Vietnam Personal Income Tax Update 2026｜Higher Deductions to Reduce Tax Burden from January 1, 2026

15/12/2025

Beginning January 1, 2026, Vietnam will officially apply new deduction levels for Personal Income Tax (PIT).
The adjustment significantly increases both the standard deduction and the dependent deduction, aiming to reduce the tax burden on low- and middle-income earners amid rising living costs.

This article summarises the new deduction amounts, who benefits, and what employers must prepare for before the 2026 tax year begins.

1. New PIT Deduction Levels Effective 2026

Vietnam will increase the taxable deduction thresholds as follows:

The increases are substantial:

• Standard deduction: +4.5 million VND/month
• Dependent deduction: +1.8 million VND/month

This is the first major PIT deduction adjustment since 2020.

2. Why the Government Raised the Deductions

Vietnam has experienced continuous increases in:

• Consumer prices
• Daily living costs
• Housing and transportation expenses
• Average wages and productivity

Raising deductions helps:

• Reduce tax pressure on salaried workers
• Support household spending
• Protect low- and middle-income groups
• Reflect inflation and cost-of-living changes since the previous update

The new levels will apply beginning with income earned from January 2026 onward.

3. New Tax-Free Income Thresholds (Approximate)

With the higher deductions, many employees will fall below the taxable income range.

Tax-free thresholds after applying new deductions

• No dependents: approx. 15.5 million VND/month
• One dependent: approx. 21.7 million VND/month
  (15.5 million + 6.2 million)

The final taxable amount will still depend on:

• Social insurance contributions
• Health insurance
• Unemployment insurance

But overall、a significantly larger portion of employees will pay reduced PIT or no PIT at all.

4. Impact on Employees

1. Higher take-home salary

More income becomes tax-free, increasing monthly net salary.

2. Families benefit the most

Each dependent adds 6.2 million VND of deduction per month, substantially lowering taxable income.

3. Middle-income earners may move into a lower PIT bracket

This reduces the effective tax rate on their income.

4. Workers with incomes slightly above the old thresholds may become non-taxable

Particularly those without dependents earning 15–17 million VND/month.

5. Impact on Employers and HR Departments

1. Payroll systems must be updated

Starting January 2026, all payroll software must apply the new deduction amounts.

2. Withholding tax calculations will change

Monthly PIT withholding must reflect the updated deductions.

3. Annual tax finalisation for 2026 will use the new rules

Incorrect calculations may lead to compliance issues.

4. Salary budgeting should be revised

Net salary increases may influence:

• Allowance structures
• Salary grade systems
• Employee expectations during recruitment

5. Expatriates qualifying as tax residents also benefit

Resident expatriates will apply the same deduction levels as Vietnamese employees.

6. Practical Example of the New PIT Impact

Example:

Employee salary: 20 million VND/month
Dependents: 1

Old deductions:

• Standard: 11.0 million
• Dependent: 4.4 million
  → Taxable income = 20 – (11 + 4.4) = 4.6 million VND

New deductions (2026):

• Standard: 15.5 million
• Dependent: 6.2 million
  → Taxable income = 20 – (15.5 + 6.2) = negative amount → non-taxable

Result:
This employee will no longer pay PIT in 2026.

7. Summary: Significant PIT Relief from 2026

Vietnam’s 2026 PIT revision includes:

• Standard deduction: 15.5 million VND/month
• Dependent deduction: 6.2 million VND/month
• Reduced tax burden for most workers
• Increased take-home pay for families
• Required payroll updates for all employers starting January 2026

This reform brings meaningful financial relief to workers while helping companies maintain competitive compensation structures in the face of rising living costs.