EXPANDED TAX BENEFITS FOR TAXPAYERS FROM 1 JULY 2026

The Law on Personal Income Tax 2025 takes effect on 1 July 2026, except for the provisions relating to income from business activities and income from salaries and wages of resident individuals, which apply from the 2026 tax period. Compared to the previous legislation, the new Law introduces a number of significant amendments aimed at reducing the tax burden on taxpayers, expanding deductible expenses, and refining the tax framework applicable to new forms of assets and income arising from the digital economy.

One of the most notable changes is the substantial increase in the family circumstance deduction. Under the new Law, taxpayers are entitled to a deduction of VND 15.5 million per month (equivalent to VND 186 million per year), while the deduction for each dependent is increased to VND 6.2 million per month. In addition, the Government is authorized to adjust these deduction levels flexibly based on changes in the consumer price index and actual income levels from time to time. This amendment is intended to better reflect the current cost of living and living standards, thereby reducing the personal income tax burden for individuals earning income from salaries and wages.

With respect to the method of tax calculation, the progressive tax schedule applicable to income from salaries and wages has been streamlined from seven (07) tax brackets to five (05) tax brackets, with tax rates ranging from 5% to 35%. The simplified tax schedule not only facilitates the determination of tax liabilities by taxpayers but also assists tax authorities and employers in tax withholding, declaration, and finalization procedures. At the same time, the new structure enhances transparency and reduces the risk of errors in the application of tax legislation.

In addition to the existing deductions for family circumstances and compulsory insurance contributions, the Law expands the scope of deductible expenses by allowing taxpayers to deduct eligible medical and education expenses incurred for themselves and their dependants. Such expenses are deductible only where they satisfy the statutory conditions and are supported by valid invoices and supporting documents. This amendment represents an important social welfare measure, helping to alleviate the financial burden on households with significant healthcare or education expenditures while encouraging compliance with invoicing and documentation requirements.

For household businesses and individual business operators, the method of determining personal income tax has also been revised. Where annual revenue does not exceed the threshold prescribed by the Government, no personal income tax liability arises. Where the prescribed threshold is exceeded, personal income tax shall be calculated based on actual taxable income or a prescribed percentage of revenue, depending on the nature of the business activities and the applicable tax administration method. These amendments are expected to reduce the tax burden on small-scale business operators while ensuring that taxation more accurately reflects each taxpayer’s actual ability to pay. They also demonstrate the legislature’s intention to establish a tax regime that is more consistent with the development of the modern economy and to encourage investment in priority sectors.

Recommendations for Taxpayers

• To ensure compliance with the Law on Personal Income Tax 2025 and to maximise the benefits available under the new regime, individuals and household business operators should proactively review all sources of income to correctly identify taxable income and tax-exempt income in accordance with the new provisions. In respect of medical and education expenses that may qualify for deduction, taxpayers should retain valid invoices and supporting documentation to substantiate such deductions during the annual tax finalisation process.

• Employers and other income-paying organisations should promptly update their payroll systems, tax withholding procedures, and accounting systems to ensure compliance with the revised progressive tax schedule, the increased family circumstance deductions, and the new tax finalisation requirements applicable from the 2026 tax period. They should also review remuneration and employee benefit policies and provide guidance to employees on the registration of dependants, tax declarations, and annual tax finalisation in accordance with the applicable legal requirements.

• Proactively understanding and implementing the new provisions from the date the Law takes effect will not only minimise potential tax compliance risks but also enable taxpayers to fully benefit from the available deductions, allowable expenses, and tax exemptions provided by law, thereby optimising their personal income tax obligations in a lawful and efficient manner.