vietnam-guide-subsidiary-employment-and-benefits

Vietnam Guide: All About Subsidiary, Employment And Benefits

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 exceptional source of technology professionals. With geographical stability, progressing economy, and low costs of high quality labour, Vietnam will soon become one of the best offshoring countries for tech hubs. It represents the growth potential of Asia Pacific. By 2050, Vietnam will be among the top 10 fastest growing economies.

Many companies including Microsoft are organising 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 labour laws, office setup, benefits, offshoring opportunities, and challenges in hiring employees in Vietnam.

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

Full time (indefinite term), Contract (fixed term) & Freelance. 

Freelancing services are not considered as an employment relationship to which the Labour 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 quickly scale their development team capacity. This also brings down their hiring costs. Hindustan Computers Limited (HCL), one of India’s 3 largest IT companies has built its center in Ho Chi Minh City

The Vietnam government is planning to collaborate with businesses to set up training programmes 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.

most-demanded-tech-roles-in-Vietnam
Vietnam IT landscape 2020

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 different roles. Workplace location also plays a crucial role in defining 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 is applicable 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 normal 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 organisation for at least a year. Besides these, employees receive 1 additional vacation day for every 5 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 in lieu of untaken leave.

Sick Leaves

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

sick-leaves-in-Vietnam

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 3 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 1 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 1 year of age unless it ceases operations.

Adoption & Surrogacy Rights

Surrogate mothers receive 2 months of maternity leave till she transfers the baby to the mother under the surrogacy arrangement. Even if she transfers the baby in less than 2 months, her balance leaves prevail.

Female employees that are in an adoption or surrogacy arrangement receive 6 months of maternity leave. The leave prevails until the child turns 6 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 birth (naturally or by C-section) and whether it is a single or multiple births

paternity-leaves-in-vietnam

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 wedding (self and children), death of a parent, parent-in-law, spouse, or child.

Probation

For technology professionals, organisations usually have 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 pay at least 85% of the ordinary salary during the probationary period. Both parties can terminate the contract in this period without the need of paying compensation or serving notice.

Payroll and Income Taxes in Vietnam

Frequency

Payroll for full-time and contract employees is run at least once in a month. Payments are generally made in the first week of the following month. For freelancers, payments 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.

For residents, the net taxable income after standard deduction is subject to a progressive tax rate of 0 to 35%. 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 submits it to the IT office.

income-tax-rates-in-vietnam

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 authorised their employer to make this tax finalisation 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, minimise 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 10 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 contributions of employees from their salary and directly transfer to insurance companies along with their contributions.

percentages-of-an-employee’s-salary-taken-as-a-contribution-to health-and-social-insurance
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 3 days in case 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 7 days of the termination.

What it takes to set up an office in Vietnam

Types of businesses in Vietnam

Limited Liability Company (LLC)

LLC establishes itself with contributions (charter capital) from its owners. Members are liable to the extent of their financial contributions. The corporate body includes a member council, director general, and inspection committee. LLC allows for a maximum of 50 members and does not issue shares. They also require a license to operate in a particular area of activity. 

Joint Stock Company

This is the only type of company formation in Vietnam that can issue shares. It is a limited liability entity that needs at least 3 shareholders. It can either be 100% foreign owned or a joint venture between a foreign and a Vietnamese company. 

Partnerships

Partnerships involve 2 or more individuals who are joint owners of an entity and carry out business under one common name. It is a rare form of investment created with pooling of resources and involves unlimited liability. Partnerships allow for the opening up of branch or representative offices if they are properly registered. 

Branch Office

Branch offices in Vietnam are not independent of parent entities and can undertake commercial activities. They are uncommon and allowed only in a few sectors like banking and foreign law firms.

Representative Office

Foreign based companies can open up representative offices in Vietnam. Such offices are common but cannot conduct commercial activities. They can either act as liaison offices, promote business activities, or conduct market research. 

Co-working Costs

Co-working spaces bring a relaxed working and socialising atmosphere and hence are becoming increasingly popular. Hanoi, Ho Chi Minh City, and Da Nang are hotspots for co-working spaces. A hot desk for each person costs around VND 2100000 ($90) per month, whereas a dedicated desk costs around VND 2800000 ($120) per month. Private office spaces with a capacity of 3-10 people can cost around VND 12000000 ($520) per month. Virtual offices in Vietnam start from VND 160000 ($7) per month and include a real street address and local phone number.

Value Added Tax

VAT applies to goods and services used for production, trading, and consumption in Vietnam.

VAT-in-Vietnam

Certain goods and services provided by businesses with annual turnover less than or equal to VND100 Mn ($4400) are exempt from VAT.

Businesses must file VAT returns monthly by the 20th day of the subsequent month or quarterly by the 30th day of the subsequent quarter.

Corporate Income Tax (CIT)

The standard corporate income tax rate is 20%. Upon meeting certain criteria companies can have preferential rates of 10%, 15%, and 17%.

corporate-income-tax-in-Vietnam

Organisations established under Vietnam laws are subject to a 20% tax rate on worldwide income. There are no tax incentives for foreign income.

Foreign Contractor Tax (FCT)

Foreign contractors are entities that tap into business opportunities in Vietnam without setting up an office. Payments to foreign contractors are subject to the Foreign Contractor Tax. It is a combination of VAT and CIT or Personal Income Tax of foreign individuals. FCT applies to interest, royalties, service fees, goods, and services supplied or rendered in Vietnam. 

Employment Visas for Vietnam

Overseas Vietnamese embassy/consulate issue the following forms of visas (apart from tourist visa) to foreign nationals:

employment-visas-for-vietnam

To apply for an employment visa, foreign nationals need to submit application forms, enterprise registration certificate, and a copy of the passport. Employees receive approval to collect the visa within 5 working days. To stay for a longer period, foreigners must have a Temporary Residence Card (TRC). 

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

For more details, contact Skuad Experts!

Disclaimer: The information provided in this blog is neither exhaustive nor absolute. This article does not substitute legal obligations and procedures. To start a business in any country, you would need to seek professional advice. For more details on each section, connect with Skuad experts.

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