HR Updates 2025
Cambodia Payroll & Labor Law Cheat Sheet 2025
Everything HR needs to know about Cambodia payroll, tax, NSSF, overtime, and labour law compliance in 2025.
Vietnam 2026 Tax Reform: 100% Overtime Tax Exemption Guide
Vietnam's Law updates on overtime. Discover how the 100% tax exemption on overtime works, the new 2026 tax brackets, and the strict labor compliance rules.
HR Forte
Apr 20, 2026
Vietnam's 2026 PIT Reform: Is Your Overtime Finally 100% Tax-Free?
Effective January 1, 2026, for residents, Vietnam is implementing one of the most significant changes to its Personal Income Tax (PIT) landscape in decades. Under the new Law on Personal Income Tax No. 109/2025/QH15, the complexity of calculating "premium" overtime is being replaced by a much simpler, worker-friendly rule: 100% tax exemption for legal overtime and night shift work.
In this blog, we break down what this means for employees and employers, the strict conditions for "legal" hours, and how the new tax brackets further boost your take-home pay.
1. The Big Shift: From Partial to Full Exemption
For years, Vietnamese tax law only exempted the "extra" portion of overtime pay (the amount paid above the standard hourly rate).
The 2026 Change: Starting in the 2026 tax year, the entire amount paid for compliant overtime, night shifts, and even unused annual leave is excluded from your taxable income. This significantly reduces the tax burden on industrious workers and simplifies payroll for businesses.
2. When Does This Start? (The 2026 Roadmap)
The implementation timeline depends on your residency status:
- Resident Individuals: The 100% exemption applies to the entire 2026 tax year (starting January 1, 2026).
- Non-Resident Individuals: The new rules kick in on July 1, 2026. Between Jan 1 and June 30, 2026, the old "premium-only" exemption still applies.
3. The "Legal Hours" Catch: Compliance is Mandatory
To enjoy the 100% tax-free status, your overtime must be "lawful" according to the 2019 Labor Code. If you exceed these limits, the income becomes taxable.
The Strict Limits to Remember:
- Daily Limit: Overtime cannot exceed 50% of your normal working day (e.g., max 4 hours for an 8-hour shift).
- Monthly Cap: Total overtime must not exceed 40 hours per month.
- Annual Threshold: Generally capped at 200 hours per year.
- Special Sectors: Textiles, garments, electronics, and agri-processing can extend to 300 hours per year, provided they notify the authorities (DOLISA) within 15 days.
4. More Than Just Overtime: New Tax Brackets
The value of the overtime exemption is amplified by a complete overhaul of Vietnam's progressive tax brackets. The current 7-bracket system will be condensed into a 5-bracket model in 2026.
|
Monthly Taxable Income |
2026 Tax Rate |
|---|---|
|
Up to 10M VND |
5% |
|
10M to 30M VND |
10% |
|
30M to 60M VND |
20% |
|
60M to 100M VND |
30% |
|
Over 100M VND |
35% |
Combined with the new personal deduction of 15.5M VND per month, middle-income earners will see a dramatic drop in their effective tax rate.
5. Employer Checklist: Avoiding the "Tax Trap"
For businesses, the burden of proof lies in documentation. To maintain the exemption for employees, companies must:
- Maintain a detailed "Payroll Statement" (Bảng kê): Delineating exact hours and payments.
- Use Bank Transfers: Under Decree 181/2025/ND-CP, salary payments over 5M VND must be non-cash to be CIT-deductible and PIT-exempt.
- Sync with eTax Mobile: Ensure reported figures match what employees see on their VNeID-linked tax accounts.
FAQ
Q: Is all overtime pay tax-exempt in Vietnam in 2026?
-
A: Yes, provided the overtime hours are "legal" according to the 2019 Labor Code (max 40 hours/month and 200-300 hours/year). Any hours exceeding these limits are fully taxable.
Q: What is the personal deduction for PIT in Vietnam for 2026?
-
A: The taxpayer deduction is 15.5 million VND per month (186 million VND per year), and the dependent deduction is 6.2 million VND per month.
Q: How do I prove my overtime is tax-exempt?
-
A: Employers must maintain a specific payroll record (bảng kê) and pay salaries via bank transfer. Employees can verify their reported tax-exempt income via the eTax Mobile app.
Q: Does the 100% exemption apply to expatriates?
-
A: Yes. If the expat is a tax resident, it applies from Jan 1, 2026. If they are a non-resident, the 100% exemption begins on July 1, 2026.
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