Question 79: Regarding monthly phone charges paid by Employers into Employees’ salaries, how is “the applicable fixed expenditure understood to be in line with the level of determining the income subject to CIT” in accordance with law?

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Pursuant to the law on PIT, the fixed expenditure for stationery, business trips, telephones, costumes etc. which is higher than the current level prescribed by the State will be defined as income related to any salary, wage and subject to PIT. However, the fixed expenditure for the said items will not be included in the income subject to PIT in some cases as follows[1]:

  • For officers, civil servants and personnel working in non-business agencies, the Party, organisations, Foundations and Associations, the fixed expenditure will comply with the guiding documents of the Ministry of Finance;
  • For Employees working in business organisations or representative offices, the applicable fixed expenditure is consistent with the level of determining the income subject to CIT under the documents guiding the implementation of the Law on CIT; and
  • For Employees working in international organisations and representative offices of foreign organisations, the fixed expenditure will comply with the regulations by international organisations and representative offices of foreign organisations.

Pursuant to the said provisions, the phone costs paid by Employers to Employees will not be charged to the income subject to PIT if both conditions are met: (i) the fixed expenditure for phone charges for Employees is not higher the current level prescribed by the State; and (ii) the applicable fixed expenditure is in accordance with the level of determining the income subject to CIT under the documents guiding the implementation of the Law on CIT. Accordingly, in order for the fixed expenditure for phone charges to be exempted from paying PIT, it must satisfy the conditions prescribed by not only the law on PIT but also by the law on CIT. The conditions for determining that the fixed expenditure for phone charges for Employees is not subject to PIT are as follows:

  1. Condition 1: The fixed expenditure for phone charges will not be higher than the current level prescribed by the State

The current tax law does not specify “the current level of government payment” for Employers to consider applying the appropriate fixed expenditure for phone charges ensure that these expenses are not subject to PIT. However, Employers may refer to Decision No. 17/VNHN-BTC dated March 4, 2014 regulating the standards and norms of using telephone on active service at home and mobile phones for leader officials in administrative agencies, non-business units, political organisations, socio-political organisations (“Decision 17”) as the legal basis for determining whether the fixed amount of phone payment paid by Employers to Employees are subject to PIT pending the official legal document guiding this issue.

Pursuant to Article 6 of Decision 17, the highest rate for eligible officials to be paid for phone charges under this Decision is VND 800,000/person/month (including telephones on active service at home and mobile phones.) Under this provision, Employees will not be subject to personal income tax if phone charges paid by Employer are not higher than the ceiling. However, it should be also noted that this is only a necessary condition and Employees are required to satisfy the both of the sufficient conditions below to be eligible for exemption from PIT on the phone payment made by Employers. Another note is that the law on PIT does not clearly state that the current level of government payment in this case must be applied at the highest level prescribed by the State to determine whether the fixed phone expenditure is subject to PIT. However, in this case, the highest level of payment under Decision 17 should be the criterion for consideration.

2. Condition 2: The applicable fixed expenditure is consistent with the level of determining the income subject to CIT under the documents guiding the implementation of the Law on CIT.

With respect to the fixed phone expenditure in line with the level of determining the income subject to CIT, Article 6.2.6(b) of Circular 78/2014/TT-BTC dated 18 June 2014 as amended and supplemented by Article 4 of Circular 96/2015/TT-BTC dated 22 June 2015 stipulates:

“Article 6. Deductible and non-deductible expenditures upon determination of CIT

6.2.  The following expenses will not be charged to the corporate costs, including:

6.2.6. b) Salaries, bonuses and expenses for the purchase of life insurance for Employees must not specify the conditions of entitlement and the level of entitlement in one of the documents such Labour Contract, Collective Labour Agreement, Financial Regulations of the Company, Corporation, Group and Reward Regulations prescribed by the Chairman of the Board of Management, the General Director, the Director according to the Financial Regulations of the Company, the Corporation etc….”

Pursuant to this provision, if the condition and level of entitlement of phone expenses (also considered to be salary income under the Law on PIT) are specified in one of such documents as LCs, CLA and financial regulations, then these expenses will be included in the deductible expenses upon determining CIT on Employers. In addition, in accordance with the law as analysed in Section 1 above, these expenses will also be deductible upon determining PIT on Employees as they are applied in accordance with the Law on CIT.

3. Condition 3: The total benefits paid in a month must not exceed monthly average salary actually paid in the taxation year of the enterprise.

Employers should note that, in addition to ensuring that telephone charges are recorded in one of the said documents, they must also ensure that the total benefits (including phone expenses) paid in a month must not exceed monthly average salary actually paid in the taxation year of the enterprise and will be deductible from the income subject to CIT[2]. The monthly average salary actually paid in the taxation year of the enterprise will be determined by dividing the salary fund of the year by 12 months; the realised salary fund is the total actually paid salaries of the tax finalisation year up to the deadline for submission of tax finalisation dossier as regulated (excluding the amount set aside for salary reserve fund of the preceding year and paid in the tax finalisation year).

In short, pursuant to the law on PIT (conditions 1 and 2) and the law on CIT (condition 3) as aforesaid, it can be concluded as follows:

If Employers: (i) record the payment of phone allowances to Employees in LCs or the CLA or other administrative documents of the enterprise; (ii) the recorded amount is equal to or less than VND 800,000/month and the actual payment of the enterprise must be consistent with the levels recorded in the said documents; and (iii) the total benefits (including phone expenses) paid by Employers in a month does not exceed the monthly average salary actually paid in the taxation year of the enterprise, Employees may be considered for exemption from PIT on these phone charges.

Therefore, if Employers cannot meet the said conditions, the fixed phone expenditure for Employees will be still subject to PIT.

[1]Article 2.2 (đ.4) Circular 111/2013/TT-BTC dated 15/8/2013

[2]Article 6.2.30 Circular 78/2014/TT-BTC dated 18/6/2014 as amended and supplemented by Article 4 Circular 96/2015/TT-BTC dated 22/6/2015