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For the purposes of this question you should assume that today’s date is 1 January 2023.
Mr Phuc Tran, a 40-year-old Vietnamese citizen, is married with two children, a ten-year-old daughter and a six-year-old son.
In 2022 Phuc was promoted to become the general director of GIV JSC, a Vietnamese joint stock company with diversified operations in various sectors in Vietnam, including retail outlets and education. Phuc’s gross-of-tax remuneration package for 2022, as stated in the labour contract, is as follows:
Salary: VND650 million per month, with two additional monthly salaries to be received in February and December. Incentive bonus: an award of 100,000 shares of GIV JSC if he successfully achieves the corporate performance as set out at the beginning of 2022. Phuc can choose to receive either the shares or cash equivalent to the market share price as at 31 December 2022. In both cases the award will be made in June 2023. Car rental for transporting Phuc from home to office and office to home: VND20 million per month to be paid directly to the lessor by GIV JSC. Membership fee for golf club: VND200 million per year. The membership card is issued specifically to Phuc. Share options to purchase 50,000 shares of GIV JSC at the nominal value of VND10,000 per share at the beginning of 2022. These options had to be mandatorily exercised on 4 January 2022 (i.e. Phuc had to purchase the shares on that date), and the purchase cost of VND500 million was to be deducted from the additional salary he received in February 2022. The shares were sold on 31 December 2022 at their market price and the proceeds paid in cash to Phuc on the same date.
As a standard benefit offered to all management positions, Phuc’s children can study in a school established and operated by a subsidiary of GIV JSC, with the tuition fees settled directly by GIV JSC to this subsidiary with valid supporting documents. The fees quoted by the school for pupils at the grades of Phuc’s daughter and son are VND195 million and VND180 million per annum, respectively. The school has a general policy (applicable to everyone) to offer a 5% discount for the second child of a family enrolled with the school.
The market price of the GIV JSC shares as at 4 January 2022 and 31 December 2022 was VND45,000 and VND48,000 respectively. On 6 August 2022, GIV JSC paid a dividend of VND8,000 per share held (including the shares received from the exercise of the share options).
GIV JSC has obtained guidance from the tax authorities instructing that the share options are taxable in the year when the shares are sold, and that the taxable employment income is the difference between the market price at the time of exercise and the exercise price (i.e. the price which the employee has to pay for the shares).
Phuc is responsible for his personal income tax (PIT), as well as the social, health and unemployment insurance contributions payable on his part. Phuc’s wife and parents all have income in excess of an average of VND2 million per month.
Required: (a) Determine (in VND millions) Mr Phuc Tran’s taxable income and non-taxable income for the year 2022, and taxable income in future years for personal income tax (PIT) purposes with respect to his employment income.
Note: You should present your answer in tabular form with the headings ‘Taxable in 2022,’ ‘Non-taxable in 2022’ and ‘Taxable in the future’, listing all of the relevant items referred to in the question in the appropriate column.
(b) Briefly explain the tax rates and timing of taxation in respect of the following items of Mr Phuc Tran’s investment income for the year 2020:
– the sale of the shares received as an incentive bonus;
– the sale of the shares received from the exercise of the share options; and
– the dividend from the shares.
(a) Determine (in VND millions) Mr Phuc Tran’s taxable income and non-taxable income for the year 2022, and taxable income in future years for personal income tax (PIT) purposes with respect to his employment income.
Taxable in Non-taxable Taxable in the
2022 in 2022 future Annual salary (650m * 12months) 7,800 Two additional monthly salaries (650m * 2months) 1,300 Incentive bonus (100,000 shares * 48,000) 48,000 Car rental (20m * 12) 240 Golf membership 200 Share options (50,000 shares * (45,000 – 10,000)) 1,750 School fee for his daughter 195 School fee for his son (180 * 95%) 171 Total income being salary 11,416
Tutorial note: Tuition fees for children in Vietnam is a taxable benefit for Vietnamese employees, even if it is waived and paid directly to the school by the employer. The value of the benefit is the normal market fee, which in this case includes the 5% discount for the second child, as this granted generally by the school to everyone (not only to employees).
(b) Briefly explain the tax rates and timing of taxation in respect of the following items of Mr Phuc Tran’s investment income for the year 2022:
Tax rate Incentive bonus shares 0.1% of the sales proceeds. If Phuc chooses to receive the shares, the investment income (capital gain) from the sale of the shares will become taxable when they are sold. Tutorial note: If Phuc selects to receive cash, no investment income will arise. Shares purchased via the share option 0·1% of the sales proceeds. The investment income (capital gain) from the sale of the shares will become taxable when they are sold on 31 December 2022 Dividends 5% Dividends are subject to PIT at the time of their receipt.
