Compensation for labor contracts is exempted from personal income tax or not?

Compensation for labor contracts exempted from personal income tax until 1 July 2013             

Compensation for labor contracts exempted from personal income tax has been guided as per Dispatch No.4754/LDTBXH-LDTL dated 2nd December 2013 of Ministry of Labour, Invalids and Social Affairs of Vietnam on payment of compensation of the salaries, allowances for breach of the period of notice given when employer unilaterally terminates a labor contract before the Labour Code 2012 taken effect.

1. As defined in Paragraph 1 and Paragraph 4 of Article 41 of the Labor Code in 1994, where the employer unlawfully unilaterally terminates the labor contract because of breach of advance notice that the employer does not want workers to return to work and the employee agrees, the employer must pay the employee for the following:

 - Salaries and allowance (if any) for the period the employee was not allowed to work plus at least two months” salary and allowance (if any);
 - Severance allowance as prescribed in Article 42 of the Labor Code 1994;
 - The amount of additional compensation to terminate the labor contract agreed upon by both parties.
 - Compensation for an amount equivalent to the salaries of employees in these days without advance notice given.

2 .The amount mentioned above is the extra compensation for employees to terminate labor contracts. As defined in Point 12, Section III, Part A of Circular No.84/2008ATT-BTC dated 30 Sept 2008 of the Ministry of Finance, the additional compensation being an extra compensation under the provisions of the law is exempted from personal income tax.

Compensation for labor contracts is subject to personal income tax after 1 July 2013

 Compensation for labor contracts exempted from personal income tax take effective until 1 July 2013. Since 01st July 2013, Section III, Part A, point 12 Circular 84/2008/TT-BTC has been replaced by point n, Clause 1, Article 3 of Circular 111/2013/TT-BTC. Contents specified at Point n deleted the phrase "other compensation prescribed by law".

 This can be understood that additional compensation to termination of a labor contract after 01 July 2013 must remain taxable.

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