Many companies are investing in Vietnam to access the country’s young, talented and affordable local workforce. However, payroll in Vietnam is relatively complex for foreign entrepreneurs and companies, particularly when compared to locations like Hong Kong. Failure to comply with the rules is a headache to resolve and does carry penalties.
Foreign business owners and managers in Vietnam need to be aware of several key payroll considerations for their local staff, including the types of taxes and social security that are payable, and the related rates, thresholds and deductions. Read on for our simple guide.
Payroll – Wages and Bonuses
In Vietnam, wages are traditionally paid to local staff on a monthly basis in Vietnamese Dong (VND).Foreign companies need to be aware of conditions for minimum wages and overtime:
- The Vietnamese Government has set a minimum wage, ranging from $130 USD to $175 USD depending on the region that the company is based. However, the minimum wage is rarely a consideration for white collar professions as salaries are higher than this.
- Overtime is payable for hours worked above the agreed contracted amount. Overtime rates vary depending on the situation, ranging from 150% in common situations to 300% for hours worked on a public holiday.
Bonuses are traditionally paid annually (such as a Lunar New Year bonus). Payment of a Lunar New Year bonus is almost universal in the IT sector. There may also be performance bonuses or smaller bonuses (such as special occasions) paid throughout the year.
Payroll – Taxation and Other Costs
Personal income tax, social security and trade union fees also need to be considered in addition to wages and bonuses. This is really where the complexity begins. Both the employer and the employee are required to contribute at varying levels for different items: we’ve summarized the latest values in the table below. Further detailed notes are provided.
Personal Income Tax
Personal income tax is payable on salary, bonuses and some allowances / fringe benefits. An employee’s personal income tax obligations are calculated using an incremental system with 7 tiers, ranging from 5% to 35%. Personal income tax is deducted from an employee’s gross monthly salary. While personal income tax is deducted from the employee’s salary, it is paid by the employer on behalf of the employee. Also note that if employees have other sources of income, they are required to submit a finalization for their personal income tax at the end of the year.
Deductions to Personal Income Tax
There has been significant change recently to the permitted deductions from personal income tax. Allowances for meals, petrol, phone and childcare are still permitted, but allowances for housing, utilities, healthcare, entertainment and life insurance are all taxable. Deductions can also be made for any relevant dependents who have been registered.
Social security in Vietnam ensures employees have basic access to financial coverage for sickness and maternity leave, workplace accidents, retirement and death. In relation to social security contributions, there are caps that are very important. Caps (used to determine maximum contributions) have risen slightly in 2018. Unemployment insurance contributions are not required for any salary/bonus above 79,600,000 VND, and from July 2018, health and social insurance contributions are not required for any salary/bonus above 27,800,000 VND. This is a slight increase from the previous cap.
Employees are also entitled to a minimum of 12 days of paid leave and a minimum of 10 public holidays during the year. Social security also ensures that employees have access to paid maternity and paternity leave, in addition to 30 days of sick leave.
Many foreigners choose to use a payroll provider for their company. This allows them to focus on their core business rather than administration. For more information on payroll services, use our contact form below.