PAYING SCHOOL FEES FOR THE CHILDREN OF FOREIGN EMPLOYEES: WHEN IS IT CONSIDERED A REASONABLE EXPENSE?

As more foreign employees work in Vietnam, the issue of paying school fees for their children has become a practical concern for many businesses. Determining whether this expense is considered taxable personal income (Hereinafter referred to as “PIT“) or deductible when calculating taxable corporate income (Hereinafter referred to as “CIT“) is a question that interests not only foreign employees but also employers. The following article will analyze the current legal regulations to clarify this matter.

1. Legal basis:

 1.1. According to Section g.7 Point g Clause 2 Article 2 of Circular 111/2013/TT-BTC issued by the Ministry of Finance on August 15, 2013, regulation on payments that are not included in taxable PIT:

“Article 2. Taxable incomes

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2. Incomes from salaries or wages

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g/ The following amounts are not included in taxable incomes:

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g.7/ School fees for children of foreign employees studying in Vietnam or overseas-working Vietnamese Employees’ children studying abroad from preschool to upper secondary education paid by employers on behalf of Employees.”

1.2. According to Section 2.6 Clause 2 Article 4 of Circular 96/2015/TT-BTC, issued by the Ministry of Finance on June 22, 2015, regulations on deductible expenses when determining taxable CIT:

“2. Non-deductible expenses for determining taxable income include:

2.6. Salaries, wages and bonuses paid to Employees in one of the following cases:

…

b/ Salaries, bonuses and life insurance premiums for Employees for which the conditions for payment and levels of these amounts are not specified in one of the following documents: labor contract; collective labor agreement; financial regulations of the company, corporation or group; reward regulations issued by the chairperson of the Board of Directors, general director or director under the financial regulations of the company or corporation;

– In case the labor contract signed between an enterprise and a foreigner states that schooling expenses for children of the foreigner to acquire preschool to higher secondary education in Vietnam shall be paid by the enterprise, which are of salary or wage nature and have adequate invoices and documents according to regulations, these expenses may be included in deductible expenses for determining taxable income.

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1.3. Official Letter 78137/CT-TTHT issued by the Hanoi Tax Department on October 14, 2019;

1.4. Official Letter 4677/CT-TTHT issued by the Hanoi Tax Department on February 10, 2017.

2. Contents

2.1. According to Section g.7 Point g Clause 2 Article 2 of Circular 111/2013/TT-BTC, school fees for the children of foreign employees studying abroad (Hereinafter referred to as “FEEs”), paid on their behalf by the enterprise/employer (Hereinafter referred to as “ENT./ER“), are considered non-taxable for PIT.

2.2. Currently, there are no legal regulations limiting the type of educational institutions eligible for children of FEEs studying in Vietnam. This implies that school fees for international, private, or public schools are covered, provided those institutions are legally licensed to operate in Vietnam and offer formal education programs from preschool to high school.

2.3. Additionally, regarding deductible expenses when calculating CIT:

(i) According to Section 2.6 Clause 2 Article 4 of Circular 96/2015/TT-BTC, school fees for the children of FEEs working in Vietnam, if studying in Vietnam from preschool to high school and paid by their ER, will not be considered taxable PIT for the FEE. However, note that this expense will be considered deductible when determining taxable CIT if:

– In the labor contract signed between the ER and FEE states that the school fee expense for the FEE’s children to acquire preschool to higher secondary education in Vietnam shall be paid by the ER, which are of salary or wage nature;

– Have adequate invoices and documents according to regulations.

(ii) Therefore, if ER wishing to treat such school fees as eligible expenses for CIT deduction and exclude them from taxable PIT:

– ER must have clear policies or financial regulations outlining the basis for these payments; and

– Require FEEs to provide adequate documentation substantiating these school fees as legitimate educational costs for their children.

(iii) Additionally, it should be noted that transportation fees, meal costs, and other auxiliary expenses may be considered by authorities as non-school fees and excluded from deductible expenses, therefore cannot be deducted as expenses when calculating CIT. Instead, they may be considered taxable income for PIT purposes.

Best regards./.