Work Permit & Employment Updates for Foreigners in Vietnam: Practical Issues, Taxes & Problems

Transcription

1 Work Permit & Employment Updates for Foreigners in Vietnam: Practical Issues, Taxes & Problems Matthew Lourey Managing Partner, Domicile Corporate Services Auscham, HCMC, 28 June 2018

2 Topics for Today: 1. Work Permits: Practical Matters for Work Permit Applications 2. Taxation: Employment and Taxation for Foreigners 3. Visas & Related Issues: Visas Don t Confer Work Rights 4. Employment from Abroad: Employees sent to Vietnam or Working for Foreign Entities in Vietnam

3 Profile Matthew Lourey Matthew is an Australian Chartered Accountant, who has worked in Vietnam for over 13 years. Matthew has extensive experience advising foreign invested companies with their Vietnamese operations; from transactional (Due Diligence, Acquisitions, Valuations) through to practical accounting, reporting and taxation assistance. Matthew is the Managing Partner of Domicile Corporate Services, and is President of the Australian Chamber of Commerce in Vietnam. Domicile Corporate Services Domicile Corporate Services is a Vietnam-based provider of professional services to foreign invested companies and Vietnamese companies looking to operate at an international level. With more than 40 staff across offices in Hanoi, Ho Chi Minh City and Danang, Domicile provides accounting, taxation, payroll, compliance, outsourcing and reporting at international standards for foreign invested companies in Vietnam. Domicile also advises on market entry into Vietnam, establishing new entities for foreign investors, and looks after matters such as work permits and banking issues.

4 Work Permits: Practical Matters for Work Permit Applications

5 Documentation Documents required for standard (Expert) Work Permit applications: Document Discussion 1 University Degree At least 3 year Bachelors Degree, relevant to the role being employed for 2 Experience Evidence At least 3 year s experience 3 Criminal Check Home country, or Vietnam if previously resided in Vietnam 4 Health Check From approved hospital 5 Passport & Visa 6 Job Description 7 Draft Labour Contract Foreign issued documents are required to be legalised / consularised.

6 Indicative Timeline Practical Timeline Allow: 2 Weeks for approval from People s Committee for employing foreign labour 1 Week for documentation finalization post initial approval 2 weeks for lodgement and Work Permit approval with Department of Labour Total: 5 weeks However Documents need to be obtained, legalized, translated etc 5 weeks assumes documents are in order. Be aware of online lodgements timelines published are shorter than manual lodgements, BUT, delays in witnessing/evidencing documents can remove any benefits and cause additional issues.

7 Experience Documents These are one of the more difficult elements of current Work Permit requirements. Standard application requires evidence of 3 years relevant, senior (managerial) experience. Letter from previous employer(s) or Previous Vietnam Work Permits Issues: 1. Letters from previous employers must be notarized/legalised and consularised. This is time consuming and difficult, especially if previous employers were not left on good terms. 2. Previous employers may have closed/no longer exist 3. Copies of previous Work Permits need to be provided however, the originals are returned to DoLISA when employment finishes. Notarised copies are not easy to provide. 4. No database of previous Work Permits currently maintained.

8 No University Degree? What are the options where a potential employee does not have a University Degree? 1. Technician Application Flexible, but needs to be relevant to company and role. An experience certificate still required. 1 year technical certification/documentation (authorities do accept less) 3. Other Options Company Ownership Transfer from parent entity Exemption categories 2. Management Application Requires 5 years of work experience (instead of standard 3) if no University Degree. Limited acceptance by authorities head of company (ie, General Director/Legal Rep on the license) or potentially head of registered Branch.

9 Probation Periods Do employers/foreign employees have to go through the Work Permit process whilst an employee is in Probation? YES There is no provision that allows probation periods to be outside the Work Permit requirements in the Labour Code. Once Work Permit is received from DoLISA, then an Employment Contract can be signed which may include a period of probation. What are the Options? 1. Potential use of the Less than 3 months rule. 2. Working illegally 3. Apply for a Work Permit and follow the process There are commercial considerations for employing senior (foreign) employees and waiting for their Work Permit BEFORE being able to commence the Probation period.

10 Example Work Permit

11 Taxation: Employment and Taxation for Foreigners

12 Tax Rates: Tax Resident Monthly Income (VND) Personal Income Tax Rates Up to 5,000,000 5% Over 5,000,000 to 10,000,000 10% Over 10,000,000 to 18,000,000 15% Over 18,000,000 to 32,000,000 20% Over 32,000,000 to 52,000,000 25% Insurances Foreign employees are subject to Government Health Insurances (1.5% Employee / 3% Employer). From 2018 Foreign employees are also be subject to Social Insurance (8% Employee / 17.5% Employer) but waiting implementation. (These are subject to caps 27,800,000vnd from 1 July 2018) Over 52,000,000 to 80,000,000 30% Over 80,000,000 35% Note: a 9,000,000 VND personal deduction (reduction) in assessable income applies before the tax tables above, plus additional amounts for dependents.

13 Tax Rates: Non-Tax Resident 20% Applies to all payments to non-resident foreign individuals whether the individual is in Vietnam, or outside (ie contract for services where the services are performed abroad).

14 Residency An individual will be a Tax Resident where they: a) Reside in Vietnam for more than 183 days or more (i) in a calendar year; or (ii) within 12 consecutive months from the first day of arrival or b) Have a permanent residence in Vietnam (including where they have an address recorded in a temporary or permanent residence card); or Note: If an individual has a regular residence in Vietnam, but actually stay less than 183 days in tax year and cannot prove that he/she is the tax resident in another country, he/she will still be treated as Tax Resident in Vietnam Tax Residents are subject to tax in Vietnam on world-wide income. Non-Tax Residents are taxed on Vietnam sourced income only c) Lease a house/office/hotel for a term of 183 days or more in Vietnam within the tax assessment period (cumulatively).

15 10% Withholding There is no tax rate of 10% Where tax resident individuals enter into Service Contracts, the law requires the paying party to withhold Personal Income Tax of 10% and remit this to the tax authorities. However, this is simply a temporary tax withholding. At the end of the tax year, individuals will need to finalise their taxes and pay any difference on the actual taxes they owe versus any taxes withheld and remitted to the tax authorities during the year, based upon the standard tax scales. Remember this includes world-wide income, and not just Vietnam sourced income for tax-residents. Withholding for Non-Tax Residents Non-tax residents will have 20% taxes withhold at source as a full and final tax, and no tax finalisations are required.

16 Employment in USD Can foreign currency be used in Employment Contracts with foreign employees? Yes. Foreign individuals are entitled to receive their salary in foreign currencies or Vietnamese Dong, as detailed in their labour contract. (Circular 32/2013/TT-NHNN dated December 26 th, 2013 from the State Bank of Vietnam, Article 4, Clause 14) What about internal payroll issues using foreign currencies? Published exchange rates at the end of each month which should be used for internal recording and payroll compliance (tax, insurances etc). Employers should have a process at the end of each month to update the exchange rate in their payroll calculation. Even though a salary may be fixed in a foreign currency, it will vary in VND which is not desirable for HR teams, and will require additional work, and may result in small variations to net (take-home) salary. Key aspect here is that employees should be paid in the currency that their contract states.

17 Gross versus Net Should you be contracting in Gross or Net? It is often the approach that foreign staff are offered Net contracts making it easier for the foreign individuals to understand. - Personal tax refunds, when tax finalisations are lodged, generally become the asset of the individual so careful planning needs to put in place to make sure the employee does not receive the refund when they did not have the original tax payment risk/obligation. However, there are issues with this: - Laws are written around Gross payments to staff, with the employer required to withhold from the Gross salaries - When following Net to Gross calculations in the laws, these will result in slightly different calculations from when going from Gross to Net. - Tax Residents are based upon world-wide income. If the employer is to pay Vietnamese taxes this could be costly. - An individual s tax is based upon their allowable personal and family deductions do they bother to register?

18 End of Year Tax Finalisation Resident individuals in receipt of salary or service income are generally required to submit an annual finalisation of their Personal Income Tax ( PIT ) with Vietnamese Tax Authorities, where: They owe taxes to the Tax Authorities; or They wish to claim a tax refund or future tax credit; Individuals with salary income from a single employer can have their employer finalise their tax on their behalf. Individuals with more than 1 employer in a year, or with other service income or foreign-sourced income, will generally be required to finalise their own PIT at the end of each year. Finalisations are required within 90 days from year end (ie, 31 March). Warnings: If foreign employees leave Vietnam without finalizing their PIT, then there are obligations on their final employer to take financial responsibility for any unpaid taxes and finalization. The Tax Authorities know significant information from tax withholdings and salary reports. They have the ability to request immigration authorities to prevent individuals from leaving Vietnam if they have unsettled tax liabilities.

19 Visas & Related Issues: Visas Don t Confer Working Rights

20 Visas & TRC s Visa s don t give Work Rights. In Vietnam, a Visa is an immigration document, issued by the Department of Immigration/Ministry of Public Security. Work Permits or Work Permit Exemptions, are Ministry of Labour issued, and subject to Labour Laws. Work Permits may give rights/access to specific immigration documents (ie, if you hold a Work Permit that is valid for >1 year, then the Department of Immigration will issue a Temporary Resident Card). Temporary Resident Cards are issued for the length of the Work Permit ie, not longer than 2 years for a standard Work Permit. Can Foreign Individuals work on Visas? Definitely cannot work on a Tourist (DL) Visa. Business Visa (DN) or Employment Visa (LD) may be okay and are required to be held in order to convert to a Temporary Resident Card.

21 Finishing Employment Handing Back the Work Permit & TRC The Work Permit is required to be handed back to the employer if the employee s employment finishes. However, the Temporary Resident Card is the immigration document that belongs to the individual does this have to be handed back if an employee ceases employment and has handed back the Work Permit? Answer: Only if the employer advises the Immigration Authorities that the Work Permit has been cancelled and therefore the documents that gave the right for the TRC to be issued are no longer valid. However, employers must provide a 30 day exit visa in these situations.

22 Employed from Abroad: Employees Sent to Vietnam or Working for Foreign Entities in Vietnam

23 Documentation for Exemption For individuals employed by a group company, and sent to their Vietnamese entity, the required documents by DoLISA include: - Foreign employment contracts showing 12 months of employment - Decision to send employee abroad - Decision from Vietnamese company to accept employee - Evidence that employee has been paying taxes on the foreign salary income for the previous 12 months. Although provisions to send employees to Vietnam have been relaxed (in respect of Work Permit exemptions), the authorities are more stringent on ensuring the arrangements are bona fide.

24 Salaries paid from outside Vietnam Some companies seek to issue employment contracts/payment from their offshore/parent companies. This way their staff can source various Visas or other immigration exemptions and work in Vietnam without concerning themselves with salary or tax issues. However, Labour Laws and Tax Residency rules need to be considered. - Does the individual fail the Labour Laws of Vietnam as they are working in Vietnam? - Is the individual Tax Resident in Vietnam, therefore the income is taxable in Vietnam. - Even if non-tax resident, is the income derived in Vietnam? Individuals have obligations to self-declare foreign sourced income, and pay tax on a quarterly basis. Double Tax Agreements & PE Issues Under Vietnamese Law and most Vietnam Double Tax Agreements, if an individual is in Vietnam for more 183 days receiving salary from an offshore payer for work they are doing in Vietnam, then that offshore payer may potentially create a Permanent Establishment ( PE ) in Vietnam (depends on specific DTA provisions). PE s are deemed to, essentially, be a foreign entity operating in Vietnam, with the foreign company becoming subject to Vietnamese Tax on a portion of their earnings. From the Singapore Vietnam Double Tax Agreement, a PE is created where: The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose,. if activities of that nature continue..within a Contracting State for a period or periods aggregating more than 183 days within any twelve month period.

25 Working without Work Permits What are the options to work in Vietnam without a Work Permit? Work Permit Exemptions most still require activation with the Labour Authorities Short term work in Vietnam (ie, 3-month rule)? Consultancy services to foreign entities from Vietnam. This will require quarterly self-declaration of foreign income and taxation in Vietnam. Keep in mind DTA & PE issues. (Legal right to operate a business in Vietnam as a sole trader?) Confusions Are business executives, on valid Business Visas, regularly coming to Vietnam to spend time working with and supervising a local subsidiary in breach of Work Permit laws? - Source of income - Activities in Vietnam - Tax Residency Penalties Deportation for Individuals Penalties for employers, and restrictions on the ability to employ future foreign staff. Tax Penalties.

26 Questions? Matthew Lourey Managing Partner Domicile Corporate Services Ho Chi Minh City Level 9, Abacus Tower 58 Nguyen Dinh Chieu District 1, Ho Chi Minh City This presentation is general in nature, and should not be relied upon as professional advice. No responsibility is taken for anyone that relies on this information, with all reliance expressly disclaimed. Domicile Corporate Services, 2018 Hanoi Level 13, Hanoi Tower 49 Hai Ba Trung Hoan Kiem District, Hanoi