Vietnam Key Industries, Incorporating, Employment, Payroll & Tax, and Immigration

Vietnam Key Industries

Infrastructure Industry Capabilities

• The government is promoting Public-Private-Partnership (PPP) as well as institutionalising PPP frameworks and regulations to complete infrastructure projects.
• In Vietnam, there is a list of projects calling for foreign investments in the industry. This includes transport infrastructure such as road, railways, airports and sea ports. Furthermore, FDI in urban infrastructures such as urban transportation, water supply, solid waste treatment are also sought after. To add on, there are projects in power infrastructure, infrastructure of industrial parks.

Manufacturing Industry Capabilities

• Vietnam has a vast pool of workers with relatively low labour costs and an overall low cost of manufacturing
• Its location and proximity to regional shipping routes provides opportunities for export manufacturing
• Particularly, Euromonitor International has forecasted the steady growth of smartphones demand in Vietnam from 2017 to 2021. Therefore, this provides opportunities in the consumer electronics sector.
• Moreover, the Vietnamese textile and apparel sector is the country’s leading export sector according to the International Trade Administration (ITA), ranking fifth worldwide in exports

Agriculture Industry Capabilities

• World Bank has stated that Vietnam is currently one of the world’s leading exporters of agro-food commodities. On top of that, the industry has been experiencing stable growth in the past.
• As Vietnam’s agriculture production made important contributions to the country, its demand has been forecasted to grow further
• Altogether, the country is among the top five exporters for aquatic products, rice, coffee, tea, cashews, black pepper, rubber, and cassava

 Incorporating in Vietnam

Types of Entities

• A Private Enterprise is owned by one individual and is liable for all the enterprise’s activities to the extent of all of his or her assets.
• In contrast, a Partnership consists of a minimum of two co-owners who are liable for the partnership’s obligations to the extent of all their assets. Capital-contributing members in the partnership are liable for the partnership’s debts to the extent of the amount of capital they have contributed to the partnership.
• A Branch Office is allowed to conduct commercial activities that are consistent with its license for establishment in accordance with the laws of Vietnam.
• On the contrary, a Representative Office is allowed to carry out commercial promotional activities within the scope permitted by its license and the law but is not allowed to directly conduct profit making activities in Vietnam.
• A Limited Liability Company is a separate legal entity from the owner(s). It is not allowed to issue shares.
  • Particularly, a Limited Liability Company with One Member is an enterprise owned by one organization or one individual. The organization or individual is liable for all debts and other property obligations of the company within the charter capital amount of the company.
  • Limited Liability Company with Two Members in which the members may be an organization or an individual, with the number of members not exceeding 50. They are liable for the debts and other property obligations of the enterprise within the amount of capital that they have undertaken to contribute to the company.

• A Joint Stock/Shareholding Company’s charter capital is divided into shares. There must be a minimum of three shareholders that may be organizations or individuals, with no maximum number of shareholders. In this case, shareholders are liable for the enterprise’s debts and other financial obligations within the amount of capital contributed to the enterprise. It may issue all types of securities.

Registering a Limited Liability Company

1. Obtain a form for registering a Limited Liability Company which can be obtained from the Business Registration Office.
2. Draft the company charter.
3. After which, prepare a list of the company’s members, attached with valid personal identification documents.
4. Attach a copy of a decision of establishment, certificate of business registration or other relevant certification of the institutional member.
5. Next, obtain a certification of legal capital and a valid copy of the practice certificate of the general partners or individual.
6. After completing all the documents, the registration has to be done at the Provincial Business Registration Office under the Department of Planning and Investment in the province where the office is going to be located at.

Registering a Joint Stock/Shareholding Company

1. Obtain a form for registering a Shareholding Company which can be obtained from the Business Registration Office.
2. Draft the company charter.
3. After which, prepare a list of the company’s members, attached with valid personal identification documents.
4. Attach a copy of a decision of establishment, certificate of business registration or other relevant certification of the institutional member.
5. Next, obtain a certification of legal capital and a valid copy of the practice certificate of the general partners or individual.
6. After completing all the documents, the registration has to be done at the Provincial Business Registration Office under the Department of Planning and Investment in the province where the office is going to be located at.

Employment Regulations

Employment

The employment law in Vietnam is governed by the Ministry of Labour – Invalids and Social Affairs’ Labour Code. Employers with more than 10 employees are required to issue and register their Internal Work Regulations (Chapter VIII) with the Ministry. Unless the work duration is less than three months, the employer and employee have to conclude the employment contract in writing, with both parties having a copy each. The contract has to include key particulars including employer, employee and salary details as stipulated in Article 23. In addition, the employment contracts must comply with Vietnamese laws and the collective bargaining agreement, if any. If there are any supplements or amendments made to the contract by any party, the other party has to be notified at least three working days in advance. The agreed supplements or amendments have to be included in a signed annex to the contract or a new signed contract. Lastly, if the parties failed to reach an agreement, the initial contract shall continue to be enforced.

Termination

An employer has the right to unilaterally terminate the employment contract when any of the following applies:

• Employee repeatedly fails to fulfil the contractual obligations.
• The employer is forced to reduce the workforce due to a natural disaster, fire or any force majeure event.
• An employee is sick or has an accident and is unable to work after receiving treatment for a twelve consecutive months in the case of an indefinite term employment contract, for six consecutive months in the case of a definite employment contract, or more than half the duration of the contract in the case of an employment contract for seasonal work or a specific task of less than 12 months. Upon recovery, the employee shall be considered for reinstatement or continue employment.

The employer has to provide notice to the employee when unilaterally terminating an employment contract.

Employment Type	Notice
Indefinite term employment contract	At least 45 days
Definite term employment contract	At least 30 days
Seasonal work employment contract or for a specific task of less than 12 months	At least 3 working days

Employees may also terminate the contract unilaterally under certain circumstances under Article 37.  In this case, each party may withdraw their unilateral termination at any time prior to the expiry of the notice period by a written notification. The withdrawal will be considered valid if it is agreed by the other party. 

Payroll and Tax Regulations

Social Security Scheme

Vietnam’s social security system consist of 3 elements, Social Insurance (SI), Unemployment Insurance (UI) and Health Insurance (HI). SI and UI are only applicable to Vietnamese employees. HI contributions are required for Vietnamese and foreign employees under Vietnam labour contracts. Therefore, foreign employees under overseas employment contracts in Vietnam do not require HI contributions. Both the employer and employee are required to make contributions to the fund. Consequently, the contribution is calculated based on the employee’s gross salary, capped at 20 times the regional gross minimum salary which is subjected to change every year.

Vietnam Tax

Ministry of Finance is responsible for managing tax in Vietnam.

Corporate Income Tax

There is no difference in tax residency for Corporate Income Tax (CIT). The CIT applies to all domestic entities which are incorporated under Vietnamese laws, and foreign entities which are incorporated under foreign laws while doing business in Vietnam. The standard CIT rate is at 20%. However, preferential CIT rates of 17% may be granted to certain encouraged projects. In addition, oil and gas companies are subjected to CIT rates ranging from 32% to 50%, depending on the project’s conditions such as its location. In the same fashion, mineral resources companies are subjected to rates of 40% or 50%, depending on the project’s location.

Personal Income Tax

All tax residents are subjected to the Personal Income Tax (PIT) on all global taxable income. Tax residents are individuals who:

• Reside in Vietnam for 183 days or more in either a calendar year or the period of 12 consecutive months from the date of first arrival
• Have a permanent residence in Vietnam or foreigners with a registered permanent / temporary residence in Vietnam with a lease term of 183 days or more

Employment income is applied on progressive tax rates.

Resident Employment Income Tax Rates

Annual Taxable Income (in million VND)	Monthly Taxable Income (in million VND)	Rate (%)
Up to $60	Up to $5	5%
Above $60 to $120	Above $5 to $10	10%
Above $120 to $216	Above $10 to $18	15%
Above $216 to $384	Above $18 to $32	20%
Above $384 to $624	Above $32 to $52	25%
Above $624 to $960	Above $52 to $80	30%
Above $960	More than $80	35%

Other income is taxed at different rates.

Resident Other Incomes Tax Rates

Type of Taxable Income	Tax rate
Business income	0.5% to 5%
Interest (but not bank interest) / dividends	5%
Sale of shares	0.1% of the sales proceeds
Capital assignment	20% of the net gain
Sale of real estate	2% of the sales proceeds
Income from copyright	5%
Income from franchising / royalties	5%
Income from winning prizes	10%
Income from inheritances / gifts	10%

Non-residents are subjected to PIT at a flat tax rate of 20% on their Vietnam-sourced employment income. For Vietnam-sourced business income, the rates are taxed between 1% and 5%, depending on the type of business activity. Other incomes are subjected to flat rates as shown below. Notehat the rates may differ if there are any Double Taxation Agreements enforced.

Non-resident Employment Income and Other Incomes Tax Rates

Type of taxable income		Tax rate
Employment income		20%
Other Incomes	Business income	1% to 5%
	Interest/dividends	5%
	Sale of shares/Capital assignment	0.1% of the sales proceeds
	Sale of real estate	2% of the sales proceeds
	Income from royalties/franchising	5%
	Income from inheritance/gifts/winning prizes	10%

 

Other Taxes

• There is the stamp duty, also known as business licence tax and registration fees.
• Indirect tax – the Value Added Tax (VAT) has various rates. A 0% VAT rate is applied for exported goods or services, construction and installation in overseas and in non-tariff zones, international transportation, certain aviation and marine services. In addition, a 5% VAT rate is applied to certain essential goods and services such as clean water, agricultural activities, fresh foodstuffs, medical, education equipment and scientific and technology services etc. Also, certain supplies are exempted from VAT. Otherwise, there is a standard 10% VAT rate applied.
• Moreover, Foreign Contractor Tax (FCT) is applied on payments to foreign parties for goods supplied within Vietnam or associated with services rendered in Vietnam. It usually comprise of two parts – the CIT and VAT at varying rates.
• Special Sales Tax is a form of excise tax that applies to the production or import of certain goods and the provision of certain services that varies according to the products and services.
• Natural Resources Tax ranging from 1% to 40%, depending on the resource, is applied to the production output at a specified taxable value per unit on industries exploiting Vietnam’s natural resources. Natural water used may be exempted under certain conditions. Other methods can be used to calculate the taxable value when the commercial value cannot be determined. Crude oil, natural gas and coal gas are taxed at progressive tax rates, depending on the daily average production output.
• Next, Environment Protection Tax is applied to the producing and importing of certain goods deemed detrimental to the environment, where the rates vary according to the type of goods.
• Property tax in Vietnam applies to land-use fee, land rental and non-agricultural land-use tax.

Immigration

Work Passes and Permits

Work Permit  Who is it for? For manager, executive director, expert or technician Requirements The state agencies have to approve in writing on the use of foreign workers Applicant has to possess adequate health condition Applicant has to be able to meet job requirements Being free of criminal records internationally and in Vietnam Brief overview of application steps The applicant has to request for the issuance of a work permit from the employer in accordance with regulations of the Ministry of Labour – Invalids and Social Affairs.  Secondly, the health or medical certificate is to be issued by a competent foreign or Vietnamese health care agency or organization. Obtain a judicial record or written document confirming the foreign worker is not an offender or being prosecuted for criminal liability issued by the foreign country. A judicial record issued by Vietnam is sufficient if the foreign worker resides in Vietnam. Next, produce the proof of professional qualifications and skills of foreign workers or other documents as required by the occupation group, certifying that he/she is a manager, executive, expert or technician After which, prepare the certified copy of the applicant’s passport, valid papers or international travel documents, as well as other documents relating to the foreign worker such as the work agreement The photocopy of the medical certificate, judicial record, proof of foreign worker’s qualifications and skills as well as other foreign worker documents has to be collated with the original copy. Foreign documents have to be translated into Vietnamese and consularized – unless exempted. Lastly, undergo the notarization of documents.