allows taxpayers to choose one of two timing options to determine taxable income:
  (i) according to the transfer contract, or
  (ii) according to the time of registration of ownership or land use rights.

This provision benefits sellers where tax rates or official land price tables change between these two points in time.

6. Taxable income threshold for inheritance, royalties, prizes, etc. increased to VND 20 million per occurrence

The PIT Law 2025 increases the taxable threshold to VND 20 million per occurrence for income from:

• Inheritance or gifts;

• Franchising;

• Royalties;

• Lottery or prize winnings;

• Other income sources.

Overall, the PIT Law 2025 clearly reflects a policy reform direction that aligns more closely with socio-economic realities while reducing the tax burden on taxpayers and encouraging compliance by household and individual businesses.

The PIT Law 2025 will take effect from 1 July 2026. Provisions relating to business income and employment income of resident individuals will apply from the 2026 tax period.