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Comprehending Payroll in Vietnam

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Payroll_vietnam

Vietnam is one of the biggest emerging global economies. Apart from being a member of the World Trade Organization (WTO) as well as the Asia-Pacific Economic Cooperation (APEC) group, Vietnam is also trading partners with economic powerhouses such as Japan, China, the United States of America and many other countries. Those who wish to establish businesses in Vietnam are aided by many incentives and tax rebates.

Some reasons to invest in this culturally and economically diverse country include:

Steadfast Economic Growth

A study by PwC points out that Vietnam will soon overpower many of the world’s biggest economies becoming the world's fastest-growing emerging economy by the year 2050.

Labor demographic 

With close to 60% of its population falling within the working-age bracket and a literacy rate that is as high as 90% Vietnam's demographic makeup is extremely suitable for business.

Business atmosphere

By reforming its legal framework to encourage competition and fairness, the country's legal and political framework are built on a bedrock of stability and consistency.

 Strategic location

Road connectivity and rail-road links to its commercial hubs are well-established. And the shipping lanes that run from Vietnam into the South China Sea comprise close to 40% of the total global trade.

Low costs

Cheap manufacturing costs along with low minimum wage rates drive phenomenal investment into the country from across the globe. Some of the world's biggest organizations such as Samsung, Nestle, and LG have a well-established presence in Vietnam.

As global firms enter the field they need to be careful about the payroll process. Some of the crucial aspects are:

Minimum Wages: There are two types of minimum wages in the country. While the Common Minimum Wage applies to employees working in state-owned and operated organizations, the Regional Minimum Wage applies to those who are employed with private enterprises.

Common Minimum Wage

From 1 July 2019, the common minimum wages applicable are VND 1.490.000 (approx. USD 64.66) per month.

Regional Minimum Wage 

The current Regional Minimum Wages applicable for all the four regions effective 1 January 2019 ranges between VND 4.180.000 and VND 2.920.000 (approx. USD 125/month and USD 180/month). While Region 1 covers developed urban areas including Hanoi and Ho Chi Minh City, Region 4 covers most of the rural regions within Vietnam.

Overtime: The workweek in Vietnam is limited to 8 hours a day and 48 hours a week. Any hours of work beyond this must be compensated with overtime pay. Overtime compensation depends on which day (whether on a weekend or vacation day) the employee has worked extra hours. Accordingly, the payout shall be made. It further increases when done during the night or while doing the night shift.

Overtime has a significant impact on income tax and social insurance deductions. Organizations with an understanding of when and at what rate overtime is applied will be able to ensure that calculations of individual income tax and social insurance contributions are done correctly.

 

Individual Income Tax Withholdings:

Personal Income Tax (PIT)

Employers are required to deduct income taxes from employees. Employers must deduct the required percentage of their employees' personal income and deposit the monthly amount with the Treasury by the 20th day of the following month.

PIT Annual Finalisation

Employers must also finalize the PIT returns on behalf of their employees at the end of the year, provided that the employee acquires his/her income from only one employer and also authorize their employer to finalize their PIT.

Mandatory Minimum Social Insurance Contributions: All domestic and foreign enterprises operating in Vietnam are required to pay social insurance to all employees under fixed-term contracts of more than three months or permanent employment contracts. The employer's minimum total contribution for social security for local employees is 21.5%. Employers are required to register and pay monthly insurance contributions on behalf of their employees to the Vietnamese Provincial Department of Labor, Invalids and Social Affairs (DOLISA).

Social Insurance Contribution Caps 

With effect from July 1, 2019, the minimum salary cap for social Insurance (SI)/Health Insurance (HI) contributions was increased to VND29.800.000 per month (or 1,220 USD per month approx.). The minimum regional salary cap for unemployment insurance (UI) contributions ranges from VND 58.400.000 to VND 83,600,000 per month depending on each region.

Expatriate employees

Before 1 December 2018, SI and UI were only mandatory for Local employees. Whereas, Health insurance was applicable to both Local and expatriate employees who are employed in accordance with the Vietnamese Labor Code.

 

A few recent changes announced related to tax and social security are:

  • Employee Insurance
    Effective December 1, 2018, expatriate employees are also eligible to participate in Social Insurance. Under SI, the employers are required to contribute at a rate of 3% but no contribution from the employee is required.

    Further, January 1, 2022, onwards, expatriate employees will be eligible for Social Insurance contribution at par with Vietnamese employees, but such benefit would only be applicable to the expatriate employees who are hired in Vietnam with a work permit.
  • Employment taxes
    The Personal Income Tax payable depends on the residency of the employees. If they qualify as Resident, the tax liability ranges between 5% and 35%, whereas non-residents are taxed at a flat rate of 20% on Vietnamese sourced incomes.

The country is lucrative for those wishing to set up their business practice here. But with that comes the crucial task of untangling the payroll complications. Not only should the payroll structure comply with a country, but it should also be updated from time to time accordingly. For an old payroll system can cause a huge revenue leakage, not to forget also invite legal hassles. Ramco HR with Global Payroll provides an Artificial Intelligence / Machine Learning layer to the automation process making the whole payroll process smooth. With relevant statutory compliances, the payroll process will be error-free.

 

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About Author

Manju Shetija

Manju Shetija heads Payroll Bureau in Ramco and takes care of the Statutory Compliance in the product. She comes with a decade of experience in tax & social security advisory, compliance assignments in PwC

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