All overtime pay and night-shift wages will be exempt from personal income tax (PIT) from 2026 onward.

Date: 2026.02.13

Starting in 2026, personal income tax (PIT) policy will see a highly noteworthy change, particularly for employees who frequently work overtime or night shifts. Under the 2025 Personal Income Tax Law, all overtime pay and night-shift wages will be fully exempt from personal income tax, instead of only the differential portion as applied under previous regulations.

This change is not merely a technical tax adjustment; it clearly reflects a policy orientation toward protecting workers’ actual take-home income, especially in the context of many industries that require operations outside standard working hours.

1. Legal basis for the personal income tax exemption on overtime pay and night-shift wages

On December 10, 2025, at the 10th Session of the 15th National Assembly, the National Assembly officially passed the 2025 Personal Income Tax Law.

Under this Law:

– It generally takes effect from July 1, 2026.

– However, provisions related to:

+ Income from salaries and wages

+ Income from business activities of resident individuals will be applied from the 2026 tax period (i.e. starting from January 1, 2026).

2. Full exemption from personal income tax on overtime pay and night-shift wages

Pursuant to Clause 8, Article 4 of the 2025 Personal Income Tax Law, income that is exempt from personal income tax includes:

– Wages for night-shift work

– Overtime pay

– Salaries and wages paid for unused leave days in accordance with the law

Key highlights of the new regulation
Compared with previous regulations:

❌ The tax exemption is no longer limited to only the differential portion

✅ Full exemption applies to the entire amount of income arising from overtime work and night-shift work

👉 This regulation is particularly beneficial for employees in the following sectors:

– Manufacturing and industrial production

– Healthcare and medical services

– Logistics and transportation

– Services and F&B

– Information technology and 24/7 system operations

3. Effective date of application: distinction between resident and non-resident individuals

3.1. For resident individuals

Although the 2025 Personal Income Tax Law generally takes effect from July 1, 2026, the following provisions:

– Regulations on salaries and wages of resident individuals

– Including the exemption of personal income tax on overtime pay and night-shift wages

👉 Are applied from the 2026 tax period, i.e. starting from January 1, 2026.

3.2. For non-resident individuals

For non-resident individuals, the Law is applied strictly in accordance with its general effective date, meaning:

– Personal income tax exemption on overtime pay and night-shift wages applies only from July 1, 2026

– It does not apply from January 1, 2026 as it does for resident individuals

👉 Employers paying salaries to foreign employees, experts, or short-term workers should pay special attention when calculating taxes during the first six months of 2026.

3.3. Who is considered a non-resident individual?

Pursuant to Clauses 2 and 3, Article 2 of the 2025 Personal Income Tax Law, a non-resident individual is a person who does not meet either of the following conditions:

– Being present in Vietnam for 183 days or more within a calendar year or within 12 consecutive months

– Having a permanent residence in Vietnam, including:

+ A registered permanent address, or

+ A rented residence for living purposes under a fixed-term lease contract

4. Overtime pay tax exemption within the broader 2026 tax reform framework

The full exemption of personal income tax on overtime pay and night-shift wages is not an isolated change; rather, it is part of the overall reform introduced under the 2025 Personal Income Tax Law, which includes:

– Expanding the scope of tax-exempt income to encourage labor participation and creativity

– Adding new types of taxable income, such as:

+ Transfers of gold bullion

+ Auctioned vehicle license plates

+ Digital assets

– Revising the progressive tax schedule from 7 brackets to 5 brackets

– Significantly increasing family deductions, thereby reducing the tax burden on salaried employees

5. Before and after 2026: How have the regulations on tax exemption for overtime pay changed?

5.1. From January 1, 2026: full tax exemption

From 2026 onward, pursuant to Clause 8, Article 4 of the 2025 Personal Income Tax Law:

– All overtime pay

– Wages for night-shift work

– Salaries and wages paid for unused leave days

👉 Are fully exempt from personal income tax, regardless of pay level or differential rate.

5.2. Before 2026: exemption applied only to the differential portion

Under Clause 9, Article 4 of the 2007 Personal Income Tax Law:

– Only the portion of overtime pay paid at a higher rate than normal working-hour wages was exempt from tax

– The portion equivalent to regular working-hour wages remained subject to personal income tax

👉 This made tax calculation more complex, prone to errors, and required separating the differential portion.

5.3. Core change

🔹 Before 2026: partial tax exemption

🔹 From 2026: full tax exemption

👉 This helps to:

– Increase employees’ actual take-home income

– Enable businesses to simplify payroll calculations and tax finalization

5.4. Effective implementation of the 2025 Personal Income Tax Law

Pursuant to Article 29 of the 2025 Personal Income Tax Law:

– The Law takes effect from July 1, 2026

– However, provisions on:

+ Income from business activities

+ Income from salaries and wages of resident individuals

👉 Are applied from the 2026 tax period (starting from January 1, 2026).

6. What should employees and businesses prepare for starting in 2026?

For employees

– Clearly understand which types of income are exempt from personal income tax

– Monitor personal income tax withholding on their salaries

– Pay special attention if they are foreign workers or short-term employees

For businesses

– Update salary, overtime, and night-shift policies

– Adjust payroll and tax calculation systems

– Clearly distinguish between resident and non-resident individuals

7. Conclusion

Starting in 2026, all overtime pay, night-shift wages, and salaries paid for unused leave days will be exempt from personal income tax under the 2025 Personal Income Tax Law. This is a significant change that helps increase employees’ actual take-home income and substantially reduces the complexity of tax calculation for businesses.

However, due to the different application timelines for resident and non-resident individuals, both employees and paying entities must clearly understand the regulations to apply them correctly in 2026, thereby avoiding errors in tax withholding and finalization.