Meeting your payroll obligations in Vietnam Meeting your payroll obligations in Vietnam

Meeting your payroll obligations in Vietnam
14 Dec 2017

After setting up a business in Vietnam, the next big hurdle is taking on staff to help you grow the operation. The initial hiring process and subsequent payroll administration activities can quickly become complex and confusing.

But due to an historic sensitivity to abusive labour practices labour-intensive sectors such as manufacturing are almost certain to find the experience testing, although any company setting up in the country – whether we are talking about representative offices or fully foreign-owned enterprises – will face some issues.

As a first step towards meeting their payroll responsibilities, companies must become acquainted with basic statutory requirements under Vietnamese law. The following are the most significant payroll-related obligations for employers:

1. Minimum wages;
2. Overtime wages;
3. Individual income tax withholding requirements;
4. Social insurance withholding requirements.

1. Minimum wages

Vietnam’s minimum wage rates play a significant role in payroll compliance. There are currently two types of minimum wages:

Common minimum wage

The common minimum wage (CMW) is used to calculate the salaries of employees in state-owned organisations as well as the required social insurance contributions - the maximum social insurance contribution is 20 times the CMW.

From 1 July 2017 to 1 July 2018, the CMW is VND1,300,000 (US$57). With effect from 1 July 2018 the CMW applied will be VND 1,390,000 (US$61) per month.

Regional private sector minimum wages The second type of minimum wage applies to employees in all non-state enterprises and is based on regions as defined by the government. Since January 2017, these regions have set baseline compensation rates of between VND 2.58 million (US$113) and VND 3.75 million (US$165).

Unlike the CMW, the private sector minimum wage rate depends on the location in which a worker is employed. Vietnamese cities are currently split into a four-tiered regional system to reflect varying socio-economic conditions across the country.

2. Overtime

Employers are required to pay staff members at elevated rates for all overtime work completed in a given month. Overtime pay not only increases their immediate payroll costs, but can also have a significant impact on income tax and social insurance withholding levels.

It is important for employers to understand when overtime takes effect and at what rates in order to be able to plan effectively and ensure that individual income tax and social insurance contribution calculations are made correctly.

Triggering overtime

The normal working week in Vietnam is limited to no more than eight hours per day and must add up to no more than 48 hours per week. Any hours worked beyond these limits must be compensated at a higher rate than that set out in an employee’s labour contract.

Overtime compensation

Employees who work beyond normal working hours must be paid extra for those hours based on their current wages, as follows:

- Regular working days – 150%;
- Weekends – 200%;
- Holidays and paid leave days – 300%.

A ceiling on total hours worked, inclusive of overtime, is imposed at more than 12 hours per day, while overtime is capped at 30 hours per month and 200 hours annually.

3. Individual income tax withholdings

In Vietnam, personal income tax (PIT) declarations and payments take place on a withholding basis. The country’s tax regulations are based on the concept of tax deducted at source and specify that certain employers are required to collect tax. Such entities are required to withhold PIT from employees’ salaries.

Monthly withholdings

Employers are required to collect taxes based on the wages of both foreign and local workers and to ensure that employees’ tax declarations are submitted in a timely fashion. Organisations must withhold the required percentage of each staff member’s income on a monthly basis and deposit the amount with the State Treasury no later than the 20th day of the following month.

Annual finalisation

Employers must finalise PIT declarations on behalf of their employees at the end of each year - provided they are the sole employer and each staff member authorises them to make this tax finalisation on their behalf. Companies must submit an annual tax finalisation document on employees’ taxable income no later than 90 days after the last day of the tax year.

Each employee is required to obtain a unique individual tax number (or “tax code”) and declare any dependents that qualify for tax relief. They must also complete their own tax finalisation return forms if their tax liability at year-end is greater, or less, than the amount of tax they have paid during the year. Employees may authorise their employer to undertake the process on their behalf.

4. Social insurance

There are three types of mandatory social security contributions in Vietnam that foreign enterprises seeking to hire local staff must pay:

• Social insurance;
• Health insurance; and,
• Unemployment insurance.

Mandatory minimum contributions
Mandatory minimum contributions to social security funds are required from both employers and employees. All domestic and foreign companies operating in Vietnam are required to pay these social insurances on behalf of all staff members employed under labour contracts with a definite term of more than three months or with indefinite terms.

The total minimum employer social security contribution is 21.5%. These contributions are determined based on an employee’s monthly salary or wage. Employers register and pay insurance contributions monthly on behalf of their personnel at the provincial Department of Labour, Invalids and Social Affairs (DoLISA).

Social insurance contribution caps

While amounts payable will differ depending on an employee’s salary, it should be noted that a wage ceiling for calculating contributions is imposed at 20 times the CMW for social and health insurance – VND 26,000,000 (US$1,140) – and 20 times the regional minimum wage for unemployment insurance – VND 51,600,000 (US$2,269) to VND 75,000,000 (US$3,298) depending on the region.

With effect from 1 July 2018, the minimum salary cap for social and health insurance contributions will increase to VND 27,800,000 (US$1,220) per month. From 1 January 2018, the minimum regional salary cap for unemployment contributions will range from VND 55,200,000 (US$2,430) to VND 79,600,000 (US$3,500) per month.

Social and unemployment insurances are only compulsory for Vietnamese staff. Health insurance, on the other hand, applies to both Vietnamese and foreign workers employed in accordance with Vietnam’s Labour Code.

-- First published by Vietnam Briefing . Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters.

As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email usat info@dezshira.com. Further information about the firm can be found at: www.dezshira.com.

After setting up a business in Vietnam, the next big hurdle is taking on staff to help you grow the operation. The initial hiring process and subsequent payroll administration activities can quickly become complex and confusing.

But due to an historic sensitivity to abusive labour practices labour-intensive sectors such as manufacturing are almost certain to find the experience testing, although any company setting up in the country – whether we are talking about representative offices or fully foreign-owned enterprises – will face some issues.

As a first step towards meeting their payroll responsibilities, companies must become acquainted with basic statutory requirements under Vietnamese law. The following are the most significant payroll-related obligations for employers:

1. Minimum wages;
2. Overtime wages;
3. Individual income tax withholding requirements;
4. Social insurance withholding requirements.

1. Minimum wages

Vietnam’s minimum wage rates play a significant role in payroll compliance. There are currently two types of minimum wages:

Common minimum wage

The common minimum wage (CMW) is used to calculate the salaries of employees in state-owned organisations as well as the required social insurance contributions - the maximum social insurance contribution is 20 times the CMW.

From 1 July 2017 to 1 July 2018, the CMW is VND1,300,000 (US$57). With effect from 1 July 2018 the CMW applied will be VND 1,390,000 (US$61) per month.

Regional private sector minimum wages The second type of minimum wage applies to employees in all non-state enterprises and is based on regions as defined by the government. Since January 2017, these regions have set baseline compensation rates of between VND 2.58 million (US$113) and VND 3.75 million (US$165).

Unlike the CMW, the private sector minimum wage rate depends on the location in which a worker is employed. Vietnamese cities are currently split into a four-tiered regional system to reflect varying socio-economic conditions across the country.

2. Overtime

Employers are required to pay staff members at elevated rates for all overtime work completed in a given month. Overtime pay not only increases their immediate payroll costs, but can also have a significant impact on income tax and social insurance withholding levels.

It is important for employers to understand when overtime takes effect and at what rates in order to be able to plan effectively and ensure that individual income tax and social insurance contribution calculations are made correctly.

Triggering overtime

The normal working week in Vietnam is limited to no more than eight hours per day and must add up to no more than 48 hours per week. Any hours worked beyond these limits must be compensated at a higher rate than that set out in an employee’s labour contract.

Overtime compensation

Employees who work beyond normal working hours must be paid extra for those hours based on their current wages, as follows:

- Regular working days – 150%;
- Weekends – 200%;
- Holidays and paid leave days – 300%.

A ceiling on total hours worked, inclusive of overtime, is imposed at more than 12 hours per day, while overtime is capped at 30 hours per month and 200 hours annually.

3. Individual income tax withholdings

In Vietnam, personal income tax (PIT) declarations and payments take place on a withholding basis. The country’s tax regulations are based on the concept of tax deducted at source and specify that certain employers are required to collect tax. Such entities are required to withhold PIT from employees’ salaries.

Monthly withholdings

Employers are required to collect taxes based on the wages of both foreign and local workers and to ensure that employees’ tax declarations are submitted in a timely fashion. Organisations must withhold the required percentage of each staff member’s income on a monthly basis and deposit the amount with the State Treasury no later than the 20th day of the following month.

Annual finalisation

Employers must finalise PIT declarations on behalf of their employees at the end of each year - provided they are the sole employer and each staff member authorises them to make this tax finalisation on their behalf. Companies must submit an annual tax finalisation document on employees’ taxable income no later than 90 days after the last day of the tax year.

Each employee is required to obtain a unique individual tax number (or “tax code”) and declare any dependents that qualify for tax relief. They must also complete their own tax finalisation return forms if their tax liability at year-end is greater, or less, than the amount of tax they have paid during the year. Employees may authorise their employer to undertake the process on their behalf.

4. Social insurance

There are three types of mandatory social security contributions in Vietnam that foreign enterprises seeking to hire local staff must pay:

• Social insurance;
• Health insurance; and,
• Unemployment insurance.

Mandatory minimum contributions
Mandatory minimum contributions to social security funds are required from both employers and employees. All domestic and foreign companies operating in Vietnam are required to pay these social insurances on behalf of all staff members employed under labour contracts with a definite term of more than three months or with indefinite terms.

The total minimum employer social security contribution is 21.5%. These contributions are determined based on an employee’s monthly salary or wage. Employers register and pay insurance contributions monthly on behalf of their personnel at the provincial Department of Labour, Invalids and Social Affairs (DoLISA).

Social insurance contribution caps

While amounts payable will differ depending on an employee’s salary, it should be noted that a wage ceiling for calculating contributions is imposed at 20 times the CMW for social and health insurance – VND 26,000,000 (US$1,140) – and 20 times the regional minimum wage for unemployment insurance – VND 51,600,000 (US$2,269) to VND 75,000,000 (US$3,298) depending on the region.

With effect from 1 July 2018, the minimum salary cap for social and health insurance contributions will increase to VND 27,800,000 (US$1,220) per month. From 1 January 2018, the minimum regional salary cap for unemployment contributions will range from VND 55,200,000 (US$2,430) to VND 79,600,000 (US$3,500) per month.

Social and unemployment insurances are only compulsory for Vietnamese staff. Health insurance, on the other hand, applies to both Vietnamese and foreign workers employed in accordance with Vietnam’s Labour Code.

-- First published by Vietnam Briefing . Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters.

As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email usat info@dezshira.com. Further information about the firm can be found at: www.dezshira.com.

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