Every country has its own individual set of employment & labor laws. Vietnam is not different from any other country; it has its individual payroll and labor codes that can make the process of company expansion longer than it should be. It is very important for a business to have a payroll that is set up as per all the labor rules and in full compliance with the relevant laws and regulations in Vietnam. This guide will provide you with the must-know information on payroll and income tax regulations you will need when expanding your operations to this country.
Vietnam, situated at the eastern tip of the Indochina Peninsula, is a member of the WTO and the APEC group. It has witnessed tremendous growth in the industrial, manufacturing, and service sectors in the past decades. One of the most important sectors that have contributed to the rapidly growing Vietnamese economy is focused on manufacturing and Information Technology. Vietnam’s government has helped many companies and businesses with tax incentive schemes to aid the set-up processes. The country also has a highly educated and skilled population, making it a top place to expand and hire candidates. Below are some of the reasons for businesses to come and invest in Vietnam.
Economic growth: Vietnam is the world’s fastest-growing economy with many efforts from the government to help companies invest in Vietnam. These policies are attracting many companies from abroad to come and set up in Vietnam which is one of the major factors contributing to the economic growth.
Favorable labor force: Vietnam is very favorable to business as the literacy rate is very high and the maximum of the population is young making it an ideal place for hiring talent.
Supportive Government: Vietnam’s government constantly makes efforts and policies to make the country favorable in business investment.
Geographic location: Vietnam is located at the center of the global trade market having access to markets in Asia including Japan, China, and Malaysia along with the road and rail links connecting to commercial hubs across the continent.
Low costs: The Wage rates are low in Vietnam along with the cheap cost of manufacturing attracts international organizations to come and invest in the country
Changes to Labor Laws in Vietnam
Companies who are willing to expand and grow in Vietnam must follow and comply with the provisions of the Vietnamese Labor Code containing all the rights and obligations that should be followed by the employees and the employer such as the working hours, agreements for labor, overtime, social insurance and termination regulations of employment contracts.
In January 2021, an amended Labor code approved by the government came into effect which aligned as per the international labor standards. In general, most of the code remains the same except for some of the changes that were introduced to work rules, probationary employment, and notice period requirements suited to the employees.
Any company that is looking for expansion needs to have thorough knowledge about all the labor laws and the amendments that have been made to the labor code and all this can get really time-consuming and complicated. For more information on Vietnam’s employment and labor information, visit the Ministry of Labour, Invalids and Social Affairs (MOLISA) official website.
Managing Payroll in Vietnam
There are some withholding obligations that each employer needs to deduct from the employee’s salary before the payment. If payroll is concerned, then both the employees and the employers are required to contribute to social insurance, health insurance, and unemployment benefit funds which is a part of their mandatory social security contributions.
Vietnam’s payroll system uses a common monthly cycle in which employees’ work cannot exceed more than 8 hours a day, 48 hours a week. In cases of agreed overtime, the hours cannot be more than 12 hours a day and 40 hours a month. As of June 2022, the set minimum wage for employees under labor contracts ranges from VND15,600 to VND22,500 according to the 4 regions, amounting to an increase of 6%.
Payslips are to be distributed and should have all the details related to the deductions made and the tax payments. When managing the payroll, each employer is bound to consider all these deductions, contributions, bonuses, allowances, etc.
Personal Income Tax (PIT)
In Vietnam, local individuals are taxed on their total income worldwide. The category of taxpayers includes either Resident individuals who are taxed on the worldwide income or Non-Residents; who are taxed on the income source in Vietnam. The following is a table describing the individual income tax rates for Vietnam residents:
|Bracket||Annual Taxable Income (VND)||Rate (%)|
|1||0 to 60 million||5|
|2||60 to 120 million||10|
|3||120 to 216 million||15|
|4||216 to 384 million||20|
|5||384 to 624 million||25|
|6||624 to 960 million||30|
|7||Over 96o million||35|
Another tax contribution that must be taken into consideration is the VAT. The value-added tax (VAT) is applied to goods and services used for production, trading, and consumption in Vietnam (including those purchased from abroad). Certain exemptions are in place but the standard rate is 10%.
Social Security deductions in Vietnam
Other tax contributions include social, health, and unemployment insurance. Social insurance covers benefits such as sickness, maternity, and occupational injuries, of which the employer must contribute 17.5% and employees 8% of their income. For health insurance, employers must contribute 3% and 1.5% from the employees. In the case of unemployment, both employer and employee are to contribute 1% of their income.
Payroll management in Vietnam can seem more complicated than it is, especially when it comes to the Vietnamese regulations and labor laws an employer must follow. Therefore, the most appropriate option for a business looking for successful expansion in Vietnam is to have a payroll outsourcing service. This will streamline the whole process and they can focus more on the strategies to help their businesses grow and succeed and thus focus on profitability.
Vietnam offers annual paid leave of 12 to 16 days according to the length of service on top of national holidays. Paid sick leave is calculated by the doctor according to the gravity of the employee’s sickness and is paid from social insurance funds. Maternity leave allows four to six months of paid leave for female workers with full pay; if they wish to extend their leave, it is left at the discretion of their employer. For a look at Vietnam’s full Labor Code, please visit the International Labour Organization’s page.
Covid-19 Tax Relief
Due to the pandemic, Vietnam has implemented some tentative changes to its value-added tax to aid in returning back to pre-pandemic stability. This is to help both consumers and businesses, affecting all stages of production (importing, manufacturing, processing, and trading). This reduction to the VAT is from 10% to 8% until the end of 2022. On top of this, some payments will be receiving extensions this year. These extensions cover value-added tax (VAT), corporate income tax (CIT), personal income tax (PIT), and land and water surface leasing fees.
Reasons to Outsource Payroll in Vietnam
Full Compliance with Vietnamese Payroll Regulations: It can be difficult for any company that is new to the market in Vietnam to understand and work as per the local regulations on labor and payroll. It is also important to stay updated with the changing market trends as labor regulations tend to change from time to time because of the growth in the economy. Outsourcing will help you stay compliant with the labor regulations in Vietnam.
Shift Focus on Business generating activities: Payroll Outsourcing will help companies shift their focus and time on activities that will generate business and revenue since all the payroll burden will be taken off their shoulders giving them the flexibility to use time and resources wisely
Effective Payroll Management: Payroll outsourcing services will help provide any company with all that is required for effective payroll reports for efficient payroll management.
Establishing a payroll in Vietnam can be a very complicated and tough process as there are a lot of government-abiding regulations and procedures that must be followed by any organization. This can result in delays and require a lot of effort to be put into the system for a successful expansion. The best way to avoid all the hassle is outsourcing the payroll management to a service provider who can reduce your workload and efforts involved in computing the salary of the employees as per the Vietnamese labor code. NNRoad will help in setting up and running your Vietnam payroll outsourcing smoothly and in full compliance with the labor laws in Vietnam.