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Employee’s compensation from employer after leaving the company

The taxpayer’s compensation for separation includes severance pay, long service payment, or compensation for separation for loss of position. The following explains whether these compensations are subject to salaries tax.

Taxpayers who are dismissed by their employers, request suspension of work or are not renewed due to layoffs are entitled to severance pay or long service payment under the Labour Law. The severance payment or long service payment received by the taxpayer is not subject to salaries tax.

  1. According to labor laws, taxpayers must meet the following conditions in order to receive severance pay without paying tax:

– He has been employed for not less than 24 consecutive months

– He was suspended by his employer

– He was fired or not renewing his employment contract due to layoffs by his employer

  •  As for the long service payment, the taxpayer must meet the following conditions in order to enjoy it without paying tax:

– He has been employed on a continuous contract for not less than five years

– He was not fired for negligence or layoffs

– He does not renew his employment contract after the expiry of his contract

– He died while in office

– He resigned for health reasons or old age (65+)

At the same time, taxpayers can only receive one of the above compensations. If the taxpayer is paid by the employer in excess of the severance payment or long service payment stipulated by the labor laws, the excess part will be subject to salaries tax.

If a taxpayer receives compensation from his employer due to his job loss, whether the compensation is subject to salaries tax depends on the reasons for the taxpayer to lose his position. If you lose your position and have no successor due to:

• The company has to downsize its business due to operational difficulties

• The company is closing its business

• Company business to be restructured

All of the above will lead to layoffs by companies and taxpayers will lose their jobs.


However, there are exceptions. If the taxpayer’s original employment contract with the employer covers the compensation or liquidated damages received by the taxpayer upon dismissal, the compensation or compensation paid by the employer upon dismissal of the taxpayer will be subject to new income tax. , because the compensation or indemnity is essentially what the taxpayer will pay for entering into an employment contract with the employer and serving the employer in the future.

The above information is for reference only. If you have any questions about tax declaration and accounting, we welcome your inquiries.

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