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Vietnam Guide: All About Subsidiary, Employment And Benefits

Skuad Desk

Oct 14, 2020

Introduction

While India and China rule the roost in Asia when it comes to producing exceptional tech talent for the world, Vietnam is slowly but steadily emerging as an outstanding source of technology professionals. With geographical stability, progressing economy, and low costs of high-quality labor, Vietnam will soon become one of the best offshoring countries for tech hubs. It represents the growth potential of the Asia Pacific. By 2050, Vietnam will be among the top 10 fastest-growing economies.

Many companies, including Microsoft, are organizing training programs for the Vietnamese youth, and EORs like Skuad are creating opportunities for them while also helping companies to set up their distributed team and expand their business without any hassle.

Read on to know more about the Vietnam labor laws, office setup, benefits, offshoring opportunities, and challenges in hiring employees in Vietnam.

Overview

Economic Powerhouse

Ho Chi Minh City

Local Currency

Vietnamese Dong (₫) 1 VND = 0.000043 USD

GDP

7.1% growth rate (2018)

Time Zone

Locally, Vietnam follows ICT (Indo China Time). This means Vietnam is in the GMT +7:00 time zone. Further, ICT is not adjusted for daylight savings; therefore, it remains the same throughout the year.

Spoken Language

Vietnamese, English. Besides these, Chinese, French & Khmer are popular highlander languages.

Employment Type

An employment type may be Full time (indefinite term), Contract (fixed term) & Freelance.

Freelancing services are not considered as an employment relationship to which the Labor Code applies. Hence freelancers are not entitled to any statutory benefits as provided to other employees.

Technology Talent

In recent years, Vietnam has become one of the most popular IT outsourcing destinations. According to the Global Skills Index 2020 report, Vietnam's technology skills rank second in the region and 22nd globally.

Vietnam software developers primarily use Javascript and Java as their preferred programming languages. Many companies are now looking at outsourcing talent from Vietnam as an effective way to scale their development team capacity quickly. This also brings down their hiring costs. Hindustan Computers Limited (HCL), one of India’s three most prominent IT companies, has built its center in Ho Chi Minh City.

The Vietnam government is planning to collaborate with businesses to set up training programs for new technologies and make Vietnam a reservoir of tech talent.

If you want to build a distributed global team with Vietnamese tech talent, connect with Skuad.

Employment Laws in Vietnam

Entitlements

Minimum Wage

The minimum median hourly wage for a full-time & contract technology professional in Vietnam is VND 230,000-270,000 ($10-12) and for a freelancer is VND 460,000-570,000($20-25). These hourly rates can fluctuate depending on the years of experience and technology profile of the employee.

NOTE: Any Vietnamese employee cannot be paid a salary lesser than a minimum level defined by the government. Different minimum levels exist for various roles. Workplace location also plays a crucial role in determining the payouts.

Working Hours

In general, Vietnam has maximum working hours of 48 hours per week for a full-time employee. Employers cannot waive off this maximum limit. No such clause applies to freelancers.

Overtime

In Vietnam, the overtime limit is 30 hours per month and 200 hours per year. Generally, overtime payments are 150% of actual wages on regular days, 200% on weekly offs, and at least 300% on public holidays.

Leaves

Annual Leaves

Employers must provide 12 days of public holiday each year to full-time employees, provided they have worked with the organization for at least a year. Besides these, employees receive one additional vacation day for every five years they work for the employer. In the case of contract employees, leaves are usually prorated.

Employees can carry forward their untaken leaves to the next year (no later than March 31st). They can also receive payment for untaken leave.

Sick Leaves

Employees who suffer from illness or disability can avail of sick leaves. Contracts need to state the maximum number of sick leaves allowed clearly. An employee must submit a medical certificate to avail of sick leaves.

Duration of leave (per year)

Contributions to the Social Insurance Fund (in years)

30 days

less than 15

40 days

15-30

60 days

more than 30

Employees can also use sick leaves to take care of their unwell children. The maximum entitlement is 20 days per year if the child is under three years of age. It is 15 days per year for children between 3 to 7 years of age.

Maternity Leave

Employers have to provide paid maternity leave for six months to all their full-time female employees—the tenure of leave increases by one month for each additional child. From July 2019, the maximum salary during maternity leave is capped at VND 29,800,000 ($1300).

NOTE: Organisations cannot terminate employees on maternity leave or with a child below one year of age unless it ceases operations.

Adoption & Surrogacy Rights

Surrogate mothers receive two months of maternity leave till she transfers the baby to the mother under the surrogacy arrangement. Even if she moves the baby in less than two months, her balance leaves prevail.

Female employees that are in an adoption or surrogacy arrangement receive six months of maternity leave. The leave prevails until the child turns six months old.

Paternity Leave

Every full-time or contractual Vietnamese employee whose wife gives birth receives paid paternity leave that may vary between 5 to 14 days. Duration depends on delivery (naturally or by C-section) and whether it is single or multiple births.

Type of birth

Number of child/children

Leaves

Natural

1

5

2

10

More than 3

10 + additional 3 days for every child

C-Section

1

7

2

14

More than 3

10 + additional 3 days for every child

IMPORTANT: The paid sick leave, maternity & paternity leave clause applies only to Vietnamese employees who are currently paying a social insurance premium. The net allowance is dependent on an employee's salary, which is used to calculate the premium. Expatriates in Vietnam are legally required to pay into the social insurance fund. Their leave entitlements, however, depend on their employment contract.

Compassionate Leave

Some employers offer additional 2-3 days of paid compassionate leave to full-time and contractual employees. Affairs include weddings (self and children), death of a parent, parent-in-law, spouse, or child.

Probation

For technology professionals, organizations usually have a 30 to 60 days notice period. The duration of the same is mentioned in their employment agreement or offer letter. The employer has no obligation to pay for social security contributions during this period. An employer needs to spend at least 85% of the ordinary salary during the probationary period. Both parties can terminate the contract in this period without the need to pay compensation or serving notice.

Payroll and Income Taxes in Vietnam

Frequency

Full-time workers and freelancers are paid at least once a month. Payments are generally made in the first week of the following month. For freelancers, prices are either processed on a half-and-half basis or post-completion of the project.

Payslips

Employers have to provide monthly payslips to their employees for all payments and deductions. They must keep payroll reports for a minimum of 7 years. For freelancers, they generate invoices monthly for any payment.

Income Tax

The residency status of an employee determines taxation in Vietnam. Resident employees pay taxes on their worldwide income while non-residents pay taxes only on Vietnamese-sourced income.

The net taxable income after standard deduction is subject to a progressive tax rate of 0 to 35% for residents. The standard deductions include Social, health, and unemployment insurance contributions, personal allowances, etc.

Non-residents are subject to a flat 20% tax on their income. Individuals have to obtain a tax code and submit a tax registration file to the employer, who subsequently offers it to the IT office.

Yearly Income (VND)

Tax Rate (%)

Upto 60,000,000

5

60,000,000 to 120,000,000

10

120,000,000 to 216,000,000

15

216,000,000 to 384,000,000

20

384,000,000 to 624,000,000

25

624,000,000 to 960,000,000

30

Over 960,000,000

35

NOTE: Tax year in Vietnam runs from 1st January to 31st December.

Income Tax Return (ITR)

In Vietnam, an employer can file ITR provided the employee has authorized their employer to make this tax finalization on their behalf. Employers deduct the required percentage from their net taxable salary as taxes. The amount is submitted with the State Treasury no later than the 20th day of the following month if paid quarterly.

Additionally, employees must complete their tax returns where their tax liability at year-end is greater, or less, than the sum of tax paid during the year. Freelancers have to file their tax returns.

NOTE: Tax defaulters have to pay an extra charge of 0.05% for late payment and 10% on underreported amounts.

E-invoices

The Government of Vietnam has made it mandatory for all enterprises to shift to e-invoices. This shift aims to ensure transparency, minimize billing frauds and administrative burdens. E-invoices can be with or without verification codes. E-invoices with verification codes are compulsory for freelancers and certain businesses. Businesses that are not eligible for tax declarations can issue e-invoices without verification codes.

Retirement Age

Starting 2021, the retirement ages for full-time male employees will be 60 years and three months. And 55 years and four months for female employees. Retirement ages will increase annually by three months for men until reaching 62 years in 2028. It will increase by four months for women until reaching 60 years in 2035.

Bouquet of Benefits

Healthcare and Social Security

Employers need to provide compulsory social, health, and unemployment insurance. Companies with more than ten employees should make a mandatory contribution to unemployment insurance. Foreign nationals with local employment contracts have mandatory contributions only towards health insurance. Generally, employers withhold employees’ contributions from their salary and directly transfer them to insurance companies and their contributions.

Type of Insurance

Employee

Foreign Employee

Employer

Social Insurance

8%

8%

17.5%

Health Insurance

1.5%

1.5%

3%

Unemployment Insurance

1%

-

1%

Union Fee (Paid to trade union funds every month)

-

-

2%

Total

10%

9.5%

23.5%

Bonus

In Vietnam, it is common to offer a 13th-month salary as a bonus. Some employees even provide additional health insurance, team outings, and trips which are sometimes considered a bonus.

Termination

Termination of employment is possible on grounds like contract expiry, retirement or death of an employee, layoffs, bilateral or unilateral termination, and loss of ability to act in a civil capacity. Irrespective of the source of termination, the following are the set of responsibilities for both parties:

Employee:

  • Serve 45 days notice period or three days if they have been on a prolonged sick leave.

Employer:

  • Provision of the termination letter, duly signed.
  • Severance pay, in case the employee has worked for more than a year. The amount depends on factors like tenure, salary, time for which the employee received coverage under social insurance. Payment for the same gets transferred within seven days of the termination.

What next?

Establishing a branch office or subsidiary in Vietnam is a good option. But it is time-consuming and complex. The strong Vietnamese labor laws would require you to reach out to professionals to help you establish your office. Therefore, the best option would be to let an Employment of Records (EOR) team do the running around for you and help you build a distributed global team!

With Suad, you can tap into the world-class Vietnamese tech talent and grow your work. Not only that, but Skuad will also take care of permits, payrolls, and everything to help take the pain off your shoulders.

For more details, contact Skuad Experts!

What next?

Establishing a branch office or subsidiary in Vietnam is a good option. But it is time-consuming and complex. The strong Vietnamese labor laws would require you to reach out to professionals to help you establish your office. Therefore, the best option would be to let an Employment of Records (EOR) team do the running around for you and help you build a distributed global team!

With Suad, you can tap into the world-class Vietnamese tech talent and grow your work. Not only that, but Skuad will also take care of permits, payrolls, and everything to help take the pain off your shoulders.

For more details, contact Skuad Experts!

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