Posted by NguyenHuuThuc
Hypothetical tax and housing norm are one of tax equalization
policy in some large global FIEs. This has generated much debate, confusion and
uncertainty in the past because this is not mentioned in Law on PIT, Decree on
PIT, or Circular on PIT. Back to the past, some official letters suggest that
hypothetical tax is deductible for the purpose of determining net income for
PIT. Meanwhile, some may take a different point of view and are reluctant to
allow the deduction of hypo tax.
To seek opinions of Auscharm, Eurocharm, BBGV (British Business
Group Viet Nam), JPAV (The Japan Business Association in Vietnam), SBG (The
Singapore Business Group HCM City Chapter), however, the General Department of
Taxation now drafts the Official Letter on PIT treatment of hypo tax and
housing norm for their comments.
*Hypo tax: deductible before grossing up. Upon reconciliation of the finalization, if there
is any addition/deduction to be remitted to/withheld from the employee, such adjustment
is taken in the filing of that year.
*Housing norm: not deductible before grossing up but is compared with the actual accommodation cost borne by the company. If the actual rent borne by the company is greater than the housing norm, the balance is the taxable housing amount for concessional treatment.
We will keep you updated once it’s finalized.
We will keep you updated once it’s finalized.
Notes:
“When one is a taxpayer in one country, but works in another one may be subject to different taxation from if one had worked in one's home country, or even to double taxation, even taking account of tax treaties between countries. Tax equalization is the offsetting of any such difference so that working abroad is tax neutral for the worker. It is also known as hypo tax, from "hypothetical" – the worker pays taxes as if they were still resident in their home country. Tax equalization most often arises in international assignments of workers in multinational corporations.
Under a tax protection program, the hypothetical tax would be compared to the actual total taxes due. The company would reimburse the employee for the difference if the actual tax was greater than the hypothetical tax. If the actual tax is less than the hypothetical tax, then the employee would be allowed to keep the excess.”
Housing norms ensure that expats share housing costs. Although it appears there are problems with renting home-country housing while on international assignment, most expatriates choose this option due to the financial benefits they gain. In keeping with the home-country pay system, most companies charge the expat for a portion of the host-country housing costs. This charge typically is called a housing norm reflecting what would’ve been spent on housing in the home country.
(Source: wikipedia.org, workforce.com)
