According to the latest statistics of the Ministry of Labour, War Invalids and Social Affairs’, as of early April 2021, there are 101,550 foreigners working in Vietnam, this number is increasing steadily with more FDI inflows into Vietnam. Therefore, this article will analyze the issues that businesses should pay attention to when hiring foreign workers to work in Vietnam.
1. Work permit
Conditions for foreign workers 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, is 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.
Notes about applying for a work permit
This article shall focus on the “implementation of labour contract”; one of the most popular forms of employment. Some notes about applying for a work permit in this case are:
- Responsibilities of the employer: At least 30 days before the expected date of employing foreign workers, the enterprise must explain their need to employ foreign workers and obtain written approval from competent state agencies.
- The term of the work permit: The work permit can be obtained for a maximum of 02 years and can only be extended once with a maximum term of another 02 years.
- Labor contract
- Type of contract: Fixed term
- Contract term: Up to 2 years
- Time of signing the labour contract: After the foreign worker is granted a work permit, the employer and the foreign worker must sign a written labour contract in accordance with the regulations of Vietnamese labour laws prior to the expected date of employment.
- The employer must send the signed labour contract upon request to the competent authority that issued the work permit. The labour 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 the 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 unless determining income subject to corporate income tax and in VAT is not deductible.
According to 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 – entering Vietnam to work.
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 according to term of work permit
- Symbol: LD2
- Must be guaranteed by the company stated on the work permit.
3. 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 individuals: Those who are present in Vietnam for 183 days or more in a solar calendar year, or for 12 consecutive months from the first day of presence in Vietnam or have a regular place of residence in Vietnam.
- Non-resident individuals: Those not falling under the category of resident individuals.
Calculation of personal income tax
- Resident individuals:
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|
- Non-resident individuals:
Taxable income for non-resident individuals is income generated in Vietnam, regardless of where the income was paid and received.
|Personal income tax= 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|
In which: the total number of working days in a year is calculated according to the regulations specified in the Labour 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, if an enterprise hires foreign workers to perform jobs in Vietnam but such a foreign worker has not yet been granted a work permit by a competent authority in Vietnam in accordance with the provisions of the Labour Code, payments to such a 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 stays in Vietnam, tax issues, etc. for the employees as well as for the business itself.
Note that matters relating to foreign workers are tightly managed by the relevant authorities. Therefore, inspection and examination of the labour situation at enterprises employing foreign workers are regularly carried out, in order to monitor the compliance of enterprises that have guaranteed workers during their time working in Vietnam.