A foreign company incorporated and located outside of Vietnam can hire a Vietnamese employee to work abroad.
It need not go through a Vietnamese company that has been granted a labor export license. It can directly enter into an employment contract with a Vietnamese.
This article provides notes under the new Law No.69/2020/QH14 on sending Vietnamese workers to work abroad (“Law 2020”) and Decree No.112/2021/ND-CP which explains how to register either a new or an extended employment contract while the Vietnamese employee is abroad (“Decree 112”). Both the Law 2020 and the Decree 112 took effect on January 1, 2022.
1. Direct Employment Contract
Under Law 2020, the foreign company need have no presence in Vietnam nor must it obtain any license to hire a Vietnamese resident to work abroad. However, the foreign company and the Vietnamese employee must sign a direct employment contract (“Direct Employment Contract”).
The Direct Employment Contract has to comply with the laws of Vietnam (eg, Law 2020) and the law of the country where the Vietnamese will work (“Host Country”). This does not mean that the employer and the employee are governed by the Vietnamese Labor Code. Indeed, the Labor Code does not apply to this arrangement, unless the parties choose the Vietnamese Labor Code to be the governing law of the Direct Employment Contract. The contract has compulsory legal content–job description, place of work, salary, work time and break time, overtime and overtime payment, social contribution and health care, rights and obligations of the foreign employer if the Vietnamese dies overseas. Additional terms and conditions can be added (eg, labor discipline, confidentiality, noncompete and non-solicitation, rights and obligations of parties while the employee is waiting for a visa or until the employee arrives in the Host Country).
The governing law of the Direct Employment Contract may be agreed by the parties and specified in the governing law clause. It can be the law of Vietnam (where the Vietnamese resides), the law of the place where the Vietnamese will work (law of work location) or other law. All the terms and conditions under the Direct Employment Contract must comply with the governing law chosen by the parties.
The Direct Employment Contract can be prepared in a foreign language. If so, it must be translated to Vietnamese and the translation certified. The Direct Employment Contract must be registered with the relevant local authorities–Department of Labor, War Invalids and Social Affairs (“DOLISA”) where the Vietnamese employee permanently resides before she leaves Vietnam. Depending on where the Vietnamese person permanently resides, the procedures to register the Direct Employment Contract may differ. Some DOLISAs do not allow the employee to authorize another person to file her registration.
If the Direct Employment Contract is renewed while the Vietnamese employee is overseas, the employee is obliged to register the extended Direct Employment Contract with the Ministry of Labor, War Invalids and Social Affairs (“MOLISA”). This can be done online.
2. Social insurance contributions
The foreign employer is not responsible to contribute to the State Social Insurance Fund in Vietnam (“SSIF”). However, the Vietnamese employee, even though she works overseas, is still obliged to participate in the SSIF.
The Vietnamese worker can make the social insurance contribution before she leaves Vietnam or after she returns to Vietnam. The foreign employer has no obligation to withhold and pay social insurance into the SSIF.
The rate of payment is 22% of the employee’s latest monthly salary that was the basis for her contribution to the compulsory social insurance before she began to work overseas. Just to clarify, Vietnam has specified a basic salary level on which social insurance must be assessed. This is often well below the actual salary. If the employee did not participate in compulsory social insurance before she left to work overseas, the 22% is applied to two times the basic statutory salary announced by the Vietnamese Government from time to time.
3. Personal income tax
The foreign employer has no obligation to withhold personal income tax (“PIT”) arising from the salary payment paid to a Vietnamese employee nor, of course, to pay any PIT to Vietnam.
Under Vietnamese law, a person’s PIT obligation is residency-based. In case a Vietnamese employee works overseas, she will be considered a tax resident of Vietnam only if she resides in Vietnam for an aggregate of 183 days or more within a calendar year or within a consecutive 12-month period from the date of first arrival in Vietnam from abroad. Entry stamps in her passport and proof of registration of the Direct Employment Contract issued by the DOLISA are the basis for determining residency for PIT purposes. A tax resident is taxed on her worldwide income at partially progressive rates. Accordingly, salary earned from working abroad is taxable in Vietnam.
If the Vietnamese employee does not meet the above-mentioned conditions for tax residency, she is treated as a non-resident for PIT purposes. A non-resident has to pay tax on her Vietnam-sourced income only. Salary earned from working abroad is not taxed in Vietnam. That means, if a Vietnamese employee left Vietnam for 183 or more days within a calendar year, her salary earned from working abroad is not subject to PIT. However, if the Vietnamese also has, say, an unrelated consultancy agreement which pays from Vietnam, while she’s abroad, she must pay PIT on it. There is a formula to compute her income generated in Vietnam if she simultaneously works in Vietnam and abroad (it is based on the number of days she stays in Vietnam and on her worldwide income).
Vietnam has double taxation agreement (“DTAs”) with a number of countries. In this regard, if the Vietnamese employee has already paid tax in the Host Country which has a DTA with Vietnam, under most of the DTA’s—she does not have to pay tax in Vietnam, and vice versa. However, this is not an automatic process. If the employee chooses to be taxed abroad, an application including a tax payment certificate from the other country must be lodged with the Vietnamese tax authorities in order to be exempt or to pay a reduced tax.
By Dao Thi Ai, Russin & Vecchi (Vietnam)