Understanding the Correct Application of the Progressive Tax Rates When Finalizing Personal Income Tax for 2025

After the National Assembly passed the Personal Income Tax Law 2025, many individuals and businesses have raised questions: when conducting the personal income tax (PIT) finalization for 2025 in 2026, will the new 5-tier progressive tax schedule apply, or will the current 7-tier tax schedule still be used?

Below is the correct interpretation based on legal regulations and guidance from tax authorities.

The Personal Income Tax Law 2025 introduces a 5-tier progressive tax schedule

On December 10, 2025, at the 10th session of the 15th National Assembly, the Personal Income Tax Law 2025 (Law No. 109/2025/QH15) was officially adopted.

According to Clause 2, Article 9 of this law, the progressive tax schedule applied to income from salaries and wages has been adjusted to 5 tax brackets as follows:

• Level 1: Taxable income up to VND 10 million/month – tax rate 5%.

• Level 2: Taxable income from over VND 10 million to VND 30 million/month – tax rate 10%.

• Level 3: Taxable income from over VND 30 million to VND 60 million/month – tax rate 20%.

• Level 4: Taxable income from over VND 60 million to VND 100 million/month – tax rate 30%.

• Level 5: Taxable income exceeding VND 100 million/month – tax rate 35%.

This schedule will replace the currently applied 7-tier progressive tax schedule.

Effective time of the 5-tier progressive tax schedule

According to Article 29 of the Personal Income Tax Law 2025 regarding implementation:

The law takes effect on July 1, 2026.

However, for provisions related to income from business activities and income from salaries and wages of resident individuals, the applicable time is determined from the 2026 tax period.

This means the 5-tier progressive tax schedule only applies to income arising from 2026 onward.

How is the tax period determined?

According to Clauses 6 and 11, Article 3 of the Law on Tax Administration 2019:

• The tax period is the period used to determine the tax amount payable according to tax regulations.

• The tax year is determined based on the calendar year, from January 1 to December 31.

Therefore, the 2025 tax period runs from January 1, 2025 to December 31, 2025. All salary and wage income generated during this period belongs to the 2025 tax period.

Which tax schedule applies to the 2025 PIT finalization?

In practice, the PIT finalization for 2025 is typically conducted in early 2026. However, it should be understood that:

Tax finalization is merely a procedure to determine the exact amount of tax payable for income generated in the previous tax period; it does not change the legal regulations applicable to that period.

Therefore, even though the finalization is conducted in 2026, because the income arose in the 2025 tax period, the 7-tier progressive tax schedule under the Personal Income Tax Law 2007 (as amended and supplemented) must still be applied.

The 7-tier progressive tax schedule applicable to the 2025 tax finalization

Under current regulations, income from salaries and wages of resident individuals is subject to a progressive tax schedule consisting of 7 brackets:

• Level 1: Taxable income up to VND 5 million/month – tax rate 5%.

• Level 2: Over VND 5 million to VND 10 million/month – tax rate 10%.

• Level 3: Over VND 10 million to VND 18 million/month – tax rate 15%.

• Level 4: Over VND 18 million to VND 32 million/month – tax rate 20%.

• Level 5: Over VND 32 million to VND 52 million/month – tax rate 25%.

• Level 6: Over VND 52 million to VND 80 million/month – tax rate 30%.

• Level 7: Over VND 80 million/month – tax rate 35%.

Official guidance from the Tax Department

To address difficulties during tax finalization, on March 4, 2026, the Tax Department issued Official Dispatch No. 1296/CT-NVT (2026) providing guidance on PIT finalization for income from salaries and wages.

According to the guidance, for the 2025 tax finalization, resident individuals with income from salaries and wages must still apply the 7-tier progressive tax schedule under the Personal Income Tax Law 2007.

The 5-tier progressive tax schedule under the Personal Income Tax Law 2025 will only apply starting from the 2026 tax period.

Conclusion:

Based on the legal regulations and guidance from tax authorities, the correct interpretation is:

Income from salaries and wages generated in 2025 belongs to the 2025 tax period. Therefore, when conducting the tax finalization in early 2026, the 7-tier progressive tax schedule under the current regulations must still be applied.

The 5-tier progressive tax schedule under the Personal Income Tax Law 2025 will only apply to income generated from 2026 onward.

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