When an FDI company ends a foreign expert contract early, the exit package usually mixes several payments: statutory severance, compensation, salary up to the last working day and repatriation costs. Each item carries a different PIT treatment, and withholding on the lump sum as a whole is a common source of later assessments.
Legal basis
- Labour Code 45/2019/QH14, Article 46: severance allowance equals half a month of salary for each year of service, for employees who have worked regularly for at least 12 months and fall within the eligible cases.
- Labour Code 45/2019/QH14, Article 47: job-loss allowance of at least two months of salary where employment ends because of structural or technological change or economic reasons.
- PIT principle: severance and job-loss allowances paid exactly at the Labour Code levels are excluded from taxable income; any amount above the statutory level and any compensation agreed outside the statutory framework is taxed as salary and wage income.
- Transitional frame: the 2025 tax period still follows PIT Law 04/2007/QH12 (personal deduction of VND 11 million per month, VND 4.4 million per dependent, seven-bracket progressive scale); from the 2026 tax period, Law 109/2025/QH15 applies (deductions of VND 15.5 million and VND 6.2 million, five-bracket scale).
- Non-residents are taxed at a flat 20% on salary and wage income arising in Vietnam and do not use the resident progressive scale or family deductions.
Break the package down before any calculation
Start with an itemised schedule of the whole exit package: severance under Article 46, job-loss allowance under Article 47 where applicable, salary to the final working day, payment for unused annual leave, compensation for unlawful termination or under a mutual separation agreement, and extras such as flights home and shipping of personal effects.
Only the two statutory allowances, paid strictly by the Labour Code formulas, sit outside taxable income. Everything else is salary income at the moment of payment, whatever label the internal paperwork gives it. Renaming a payment as support or compensation does not change its tax nature when the tax authority reviews the file.
Worked example: an expert earning VND 80 million a month
Take an expert with six years of service and average salary over the last six months of VND 80 million per month. Severance under Article 46 equals 0.5 times 80 million times 6 years, which is VND 240 million, and that amount is not taxed if the termination file is in order. If the company voluntarily adds VND 200 million as an early-exit payment under a private agreement, that VND 200 million is taxable as salary.
For a resident paid in 2025, the VND 200 million enters the income of the payment month, takes the VND 11 million personal deduction and goes through the seven-bracket scale. If the same payment is made in 2026, the company must switch to Law 109/2025: a VND 15.5 million deduction and the five-bracket scale, so the withheld amount changes materially even though the nominal income is identical.
Withholding, finalisation and practical risks
The paying organisation must withhold PIT on the taxable part before releasing the money. In practice, inspectors rebuild the package from the termination decision, the separation agreement and payment vouchers; a company that paid a lump sum without withholding on the above-statutory part faces back tax, late-payment interest and a penalty on the under-declared amount.
Where the expert leaves Vietnam right after termination, complete the withholding and finalisation before departure and keep a bilingual file with the contract, the separation agreement, the allowance calculation and withholding vouchers, because recovering tax from a departed individual is close to impossible if an assessment arrives later.
Frequently asked questions
How is PIT calculated when a contract with a foreigner is terminated early?
Tax is charged only on the taxable part of the exit package. Severance and job-loss allowances paid exactly at Labour Code levels are excluded; remaining salary, unused leave pay, compensation and extra support all count as salary income of the payment month. Residents use the progressive scale after family deductions, while non-residents are taxed at 20% on Vietnam-source salary income.
Is termination compensation subject to PIT?
In most real cases, yes. Compensation under an early-separation agreement is neither the Article 46 severance allowance nor the Article 47 job-loss allowance, so the entire amount is taxable salary income of the employee, whatever the contract calls it. Only the allowance computed strictly by the statutory formula stays outside taxable income.
Must the company withhold tax before paying?
Yes. The paying organisation has to withhold PIT on the taxable part before releasing the money, then declare and remit it for the relevant period. Where the contract promises a net-of-tax package, the tax borne by the company must be grossed up into taxable income before withholding is computed, and the file should show that gross-up calculation explicitly.
How is a severance allowance paid in foreign currency converted for tax purposes?
Income received in foreign currency is converted into Vietnamese dong at the actual transaction exchange rate at the time the income arises, and both taxable income and withholding are determined on the converted amount. Record the rate and its source in the allowance schedule and keep the conversion evidence with the termination file, because currency conversion is a point inspectors routinely test on foreign experts exit packages.
This article has been quality-reviewed by the FLAW AI Legal Council
