Personal Income Tax Law 2025: Exemption of Overtime Pay, Night Shift Allowances, and Unused Annual Leave Payments from 2026

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Personal Income Tax Law 2025: Exemption of Overtime Pay, Night Shift Allowances, and Unused Annual Leave Payments from 2026

Date: 2026.02.24

🔔 From 2026: Overtime Pay, Night Shift Pay, and Unused Annual Leave Payments Are Exempt from Personal Income Tax – What Employees Need to Know

From 2026, a range of income items related to employees’ salaries will officially be exempt from personal income tax (PIT) under the new provisions of the 2025 Personal Income Tax Law.

This is a significant change that directly affects employees’ take-home income as well as how businesses calculate and withhold personal income tax.

Notably, the tax-exempt items include:

– Overtime pay

– Night shift pay

– Salary and wages paid for unused annual leave days

1. From 2026, Are Overtime Pay and Night Shift Pay Subject to Personal Income Tax?

According to Clause 8, Article 4 of the 2025 Personal Income Tax Law, the following types of income are exempt from personal income tax:
“Wages for night work, overtime pay, and salaries or wages paid for unused annual leave days in accordance with the law.”

👉 When does this apply?

– Resident individuals: applicable from the 2026 tax year, i.e. from 01 January 2026

– Non-resident individuals: applicable from 01 July 2026 (the effective date of the Law)

🔎 Important note

The tax exemption applies only to the portion of overtime pay and night shift pay that is calculated in accordance with legal regulations—specifically, the portion paid at a higher rate compared to normal daytime, regular working hours.

2. Unused Annual Leave Payments: Exempt from PIT from 01/01/2026 or 01/07/2026?

Under the Labor Code, if an employee:

– Does not fully use their annual leave entitlement

– And receives cash compensation from the employer

→ This amount is referred to as payment for unused annual leave days.

📌 New regulation under the 2025 Personal Income Tax Law:

Salary and wages paid for unused annual leave days
➡️ ARE EXEMPT FROM PERSONAL INCOME TAX (PIT)

⏰ Effective dates:

Subject	PIT exemption effective from
Resident individuals	From 01/01/2026
Non-resident individuals	From 01/07/2026

3. Who Is a Resident Individual? Who Is a Non-Resident Individual?

According to Article 2 of the 2025 Personal Income Tax Law:

– A resident individual is a person who:

+ Is present in Vietnam for 183 days or more within a year, or

+ Has a permanent residence in Vietnam (permanent address or long-term leased accommodation)

– A non-resident individual is a person who:

+ Does not meet the above conditions

➡️ Correctly determining an individual’s residency status is extremely important, as it directly affects:

– The timing of tax exemption eligibility

– The method of calculating and withholding personal income tax

4. From 2026, How Will Personal Income Tax on Salary Still Be Calculated?

Although several income items are exempt from tax, the remaining income from salaries and wages is still subject to personal income tax calculated under the progressive tax rate schedule.

Progressive Personal Income Tax Rates (applicable from the 2026 tax year)

Tax bracket	Monthly taxable income (VND million)	Tax rate
1	Up to 10	5%
2	Over 10 – 30	10%
3	Over 30 – 60	20%
4	Over 60 – 100	30%
5	Over 100	35%

👉 Taxable income = Total taxable income
➖ Mandatory insurance contributions
➖ Statutory deductions as prescribed by law

5. Summary of Salary and Income Items Exempt from Personal Income Tax from 2026

According to Articles 4 and 5 of the 2025 Personal Income Tax Law, notable tax-exempt income items include:

✅ Overtime pay and night shift pay

✅ Salary paid for unused annual leave days

✅ Pensions paid from the social insurance system

✅ Income derived from science and technology assignments

✅ Income of crew members engaged in international transportation

✅ Income of experts working on ODA-funded projects

✅ A five-year personal income tax exemption for digital technology and high-tech professionals, in accordance with applicable regulations

6. What Should Employees and Businesses Prepare for from 2026?

👩‍💼 For employees

– Review payslips and the accounting treatment of overtime pay and unused annual leave

– Determine residency status to apply the correct tax exemption timing

🏢 For businesses

– Update salary structures and payroll policies

– Adjust personal income tax withholding methods

– Review labor contracts and internal salary and bonus regulations

7. Conclusion

From 2026, overtime pay, night shift pay, and salary paid for unused annual leave will be exempt from personal income tax under the 2025 Personal Income Tax Law. This regulation applies from 01 January 2026 for resident individuals and from 01 July 2026 for non-resident individuals.

To ensure proper application of these provisions, employees need to clearly determine their residency status, while businesses must promptly update their salary calculations, tax withholding methods, and payroll documentation to ensure legal compliance and avoid potential tax risks.