In order for service supply and execution in Vietnam without the establishment of business presence, overseas enterprises may go for one easy option of sending the employees over to work at business partners’ locations in Vietnam. The option is quite preferable as it helps cut down costs and brings out the same efficient result. The only concern arises on the matter of tax payment and contribution of insurance of employees who got sent over to Vietnam. Are they obliged to pay personal income tax and comply with the insurance policy in Vietnam?
- Personal Income Tax (PIT)
Vietnam’s regulation on PIT stipulates that residents and non-residents in Vietnam who earn taxable incomes, one of which is income from salary and remuneration, within Vietnam regardless of locations for payment and receipt are taxpayers of PIT. Accordingly, employees who are sent to execute service are obligated to pay PIT in Vietnam.
Under Vietnamese laws and regulations on PIT, PIT rate varies upon residence status of the employees. In relation to resident employees, the progressive tax rate shall apply to range from 5% to 35% based on assessable income per year and tax period is on a yearly basis. It should be taken into account that employees are considered residents if they satisfy either:
(1) have been present in Vietnam for 183 days or longer in a calendar year, or for 12 consecutive months from the day on which the persons arrive in Vietnam; or
(2) have a regular residence in Vietnam in one of the following cases: i) having regular residence which is the permanent written in the permanent residence card, or the temporary residence when applying for the temporary residence card; or ii) renting accommodation in Vietnam according to the laws and regulations on housing under a contract that lasts 183 days or longer in the tax year.
In relation to non-resident employees who do not satisfy the conditions to be residents, applicable PIT rate is 20%. In addition, non-resident employees shall declare tax whenever there is income earned from salaries.
It may be quite a burden to know that income derived from salaries paid to employees sent over to Vietnam shall be taxed in accordance with both Vietnamese laws and the laws of the State/territory of which the employees are citizens. Fortunately, Vietnam has, up to present, concluded the agreement on avoidance of double taxation with 75 States/territories, which allows a deduction equal to the income tax paid in Vietnam whether directly or by deduction method for the employees who come from above-mentioned 75 States/territories when they pay income tax back in home countries (if any). Such deduction will not exceed the attributable income tax (as calculated before the deduction is given) in their home countries.
It is noteworthy that PIT exemption may apply in Vietnam if the employees fully satisfy the following three conditions, including: (i) employees are present in Vietnam in a period or accumulated periods not exceeding 183 days in any 12 months starting or ending in the concerned fiscal year; and (ii) the employer is not a resident of Vietnam, regardless whether remuneration is paid directly by or on behalf of the employer; and (iii) remuneration is not paid by permanent establishment or fixed base set up by the employer in Vietnam.
- Insurance compliance
In relation to social insurance, according to the Law on Social Insurance of Vietnam, from 01 January 2018 foreign employees working in Vietnam with work permits or practise certificates or practise licenses granted by competent Vietnamese agencies shall be permitted to contribute compulsory social insurance. Yet, the law is not explicit on whether it is a right or an obligation to the contribution of compulsory social insurance by foreign employees. Since there have not been any legal documents guiding the implementation of the provision, it is likely that the employees may skip such contribution.
In relation to health insurance, the law regulates that employees working under indefinite-term labour contracts or labour contracts of full three months and onward are obliged to the contribution of health insurance. Since the law itself and its guiding documents do not differentiate employees who are Vietnamese citizens from employees who are foreign nationals, foreign employees are subject to Vietnamese Laws and Regulations on health insurance. However, it should be taken into account the fact that if overseas enterprises establishes no forms of business presence in Vietnam, resulting in no labour contract between the employees and business presence of overseas enterprises in Vietnam and hence no direct employers who shall be responsible for making health insurance contribution pursuant to the regulation of Vietnam. The practice is most likely that this is not the case subject to contribution of health insurance.
To conclude, don’t forget that Vietnam Visa Easy is always here, being willing and ready to give our clients some peace of mind with our high-quality and trustable assistance in immigration requirements for Vietnam business visa, work permit, permanent resident card, etc.
Fiona