Vietnam is considered as one of the countries with the fastest economic growth in the region. With a dynamic economy and reasonable living costs, Vietnam is gradually becoming an ideal destination for global citizens to live and work. According to the latest statistics of the ‘Ministry of Labor, War Invalids and Social Affairs’, as of early April 2021, there are 101,550 foreign workers working in Vietnam, this number is increasing steadily with more FDI inflows into Vietnam. So, what are the issues that foreign workers businesses should pay attention to when working in Vietnam.
- Conditions to work in Vietnam:
- Being 18 years or older and having full civil act capacity.
- Having professional qualifications, techniques, skills and working experience. Be healthy as prescribed by the Ministry of Health.
- Not being a person who is currently serving a sentence or has not had his/her criminal record cleared yet or being examined for penal liability in accordance with foreign or Vietnamese laws.
- Having a work permit issued by a competent Vietnamese state agency, except for some special cases.
In addition to the usual requirements such as age, health, and working capacity, one of the mandatory requirements to work in Vietnam is that a foreigner must have a work permit. Currently, Vietnamese law stipulates about 11 working forms and 4 positions (Managers, experts, technical workers, and executives) for foreign workers in Vietnam. This article shall focus on the “implementation of labor contract” ; one of the most popular forms of employment. Some points to note about applying for a work permit in this case are:
- Responsibilities of the employer: Before recruiting foreign workers to work in Vietnam, they must explain their need to employ workers and obtain written approval from competent state agencies.
- The term of the work permit: Work permit can be obtained for a maximum period of 02 years and can only be extended once with a maximum term of another 02 years.
- Other important points related to Labor contract:
- Type of contract: Fixed term
- Contract term: Up to 2 years
- Time of signing the labor contract: After the foreign worker is granted a work permit, the employer and the foreign worker must sign a written labor contract in accordance with regulations of Vietnamese labor laws prior to the expected date of employment.
- The employer must send the signed labor contract upon request to the competent authority that issued the work permit. The employment contract is the original or a certified copy.
- Foreign workers working in Vietnam without a work permit will be forced to exit or be deported in accordance with the ‘law on entry, exit, transit and residence of foreigners in Vietnam’.
- Employers who employ foreign workers without a work permit shall be prosecuted according to the provisions of law.
- Expenses (salaries, bonuses, allowances etc.) that enterprises pay for foreign workers working in Vietnam without a work permit will not be counted as expenses of the enterprise.
According to the Vietnamese laws, in order to enter Vietnam, foreigners must prove the purpose of entry. One of the purposes of obtaining the approval for entry into Vietnam is employment.
After being granted a work permit, workers will easily get a temporary residence card for a long-term stay in Vietnam. Temporary residence card is of the same value as a visa. The features of a temporary residence card are:
- Term: Not more than 2 years
- Symbol: LD2
- Have to be guaranteed by the company stated on the work permit.
PERSONAL INCOME TAX
According to Vietnamese laws, personal income tax is calculated on the basis of the period of residence in Vietnam. The taxpayers can be divided into 2 groups – resident individuals and non-resident individuals. For each type, there is a separate way to calculate personal income tax.
- Resident: Those who are present in Vietnam for 183 days or more in a calendar year, or for 12 consecutive months from the first day of presence in Vietnam, or has a regular place of residence in Vietnam.
- Non-resident individuals: Those not falling under the category of resident individuals.
Calculation of personal income tax:
The personal income tax rate for residents is applied according to the Partial Progressive Tax Schedule, as follows:
|Scale of taxation||Taxable income/year (million VND)||Taxable income/month (million VND)||Tax (%)|
|1||Up to 60||To 5||5|
|2||Over 60 to 120||Over 5 to 10||10|
|3||Over 120 to 216||Over 10 to 18||15|
|4||Over 216 to 384||Over 18 to 32||20|
|5||Over 384 to 624||Over 32 to 52||25|
|6||Over 624 to 960||Over 52 to 80||30|
|7||Over 960||Over 80||35|
Taxable income for non-resident individuals is income generated in Vietnam, regardless of where the income was paid and received.
Personal income tax: Equal to taxable income from wages and salaries (×) tax rate of 20%
Determination of income subject to personal income tax in Vietnam in case a non-resident individual works both in Vietnam and abroad but cannot separate the income earned in Vietnam is done according to the following formula:
(i) In the case of a foreign individual who is not present in Vietnam:
|Total income generated in Vietnam||=||Number of working days in Vietnam||x||Income from wages and salaries globally (before tax)||+||Other taxable income (before tax) arising in Vietnam|
|Total number of working days in the year|
Here, the total number of working days in a year is calculated according to the regulations specified in the Labor Code of Vietnam.
(ii) In the case of a foreign individual who is present in Vietnam:
|Total income generated in Vietnam||=||Number of days in Vietnam||x||Income from wages and salaries globally (before tax)||+||Other taxable income (before tax) arising in Vietnam|
Basis for enterprises to deduct expenses for payment to foreign workers:
According to the guidelines from the General Department of Taxation, in case an enterprise hires foreign workers to perform jobs in Vietnam but such foreign worker has not yet been granted a work permit by a competent authority in Vietnam in accordance with the provisions of the Labor Code, payments to such foreign worker are not considered deductible expenses when determining income subject to corporate income tax.
Enterprises need to clearly understand the above regulation to make proper plans from the beginning to employ foreign workers. This is important to eliminate risks related to legal stay in Vietnam, tax issues etc. for the employees as well as for the business itself.
Note that matters relating to foreign workers are managed by the relevant authorities. Therefore, inspection and examination of the labor situation at enterprises employing foreign workers are regularly carried out. Compliance of enterprises in this regard is monitored.
Writing time: 23/06/2021
This article is based on the current laws at the above recorded time and may no longer be relevant at the time readers access this article due to changes in applicable law and specific cases which the readers want to apply. Therefore, this article is for reference only.