Compensation for damages in tort is exempt from personal income tax

In response to the query of Ford Vietnam Co., Ltd about personal income tax on compensation for damages in tort, the Vietnamese Ministry of Finance issued an Official Letter No.14891/BTC-TCT dated 20 October 2014 confirmed that the compensation for damages in tort is exempt from personal income tax based on the following provisions of laws:

- At Article 3 of the Law on Personal Income Tax No.04/2007/QH12 dated 21 Nov 2007 and at Article 3 of Decree No.65/2013/ND-CP dated 27 June 2013 of the Government detailing a number of articles of law on personal Income tax and the Law amending and supplementing a number of articles of the Law on Personal Income Tax regulating taxable incomes.
- Clause 12, Article 4, Law on personal income tax No.04/2007/QH12 dated 21 November 2007 providing provisions on tax exemptions:
"12. Income  being  compensation  payments  from  life  and  non-life  insurance  contracts,  compensation  for labour accidents, State compensation payments and other compensation payments paid pursuant to law. "
- Clause 12, Article 4, Decree No.65/2013/ND-CP dated 27 June 2013 of the Government detailing a number of articles of the Law on Personal Income Tax and the Law amending and supplementing a number of the Law on Personal Income Tax regulating income being tax exemption:
"12. Income  being  compensation  payments  from  life  and  non-life  insurance  contracts,  compensation for labour accidents, State compensation payments and other compensation payments paid pursuant to law."
- In Chapter XXI, Civil Code No.33/2005/QH11 dated 14 June 2005 regulating legal liability for damages in torts.

 However, in accordance with the provisions of Paragraph 1 of Article 3 point n of Circular No.111/2013/TT-BTC dated 15 August 2013 of Vietnamese Ministry of Finance guiding the personal income tax exemption for compensation does not include the compensation for damages in torts. Thus, this Dispatch No.14891/BTC-TCT is a supplement to guidelines mentioned in Paragraph 1 of Article 3 of Circular 111/2013/TT-BTC dated 15 August 2013 of Vietnamese Ministry of Finance.

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