RECEIVING LOAN INTEREST, MUST PERSONAL INCOME TAX BE PAID?

Loans are an effective tool in providing necessary funding to carry out projects and business activities of organizations and individuals.Borrowing tools contribute to economic development. Loans often come with interest as a fee to be paid to the lender, depending on the agreement of the parties. It should be noted that for individuals receiving loan interest, personal income tax is set as a taxable income according to regulations.

1.         Are all loan interests subject to personal income tax?

According to current regulations on personal income tax, loan interest is personal income tax taxable income, belonging to the group of income from capital investment.

However, not all loan interest is subject to personal income tax. Specifically, income from loan interest is taxable income including interest received from lending to organizations, enterprises, households, business individuals, business groups of individuals under loan contracts or loan agreement, excluding interest on deposits received from credit institutions, foreign bank branches.

2.         Who is the personal income tax payer?

Personal income tax payer include resident and non-resident individuals who earn taxable incomes.  Scope to define taxable income of taxpayers shall be as follows:

–           For resident individuals, their taxable incomes are incomes earned inside and outside the Vietnamese territory, regardless of where their incomes are paid;

–           For non-resident individuals, their taxable incomes are incomes earned in Vietnam, regardless of where their incomes are paid.

a.         A resident individual means a person who satisfies any of the following conditions:

–           Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months counting from the first date of his/her presence in Vietnam;

Individuals present in Vietnam under this Point means those whose presence is in the Vietnamese territory.

–           Having a place of habitual residence in Vietnam in either of the following two cases:

+          Having a registered place of permanent residence under the law on residence;

+          Having a rented house for dwelling in Vietnam under the law on housing, under a rent contract with a term of 183 days or more in a tax year.

In case an individual has a place of permanent residence in Vietnam as prescribed in this point but he/she actually presents in Vietnam less than 183 days in tax year and he/she fail to prove that he/she is resident person of other country, so he/she will be considered as resident person in Vietnam.

b.         A non-resident individual means a person who does not satisfy any of the conditions specified above.

>> DO NON-RESIDENT INDIVIDUAL HAVE TO PAY PERSONAL INCOME TAX? https://linconlaw.vn/do-non-resident-individual-have-to-pay-personal-income-tax/

>> WHICH PROJECTS MUST CARRY OUT PROCEDURES FOR INVESTMENT REGISTRATION CERTIFICATE? https://linconlaw.vn/which-projects-must-carry-out-procedures-for-investment-registration-certificate/

3.         How to calculate personal income tax from loan interest?

Personal income tax on income from loan interest (capital investment) is determined according to the following formula:

Personal income tax payable = Taxable income × Tax rate.

In there:

–           Taxable income is the total taxable income that an individual receives from capital investment in an organization or individual in Vietnam.

–           The applicable tax rate is 5%.

4.         Time to calculate personal income tax from loan interest?

The time to determine taxable income is the time when organizations and individuals pay income to taxpayers.