The advantageous geographical location of Vietnam and the cost of operating businesses are just two reasons that contribute to the steady growth in foreign direct investment in this southeast-Asian country.
Wherever the business is, it is of fundamental importance for employers and business owners to understand the tax obligations and taxation system where the business is. To help employers and HR leaders grasp the basics of taxation in Vietnam, Links International has put together some essentials of what you need to know about Vietnam. Tax rates and various tax obligations an employer in Vietnam should be aware of, such as withholding taxes from their employees’ income and paying foreign contractor tax.
Please note that this page serves as a general guide only, for more details on Vietnam’s taxation system, please visit official government websites:
General Department of Taxation
Tax Obligations as an Employer in Vietnam
Withholding Tax From Employees’ Income
Employers in Vietnam are required to withhold the payable amount from the employee’s salary, then file and remit the withheld amount to the tax authority by the 20th day of the following month in respect of employment income.
Social Security Taxes in Vietnam
In Vietnam, there are statutory social security schemes – Social Insurance, Health Insurance and Unemployment Insurance – employers should be aware of. Both the employer and the employee are required to make monthly contributions to these schemes.
Social insurance contribution for foreign workers is currently at 3.5% of the monthly salary, contributed only by the employer. However, foreign workers will be subject to a mandatory social insurance contribution from 1 January 2022 onwards if they work in Vietnam with a work permit and a definite or indefinite labour contract with a Vietnamese employer that is valid for a year or more. The employer and employee contribution rate will be the same as the current contribution rate for local employees.
Health insurance contribution for foreign employees is the same as local employees, while unemployment insurance is only applicable to local employees.
Vietnam’s Foreign Contractor Tax
The Foreign Contractor Tax (FCT) in Vietnam applies to payments made by a Vietnamese contracting party to foreign entities, without a legal entity in Vietnam, providing services or carrying out projects in Vietnam. The foreign contractor tax consists of the value-added tax (VAT) and corporate income tax (CIT). Rates vary depending on the industry, ranging from 1% to 10%.
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Vietnam Corporate Income Tax
The standard corporate income tax rate in Vietnam is 20% of a company’s taxable income. Businesses in the oil, gas and natural resources sector are subject to a heavier tax rate, ranging from 32% to 50% on their taxable income.
Business License Tax
Businesses are required to pay the business license tax on an annual basis. The amount payable depends on the company’s registered capital. The license tax should be settled at the end of the first month of operations for the new businesses and businesses already in operations are to settle the payment as at 31 January of each calendar year.
Vietnam’s Double Taxation Treaty
It is important for businesses involving international trade to be aware of Vietnam’s Agreements for Avoidance of Double Taxation and how they are applied, in order to avoid having to face repetitive taxes on their income. These treaties allow the elimination of double taxation through exemptions or reductions in the amount of taxes payable in Vietnam. Currently, Vietnam has over 70 effective double taxation treaties signed with different countries.
Employees’ Income Tax in Vietnam
As an employer, it is important, and a responsibility, to understand and facilitate your employee’s tax obligations in addition to your own. Individuals in Vietnam are taxed according to their residency status.
Resident taxpayers are taxed on their worldwide income at the progressive rate from 5% to 35%. An individual is considered a resident for tax purposes if:
- they stay in Vietnam for an aggregate of 183 days or more in 12 consecutive months from the day they arrive in the country or within a calendar year; or
- have a regular residential location in Vietnam
Individuals who stay in Vietnam for more than 90 days but less than 183 days in a calendar year or in a period of 12 consecutive months are considered as tax non-resident in Vietnam for personal income tax purposes. Non-resident employees are taxed at a flat rate of 20% on their Vietnam-sourced employment income.
Links International is an award-winning HR service provider offering 100% in-country HR solutions across Asia. At Links, we understand your business’ HR needs, therefore, we offer professional HR services including payroll outsourcing, secondment, employer branding, flexible recruitment solutions so you can focus on value-adding activities to grow your business. Hear from our clients to find out how we can help.