25 Nov MANAGING LABOR RELATIONS FOR EXPATS IN VIETNAM(Last Updated On: August 27, 2021)
In addition to common labor procedures, foreigners working in Vietnam must also comply with a number of particular regulations. Managing labor relations for foreigners, if done correctly at the beginning, can simultaneously prevent risks and optimize on taxes and insurance payables.
With our extensive expertise and hands-on experience, VIVA would like to present you our services for managing labor relations for foreigners working in Vietnam as follows.
MANAGING EMPLOYEES’ PROFILE AND DRAFTING LABOR CONTRACT
- Dependent information.
- Professional certification and experience.
- Letter of Appointment.
- Offer letter.
- Labor Contract.
- House rental contract.
Employee’s Profile is mandatory for businesses. For the foreign employees, they are related to work permits (WP), temporary residence cards (TRC), declaration and payment of personal income tax (PIT), opening of bank accounts… Foreigners should understand thoroughly the requirements of each document, store and update them fully to meet the requirements of local authorities while working in Vietnam.
Labor contracts are very important that identify rights and obligations between employees and businesses. Besides, labor contracts are also related to compulsory personal income taxes, insurance, and procedures for receiving salaries, and remitting them to their home countries. Failure to manage the labor relations in terms of formality, contents and provisions in the labor contracts will result in serious disputes or increase the tax payables and interfere in your work.
WORK PERMITS AND TEMPORARY RESIDENCE CARDS
- The foreign employees have to present their work permits when entering and exiting Vietnam and upon requests of the competent agencies. A foreign employee who does not have a work permit will be deported out of Vietnam in accordance with the regulations of the Government. The person employing foreign employees without work permits will be subject to penalties under the laws.
- However, unlike a Visa, a TRC has a longer term of validity usually from 1 year to 5 years. A foreigner having a TRC does not need a Visa. He can enter and exit the country multiple times for work within the term of the TRC, saving time and money. In addition, the card holder can sponsor his or relatives to be issued a TRC with the same term.
- After being granted a WP and a TRC, a foreigner can open all types of bank accounts, credit cards, savings books and enjoy all the services provided by the banks just like Vietnamese nationals.
CALCULATING SALARIES AND MANAGING TAXABLE INCOME
- The salaries of the foreigners are not only based on the agreement between them and the employers, but also must be in accordance with the nationality, expertise, experience and the position. In case the salaries are inadequate, the Tax department will carry out inspection and verification domestically and abroad, affecting the foreign employee’s work.
- In addition to salaries, the foreign employees can enjoy other benefits such as travel expenses, rent, accommodation fees, insurance, school fees for their children, vouchers…which may be subject to personal income taxes or not, depending on the cases. Many foreigners have incurred personal income taxes and penalties because of failure to manage these incomes correctly.
- The salaries of foreigners can be in USD or other currencies. Each bank will have different requirements for payment in foreign currency.
SOCIAL INSURANCE AND COMPULSORY HEALTH INSURANCE
- Foreigners working in Vietnam must participate in social insurance when granted a WP or a practice certificate or a practice license by competent authorities in Vietnam and have Indefinite-term labor contract, labor contracts with a definite term of 01 year or more with the Vietnamese employers.
- In relation to the premium rates of the employee, from January 01 2022, a foreigner working in Vietnam must participate in social insurance. He will pay 8% of his monthly salaries to the retirement and survivorship allowance funds. Concurrently, the employer will pay the social insurance premiums calculated on the monthly salary funds on which social insurance premiums are based every month as follows: 3% to the sickness and maternity fund; 0.5% to the labor accident and occupational disease fund; 14% to the retirement and survivorship allowance fund from January 01 2022.
- If a foreign employee enjoying retirement pensions and monthly social insurance allowances does not reside in Vietnam anymore, he can authorize another person to take the retirement pensions and monthly social insurance allowances. The foreign employee can receive all of them at once, if he wants.
MANAGING PERSONAL INCOME TAXES (PIT)
- To determine the valid method of declaring personal income taxes (PIT) for foreigners, the Vietnam tax department will use the passports, labor contracts, letters of appointment/documents for tax deduction, and House rental contract.
- Both individuals residing or not residing in Vietnam must declare and finalize PIT for income generated in Vietnam or abroad. Taxable amount/tax rates of residents and non-residents are completely different. Failure to make a clear and valid PIT declaration will result in penalties imposed by tax authorities in the coming years. An experienced consultant will help you in managing employee documents/ reports required by laws as well as reports/ declarations to ensure that the documents are correct at the beginning and for the next 3 or 5 years.
- A person calculated and paid the PIT for their income abroad will be entitled to a reduction for the paid . The deductible tax amount must not exceed the payable tax amount calculated according to Vietnam’s tax schedule calculating and allocating the income generated abroad. The allocation rate is determined by the ratio between the income generated abroad and the total taxable income.
- For a foreigner residing in Vietnam with income from salaries and wages in the case where the days of presence in Vietnam are less than 183 days in the first calendar year but are more than 183 days in the 12 consecutive months since the first day he is present in the Vietnam, the first tax period will be 12 months since the date of entering Vietnam, the second tax period will be the calendar year. The fiscal year: Declaration and submission of dossiers for finalization are done no later than 90 days from the date of full 12 consecutive months. From the second tax year: Declaration and submission of dossiers for finalization are done no later than 90 days from the ending date of calendar year. The payment to be made in the second tax year is determined as follows:
- A foreign employee terminating his labor contract in Vietnam must carry out tax finalization with the tax authorities before exiting Vietnam.
- Personal income tax rate for the salaries and wages of the person not residing in Vietnam is determined by the taxable income from salaries and wages multiplied (x) by a tax rate of 20%. Taxable income from the salaries and wages of a person not residing in the country is determined like income from salaries and wages of a person residing in the country.
- Tax rates and grounds for calculating taxes of persons residing in Vietnam having income from salaries and wages are determined by taxable income from business, wages, salaries which can be assessable, and tax rates. The assessable income is taxable income minus (-) deductible amount as follows: deductible amount based on family circumstances; Insurance premiums, voluntary retirement fund; contribution to Charity, humanitarian and study promotion. The tax rate of PIT applicable to income from business, salaries and wages is applied in accordance with the Partially progressive tariff, particularly:
Portion of Annual Assessable
Portion of Monthly
Tax Rate (%)
1 Up to 60 Up 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
TERMINATION OF LABOR RELATIONS AND RELEVANT PROCEDURES
When terminating the labor relations, the foreign employee should manage the following documents to avoid risks:
- Agreement on termination of labor relation.
- Letter of Resignation.
- Minutes on work handover.
- Minutes on termination of the labor contract.
- Receipt of PIT withholding.
- Cancellation or return of the work permit and temporary residence card.
- Tax finalization and letter of confirmation on completion of tax obligations before leaving Vietnam.
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