Vietnam's personal income tax brackets proposed to decrease from 7 to 5

Vietnam’s Ministry of Finance (MoF) has proposed reducing the number of personal income tax brackets from seven to five, while widening the income ranges for each bracket.

This is part of the latest draft revision of the Law on Personal Income Tax, now open for public feedback.

Currently, the progressive tax schedule applied to salaried employees includes seven brackets with tax rates ranging from 5% to 35%. However, experts have long criticized the steep concentration of tax rates at lower income levels, urging authorities to revise the structure.

In the latest proposal, the ministry outlines two options for a revised tax bracket system, both aimed at simplifying the structure by reducing the number of brackets and increasing the income ranges per bracket.

Under both options, the minimum tax rate of 5% would apply to taxable monthly income of VND10 million or $382 (after standard deductions and other allowable expenses).

The maximum tax rate of 35% would apply to taxable income above VND80 million ($3,058) in Option 1 and above VND100 million ($3,823) in Option 2.

According to the MoF, reducing the number of tax brackets would simplify tax administration, improve efficiency in tax collection, and ease the filing process for taxpayers. The proposed changes align with global trends toward simplifying progressive tax structures.

Both proposed options meet the reform objectives: fewer brackets and wider income ranges, resulting in more manageable tax calculations and reduced compliance burdens.

However, the financial impact of each option differs, the ministry said, elaborating that Option 1 would provide tax relief for all taxpayers earning over VND10 million $382), while Option 2 would offer greater tax cuts for those earning over VND50 million ($1,912) per month.

The ministry noted that progressive tax systems are widely adopted around the world, though each country designs its tax brackets differently. A growing trend globally is to reduce the number of tax brackets to simplify the system.

It cited that Finland increased its top rate from 57% to 57.3% in 2023, while Lithuania raised its highest rate from 20% to 32%. Some Asian countries have top rates of 45% (Japan, South Korea, China), while others apply 30% (Malaysia) or 35% (Philippines, Indonesia).

As for the number of brackets, this varies widely. Singapore has 13 tax brackets; most countries in Europe, North America, and Oceania use 5-6; the U.S. uses 7; and Albania has the fewest with just 2.

New method of taxing real estate transactions

The Ministry of Finance has also proposed a new method of taxing real estate transactions, imposing a 20% tax rate on the capital gain (the difference between the buying and selling prices) for each property transfer.

Under the proposal, individuals selling real estate would be subject to personal income tax calculated as: taxable income × 20%. Taxable income is defined as the sale price minus the purchase price and any reasonable expenses related to generating that income from the transaction.

In cases where the purchase price and related expenses cannot be determined, the tax would instead be calculated as: sale price × applicable tax rate. In this scenario, the applicable tax rate would depend on the length of ownership, with a maximum rate of 10%.

For real estate acquired through inheritance, the transfer tax rate remains unchanged at 2%, regardless of the holding period. This is because, under Vietnam’s Civil Code, inheritance is defined as the transfer of assets from a deceased person to a living person, and is legally distinct from gifts or donations of real estate.

Income from real estate transfers is considered a significant source of revenue within the personal income tax system. Since 2015, under the amended Law on Personal Income Tax, a flat tax rate of 2% on the total transaction value has been applied to all property transfers.