Vietnam Guide: All About Subsidiary, Employment And Benefits

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.

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.

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.

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.

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 it takes to set up an office in Vietnam

Types of businesses in Vietnam:

• Limited Liability Company (LLC)

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

• Joint Stock Company

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

• Partnerships

Partnerships involve two 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 standard but cannot conduct commercial activities. They can either act as liaison offices, promote business activities, or perform market research.

Co-working Costs

Co-working spaces bring a comfortable working and socializing 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 an actual street address and local phone number.

Value Added Tax

VAT applies to goods and services used for production, trading, and consumption 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 following quarter.

Corporate Income Tax (CIT)

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

Organizations 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:

To apply for an employment visa, foreign nationals need to submit application forms, enterprise registration certificates, and a copy of the passport. Employees receive approval to collect the visa within five working days. To stay for a more extended 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. 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 Skuad, 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!