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What global businesses need to know about payroll in Vietnam
It was only half a century ago that the Vietnam War came to an end and Vietnam asserted itself as a socialist planned economy. It’s a world away from the more open and vibrant nation of more than 100 million people that it’s come to be today.
Vietnam’s modern economy provides an interesting mix of socialist-based state control and capitalist free enterprise. Some sectors are still highly restricted to private investors (particularly foreign ones), but in other industries, the country is certainly much more welcoming to foreign organizations than it was in the past. The fact that over 40% of its exports go to either the United States or the European Union underlines its more welcoming approach to global trade.
One-third of the Vietnamese economy by GDP is industrial, with many organizations taking advantage of low wages and operating costs, including in electronics, clothing, automotive and machinery. But it is worth remembering that Vietnam is a developing country in many ways, where corruption, censorship and human rights remain pressing issues, so any expansion into the country should be handled with care. This guide covers the key facts from payroll and employment perspectives.
Getting Started
There are some limits around the areas of business in which foreign enterprises can operate in Vietnam. Some come with particular conditions around foreign ownership, while others are barred from foreign involvement altogether. You should check Vietnam’s Law on Investment before you start your set-up process.
You’ll need to start by gaining an Investment Registration Certificate from the Department of Planning and Investment, which should take no more than 15 days, then an Enterprise Registration Certificate from the same body. There is no fixed minimum share capital in Vietnam (except for a select number of specific industries), but it’s recommended to have at least US $10,000 as a base.
Then you can apply to the Department of Tax for your tax code number, and then apply for an in-country bank account. After this, you should register for all the relevant labor and social security authorities and payments.
Employment Considerations
Contracts are required in Vietnam, and are defined as a written agreement regarding the rights, responsibilities, and working conditions between both parties. They need to be signed by an authorized person within the company to be valid. Contracts may or may not specify the length of the agreement, and may or may not also include a collective labor agreement.
The standard working week in Vietnam is 48 hours: eight hours a day, six days a week. Overtime is limited to four hours a day, 60 a month and 200 a year. Overtime should be paid at 150% of normal salary, rising to 200% at weekends and 300% on public holidays. Companies in some industries can apply for local authority permission to extend overtime limits to 300 hours per year.
Notice periods are 45 days, but shorter periods apply for fixed-term contracts of up to three years in duration. Probation periods normally run between six and 60 days depending on the job role, but can run for up to six months for managerial staff. Employees must be paid at least 85% of their full salary during their probationary period.
Compensation, Bonuses & Severance
Vietnam’s minimum wage rates have risen sharply over the last decade or so. Different rates apply to different regions, with higher rates in urban Hanoi and Ho Chi Minh City than in smaller towns or rural areas. The next hike will take effect in July 2024, with the lowest rate at VND 3,445,000 per month (approx. £110; $140; €130) and the highest at VND 4,960,800 per month (approx. £160; $200; €185).
The payment of a 13th-month bonus is mandatory in Vietnam, as it is in many other countries in the region. It can be paid either at the end of the normal calendar year or in time for Tet – the Vietnamese new year in January/February. Severance pay is half a month’s salary per year of employment, as long as an employer has at least one year’s service.
Tax and Social Security
Income tax in Vietnam is levied on a progressive scale. The first VND 60 million (approx. £1900; $2400; €2200) earned per year is taxed at 5%, with a rate of 10% kicking in after this. With higher earnings, rates of 15%, 20%, 25% and 30% are applied before the highest rate of 35% is applied to earnings over VND 960 million per year (approx. £30,500; $38,800; €35,700). Non-residents are taxed at a flat rate of 20%.
Corporation tax is 20%, rising to between 25% and 50% for certain oil and gas businesses. The standard VAT rate is 10%, although at the time of writing, there is a temporary reduction to 8% in place for the first six months of 2024.
There are three main types of social security contribution in Vietnam:
- Social insurance: 17.5% employer, 8% employee
- Health insurance: 3% employer, 1.5% employee
- Unemployment insurance: 1% employer, 1% employee
Holidays and Leave
Employees in Vietnam get 12 working days of paid leave per year and receive one further day per year for every five years of service with the same employer. Vietnam has 12 public holidays per year, seven of which comprise the week-long Tet festival, which normally falls in January or February.
Maternity leave is six months, and a maximum of two months of this can be taken before the birth. Paternity leave entitlement is five days. Both of these are paid at full salary by social security. Parental leave is 20 working days per year for the first three years of the child’s life, and 15 working days per year for the following four, and is paid by social security at 75% of normal salary.
Sick pay is covered by social security at 75% of normal salary, although the maximum scope of payments varies according to how many years employees have paid into the Social Insurance Fund. It starts at 30 days per year, rising to 40 days after 15 years of payments, and 60 days after 30 years of payments. Employees requiring long-term care (on a specific list compiled by the Ministry of Health) get 180 days at 75% salary, plus a further 180 days at 45-65% of their salary if required.
Employees also get three days’ paid leave for a family bereavement, three days if getting married, and one day if their child is getting married.
It should be noted that non-resident workers are not subject to these regulations around maternity, parental and sick leave: these are entirely up for negotiation with employers.
In Summary
Foreign businesses and workers are often given different treatment in the Vietnamese market to local workers and companies. This adds an extra layer of complication from a payroll and compliance perspective and makes it very easy to fall foul of the law if you employ both Vietnamese and foreign workers. To keep on top of all things payroll, we would strongly recommend teaming up with a global payroll partner.
This article is for informational purposes only and is not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.