Answer:
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 specific guiding documents of the Ministry of Finance;
- For any Employee 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 any Employee working in international organisations and representative offices of foreign organisations, the fixed expenditure will comply with regulations by international organisations and representative offices of foreign organisations.
According to the said provisions, phone costs paid by the Employer to the Employee will not be charged to the income subject to PIT if both conditions are met: (i) the fixed expenditure for phone charges for the Employee is not higher than 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 the Employee 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 the Employer to consider applying the appropriate fixed expenditure for phone charges to ensure that these expenses are not subject to PIT. However ,the Employer may refer to the Decision No. 17/VNHN-BTC dated 04/03/2014 regulating the standards and norms of using telephones 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 the State expenditure and whether the fixed amount of phone payment paid by the Employer to the Employee is subject to PIT while pending the official legal document guiding this issue.
Pursuant to Article 6 of Decision 17, the highest rate for qualified officials to be paid for phone charges (including telephones on active service at home and mobile phones) under this Decision is VND800,000/person/month. Under this provision, the Employee will not be subject to PIT if phone charges paid by the Employer are within this threshold. However, it should be also noted that this is only a necessary condition, and the Employee is required to satisfy both of the sufficient conditions below to be eligible for exemption from PIT on the phone payment made by the Employer. Another note is that the law on PIT does not clearly state that the government payment, in this case, must be applied at the highest level of payment 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:
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 the Employee which are not specified the conditions of entitlement and the level of entitlement in one of the following documents: LC, CLA, Financial Regulations of the enterprise, 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 Enterprise, the Corporation, etc….”
According to this provision, if the condition and level of entitlement of phone expenses (also considered to salary income under the Law on PIT) are specified in one of such documents as LC, CLA, and financial regulations of the enterprise, then these expenses will be included in the deductible expenses upon determining CIT on the Employer. In addition, in accordance with the law and as analysed in Section 1 above, these expenses will also be deductible upon determining PIT on the Employee as they are applied in accordance with the Law on CIT.
3. Condition 3: The total benefits paid in a month must not exceed the monthly average salary actually paid in the taxation year of the enterprise.
The Employer 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 the monthly average salary actually paid in the taxation year of the enterprise, thế expenses 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 the Employer: (i) records the payment of phone allowances to the Employee in LC or the CLA or other administrative documents of the enterprise; (ii) the recorded amount is equal to or less than VND800,000/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 the Employer in a month does not exceed the monthly average salary actually paid in the taxation year of the enterprise, the Employee may be considered for exemption from PIT on these phone charges.
Therefore, if the Employer cannot meet the said conditions, the fixed phone expenditure for the Employee will be still subject to PIT.
[1]Article 2.2 (đ.4) of the Circular No. 111/2013/TT-BTC Ministry of Finance 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.
