What you will learn
- ✅ Tax responsibilities of shop owners when hiring employees
- ✅ Two methods for calculating personal income tax: progressive and flat rate
- ✅ When to withhold tax and when not to
- ✅ How to declare and pay personal income tax from salaries
1. Shop Owner Responsibilities When Hiring Employees
According to regulations, when you pay income in the nature of salary or wages to employees, you have the following responsibilities:
| No. | Responsibility | Description |
|---|---|---|
| 1 | Tax Withholding | Withholding personal income tax from employee salaries |
| 2 | Tax Declaration | Submitting personal income tax returns to the tax authorities (if withholding is required) |
| 3 | Tax Payment | Remitting the withheld tax amount to the state budget |
| 4 | Tax Finalization | Finalizing personal income tax for employees at the end of the year (if authorized) |
Important Notes
- Employees do NOT pay taxes themselves. You (the income payer) must withhold and pay on their behalf.
- Incorrect withholding → You may be subject to back taxes and penalties.
2. Contract Types and Tax Calculation Methods
Summary Table
| Contract Type | Tax Calculation Method | Deductible? | Finalizable? |
|---|---|---|---|
| Employment Contract ≥ 3 months | Progressive tax schedule | Yes | Yes |
| Employment Contract of Indefinite Term | Progressive tax schedule | Yes | Yes |
| Employment Contract < 3 months | Flat rate (10%) | No | No |
| No Contract Signed | Flat rate (10%) | No | No |
3. Progressive Tax Schedule
Who it applies to?
Employees who sign employment contracts of 3 months or more or employment contracts of indefinite term.
Calculation
Taxable Income = Gross Income - Deductions
Deductions:
- Personal deduction: 11 million VND/month
- Dependent deduction: 4.4 million VND/person/month
- Mandatory insurance (Social Insurance, Health Insurance, Unemployment Insurance)
- Charitable or humanitarian contributions (if any)
Progressive Tax Rates
| Bracket | Taxable Income/Month | Tax Rate |
|---|---|---|
| 1 | Up to 5 million | 5% |
| 2 | Over 5 - 10 million | 10% |
| 3 | Over 10 - 18 million | 15% |
| 4 | Over 18 - 32 million | 20% |
| 5 | Over 32 - 52 million | 25% |
| 6 | Over 52 - 80 million | 30% |
| 7 | Over 80 million | 35% |
Example: Calculating Tax for Employee A
Information:
- Gross salary: 20 million VND/month
- Mandatory insurance contributions: 2.1 million VND (10.5%)
- 1 dependent (child)
Calculation:
Taxable Revenue = 20 million - 2.1 million = 17.9 million
Deductions:
- Personal: 11 million
- Dependent: 4.4 million
- Total deductions: 15.4 million
Taxable Income = 17.9 - 15.4 = 2.5 million
Personal Income Tax = 2.5 million × 5% = 125,000 VND/month
Net Salary = 20 million - 2.1 million (Insurance) - 125,000 (Tax) = 17,775,000 VND
4. Flat Tax Schedule
Who it applies to?
- Employees with employment contracts of less than 3 months
- No employment contract signed
- Hiring for services, freelance work (drivers, shippers, consultants, etc.)
Calculation
Personal Income Tax = Gross Income × 10%
Characteristics:
- No personal deduction allowed
- No dependent deduction allowed
- No year-end finalization
- Tax is only withheld if income is > 2 million VND per transaction
Example: Hiring a Shipper for Delivery
Situation: You hire Mr. B for deliveries, paying 3 million VND per trip.
Tax Calculation:
Personal Income Tax = 3 million × 10% = 300,000 VND
Amount paid to Mr. B = 3 million - 300,000 = 2,700,000 VND
Cases Where Withholding is Not Required
If the income per transaction is ≤ 2 million VND → No tax withholding is required.
Example: Hiring someone to clean the shop, paying 500,000 VND per time → No withholding required.
5. When to Declare Personal Income Tax?
Principle
- Tax withheld during the month/quarter → A tax return must be submitted.
- No tax withheld (even if income is paid) → No tax return is required.
Declaration Deadlines
| Declaration Period | Condition | Deadline |
|---|---|---|
| Monthly | Withheld tax amount ≥ 50 million VND/year | 20th of the following month |
| Quarterly | Withheld tax amount < 50 million VND/year | 30th of the first month of the following quarter |
Required Tax Returns
- Personal Income Tax Return for Salaries and Wages (not the business household's return)
- Can be submitted via HTKK software or thuedientu.gdt.gov.vn
6. Year-End Personal Income Tax Finalization
Who finalizes?
Employers (you) finalize on behalf of employees if:
- Employees have signed employment contracts of 3 months or more.
- Employees authorize you to finalize.
- Employees only have income from you (not working elsewhere).
Finalization Deadline
No later than March 31st of the following year (90 days from the end of the year).
When Employees File Their Own Tax Returns?
- Have income from multiple sources (working part-time elsewhere).
- Do not authorize you to finalize.
7. Cases Where a Household Business Owner Also Works Elsewhere
Situation
You are a household business owner (with income from your shop) and also work part-time for company A (with salary income).
Handling
| Income Source | Tax Calculation Method |
|---|---|
| Income from household business | Calculate tax as a household business (based on revenue or income) |
| Income from salary | Calculate personal income tax from salary (progressive or flat rate) |
These two items are CALCULATED SEPARATELY and not combined.
8. Frequently Asked Questions
Is tax withholding required for salaries under 11 million VND?
If an employment contract ≥ 3 months is signed: No withholding is required (because after deducting the personal allowance, the taxable income is ≤ 0).
**If no employment contract is signed or the contract is < 3 months:** 10% tax is withheld if the payment is > 2 million VND per transaction.
Are there penalties for not declaring personal income tax?
Yes. If tax is withheld but not declared → Subject to administrative penalties and late payment interest.
What about hiring relatives as employees?
According to regulations, relatives (parents, spouse, children, siblings) can work as accountants and perform other tasks for a household business.
If you pay them a salary → Personal income tax must still be withheld as usual (if eligible).
Employees demand net salary, what should I do?
Net salary = Salary after deducting insurance and personal income tax.
You need to convert backwards from net salary to gross salary to calculate the actual cost and withhold taxes.
Example: Agreed net salary of 15 million VND → Actual gross salary could be 17-18 million VND (depending on deduction conditions).
Checklist: Hiring Employees Correctly
Before Hiring
- Determine the contract type (Employment Contract ≥ 3 months, < 3 months, or no contract)
- Calculate gross salary and deductions
- Request employees to register for dependent deductions (if signing an employment contract ≥ 3 months)
Monthly
- Calculate salary and withhold personal income tax
- Pay net salary to employees
- Keep salary payment receipts
Quarterly (or Monthly if applicable)
- Submit personal income tax returns (if tax was withheld)
- Remit the withheld tax amount
Year-End
- Collect authorization for tax finalization from employees
- Submit year-end personal income tax finalization return
- Issue tax withholding certificates to employees (if requested)
Common Mistakes
-
Paying salary without withholding tax → Subject to back taxes and penalties.
-
Confusing employment contracts with service contracts → Applying incorrect tax calculation methods.
-
Not declaring when tax was withheld → Subject to administrative penalties.
-
Forgetting year-end finalization → Employees cannot claim tax refunds (if overpaid).
-
Not keeping salary payment receipts → Difficult to provide explanations during tax authority inspections.
9. Conclusion
Hiring employees is not just a human resources challenge but also a mandatory tax responsibility for shop owners. Understanding the correct contract types, personal income tax withholding methods, and declaration deadlines will help you avoid risks of back taxes and late payment penalties. By managing salaries, taxes, and documentation clearly from the start, operations will be smoother and more transparent. GTG CRM assists in managing personnel, tracking salary expenses, and providing data for proactive and systematic tax declaration.
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