PIT on Severance Pay in Vietnam: A Compliance Guide For Final Paycheck

Key takeaways

• Severance allowance paid in strict accordance with the Labor Code is fully exempt from Personal Income Tax (PIT), while any excess amount and other additional support payments are taxable at different rates.
• The timing of payment affects tax withholding:
  ✓ Payment made before contract termination → subject to progressive tax rates
  ✓ Payment made after termination → subject to 10% withholding if ≥ 2,000,000 VND per payment 
• Businesses must establish a clear process to accurately distinguish between different types of termination payments and apply the correct tax withholding method for each.

When an employment contract ends, a business must handle several complex payments to the employee, including their final month’s salary, payment for unused annual leave, severance allowance, and other support funds. Each type of income is subject to different tax treatments. Therefore, a clear understanding of applicable regulations helps businesses calculate personal income tax accurately and minimize compliance risks.

Classifying termination payments

Accurately classifying payments made upon contract termination is the first and most critical step in ensuring proper fulfillment of tax obligations.

1. PIT-exempt allowance

According to Point b, Clause 2, Article 2 of Circular 111/2013/TT-BTC, severance allowance paid at the level stipulated by the Labor Code is not included in an employee’s taxable income for PIT purposes.

Severance allowance is designed to support employees during their career transition and is legally protected from taxation to uphold the humanitarian nature of labor policy.

The formula for calculating severance allowance is:

Severance Allowance = ½ x Average Salary of Last 6 Months x Years of Service for Calculation

Including: 

Average salary: The average monthly salary under the employment contract for the six consecutive months before termination.

Working time for severance allowance calculation:
Total working time minus:

• Periods already covered by unemployment insurance
• Periods for which severance allowance has already been paid

Working time is converted as follows:

• Less than 6 months → counted as 0.5 year
• From 6 months or more → counted as 1 full year

Note: Employees must have worked for at least 12 months to be eligible for severance allowance.

In addition, it is important to distinguish:

• Severance allowance: paid by the employer upon termination, tax-exempt if paid in accordance with regulations
• Unemployment allowance: paid by the social insurance authority if eligibility conditions are met, always tax-exempt

2. Taxable income

All other payments made upon termination are considered taxable income, including:

• Salary and wages for the final days worked.
• The portion of severance allowance that exceeds the amount stipulated by the Labor Code.
• Any other support payments, bonuses, or compensation not specified in the Labor Code or the Law on Social Insurance.

Even “goodwill-based” support from employers, such as job search assistance or additional financial support, must still comply with personal income tax withholding regulations.

How to calculate PIT for departing employees

The method for calculating tax on termination payments depends on both the nature of the payment and the timing of when it is made.

In cases where the allowance complies with regulations:

According to Article 46 of the Labor Code 2019 and Circular 111/2013/TT-BTC, severance allowance paid in accordance with regulations is exempt from PIT.

Businesses should retain sufficient documentation and calculation records to substantiate compliance when required.

In cases where payments exceed statutory limits:

If a company provides additional payments beyond the regulated level, the excess amount is subject to PIT. The applicable tax treatment depends on the timing of payment.

Payment before contract termination

The excess amount is added to the employee’s final month income and taxed based on progressive tax rates.

Payment after contract termination

If the payment is 2,000,000 VND or more per occurrence, the company must withhold 10% PIT before making the payment to the individual.After withholding tax, the company must issue a tax withholding certificate to the employee for annual PIT finalization purposes.

Frequently asked questions about PIT for departing employees

Can I get a PIT refund after leaving a job?

Yes. If you have overpaid your taxes for the year, or if your total annual income is below the taxable threshold, you are eligible for a PIT refund through the personal tax finalization process, even after leaving your job.

How is PIT calculated for a probationary period?

If the probationary period is conducted under a separate probationary contract of less than 3 months, income of 2,000,000 VND (80 USD) or more per payment is subject to 10% PIT withholding before payment.

What is the difference between severance allowance, job loss allowance, and unemployment allowance?

Severance allowance is a payment made by the employer to the employee when the employment contract is terminated, intended to provide support for a period. This allowance is calculated based on the employee’s actual time working for that specific company.

Job loss allowance is compensation paid by the employer when employees are terminated due to reasons not caused by the employee, helping offset income loss resulting from job displacement. This allowance is also paid by the employer.

Unemployment allowance is a benefit available to employees who have participated in unemployment insurance. It provides partial income support during periods of unemployment, funded by contributions to the unemployment insurance fund. This allowance is paid by the state Social Insurance Authority.

How do employees who resign mid-year finalize Personal Income Tax (PIT)?

If an employee works for multiple employers within a year or resigns mid-year, they are required to conduct PIT finalization directly with the tax authority before April 30 of the following year.

Handling PIT for payments made upon employee termination requires businesses to accurately classify each type of income, apply the correct tax withholding method, and maintain complete supporting documentation.

Errors in this process may lead to tax reassessments, administrative penalties, or disputes with employees. Therefore, establishing a robust payroll and tax management process is essential for minimizing compliance risks.

For companies requiring deeper support, Talentnet’s payroll and PIT advisory services can help ensure accurate income processing, full compliance with legal regulations, and reduced risks during tax audits and inspections.

Do employees need to deregister dependents when resigning?

No. When terminating a labor contract, employees are not required to deregister their dependents with the former employer. According to Point i, Clause 1, Article 9 of Circular 111/2013/TT-BTC, taxpayers only need to register dependents once during the period they are eligible for personal income tax (PIT) deductions.

When joining a new company, employees simply re-register their dependents with the new employer as if it were the first time. The previous employer has no obligation to process a deregistration. The procedure typically involves submitting an authorization letter along with dependent documents to the new employer, who will then consolidate and submit to the tax authority using Form 20-ĐK-TH-TCT in accordance with Circular 105/2020/TT-BTC.

The only case where dependents must be deregistered is when their eligibility status changes. For example, when a child turns 18 and earns income exceeding VND 1 million per month, or no longer qualifies as a dependent.

Note: This regulation applies to PIT deductions and is not related to social insurance.