The use of foreign workers in enterprises is a topic of great interest in recent times. However, performing this function is not simply recruiting and employing workers, as there are many legal regulations that need to be followed to avoid legal risks in the future.
Enterprises employing foreign workers should pay attention to the following issues:
Firstly, regarding work permit
According to the law, a foreign worker entering Vietnam to work can fall into the following two categories: the case where he/she is not subject to a work permit and the case where he/she must have a work permit
- According to Decree 152/2020/ND-CP, in case an employee is not eligible for a work permit, at least 10 days before the employee starts working, the enterprise must carry out procedures for certification. Foreign workers are not required to issue a work permit at the Department of Labor, Invalids and Social Affairs (DOLISA) where the employee regularly works. Some special cases are not required by law to confirm that foreign workers are not eligible for work permits but must report to the Ministry of Labor, Invalids and Social Affairs or the DOLISA where the foreign worker is expected to work at least 3 days in advance from the date the foreign worker is expected to start working in Vietnam.
- In case the employee is required to apply for a work permit, the enterprise must submit an application for a work permit at the DOLISA where the employee works full-time for the enterprise at least 15 days before the employee is expected to work. Example: The company’s head office is in Ho Chi Minh City. However, foreign workers work full-time at the enterprise’s factory in Binh Duong. In this case, the enterprise must submit a dossier to the DOLISA of Binh Duong province. Conversely, if the employee does not work full-time at a fixed location other than the head office in Ho Chi Minh City, the enterprise will submit a dossier to the DOLISA of Ho Chi Minh City.
Note, during the probationary period, foreign workers still need a work permit to work legally in Vietnam. This is an issue that employers need to pay attention to in order to be able to anticipate necessary expenses that may arise in the process of recruiting foreign workers, as well as to avoid possible disputes.
Secondly, regarding personal income tax obligations
Employees who are foreign individuals must pay personal income tax when working in Vietnam. Personal income tax (PIT) for foreign employees is applied to salaries and wages divided into two cases: resident employees and non-resident employees.
(1) For non-resident foreign employees
According to Circular 111/2013/TT-BTC, taxable income is salary, wages, remuneration and other incomes of the nature of salary or wages which the non-resident foreign worker receives for performing work in Vietnam, regardless of where the income is paid.
The applicable tax rate is 20%.
Enterprises paying income subject to PIT, whether or not there is a withholding tax, are responsible for finalizing PIT and personal income tax on behalf of authorized individuals.
(2) For resident foreign employees
Taxable income is income generated inside and outside of the Vietnamese territory. The tax rate is applied according to the partial progressive tax scale as prescribed by law.
Resident foreign employees must declare personal income tax on wages and salaries in accordance with the law on specific cases.
Thirdly, the expenses related to wages and salaries that can be deducted from the enterprise’s taxable income
According to Circular 96/2015/TT-BTC and Circular 25/2018/TT-BTC, for house payments that enterprises pay to foreign countries: if in the labor contract there is a payment for house rent that the enterprise pays to the employee (provided that this payment is of a salary and wage nature and in accordance with the provisions of law). Enterprises should note that they must have sufficient documents and invoices as prescribed, as this expense will be counted as a deductible expense when determining the enterprise’s taxable income.
For expenses for tuition fees for children of foreign workers in Vietnam from preschool to high school: if the labor contract of the enterprise clearly states this expenditure (of the nature of salary, money, etc.) then it will not be contrary to the provisions of law. Enterprises need to have all invoices and documents as prescribed.
Fourthly, regarding temporary residence cards (TRC) for employees
When a foreign worker is granted a work permit or a work permit exemption certificate, the employer needs to apply for a TRC for the foreign worker. The TRC under the labor category will be valid for 2 years and can be extended. After being granted a TRC, the employee can use it to open a bank account, apply for a driver’s license, register a phone sim card, etc. However, the employer should note that when it ends labor relations, the employer will need to revoke the work permit and TRC issued to the foreign worker in order to return it to the competent authority in accordance with the law.
It cannot be denied that using foreign workers is an effective solution to meet the shortage of human resources in fields requiring highly specialized skills. However, in the process of implementation, businesses need to understand the relevant legal regulations to avoid unnecessary legal risks. The use of foreign workers not only benefits businesses but also gives foreign workers the opportunity to work, learn, hone skills, and improve professional qualifications.