19/05/2025
Inadequacies in regulations for foreign workers may hinder progress
The Vietnamese government has established legal frameworks to facilitate the employment of foreign workers in Vietnam. However, problems have emerged concerning regulations on labour, insurance, and taxes for foreign workers transferred between international offices of the same group to work in Vietnam.
1. Labour and Insurance: According to Decree No.152/2020/ND-CP (Decree 152), foreign workers transferred within an enterprise are managers, executive directors, experts, and technical workers of a foreign enterprise that has established a commercial presence in Vietnam. These workers must be temporarily transferred within the enterprise to the commercial presence in Vietnam, and have been employed by the foreign enterprise for at least 12 consecutive months prior to their transfer.
In practice, multinational corporations often transfer personnel between companies within the same group, even if not directly from the parent company to a subsidiary with direct investment. This aims to optimise high-quality personnel, save costs, and meet business needs. For example, a parent company in Japan may transfer employees from a subsidiary in Singapore to a subsidiary in Vietnam.
However, the limited scope of internal transfers under Decree 152 does not consider this type of transfer as an internal transfer. As a result, Vietnamese enterprises face several challenges and may be required to sign additional labour contracts with foreign workers transferred within the same group, leading to additional costs for mandatory insurance as discussed below.
In numerous instances, foreign workers and foreign companies continue to participate in mandatory insurance abroad according to the regulations of that country to ensure future social security benefits. This results in duplicate insurance contributions in both countries, leading to additional costs for foreign workers and relevant companies. Currently, only the social insurance agreement between Vietnam and South Korea addresses this issue by mitigating the impact of duplicate contributions.
To align with practical realities, the definition of 'internal transfer within an enterprise' should be expanded to include all cases of transferring workers between companies within the group. Alternatively, if foreign workers maintain an employment relationship with the foreign company and do not sign a labour contract with the Vietnamese company, they should not be subject to mandatory insurance participation in Vietnam.
2. Corporate Income Tax (CIT): According to Decree 152, executing a labour contract and internal transfer within an enterprise are two forms through which foreign workers can work in Vietnam.
If foreign workers come to Vietnam to work under a labour contract, Decree 152 requires that after the foreign worker is granted a work permit, the employer and the foreign worker must sign a written labour contract in accordance with Vietnamese labour laws before the expected start date of work, and the employer must send the signed labour contract to the competent authority that issued the work permit. However, in the case of internal transfers within an enterprise, labour law does not mandate signing a labour contract.
Meanwhile, the CIT regulations only allow salary and bonus payments for employees to be deductible only if they are specifically stated in one of the following documents: a labour contract, a collective labour agreement, financial regulations, or bonus regulations.
Therefore, some tax authorities interpret that without a signed labour contract, expenses related to seconded personnel - such as salaries, bonuses, housing allowances, school fees for children, and personal income tax expenses - cannot be deducted when calculating CIT.
The principle of deducting CIT expenses, as set out by decrees and circulars, consistently follows the principle that business-related expenses with valid documentation are deductible. If expenses for seconded personnel meet these principles, they should be deductible when calculating CIT.
Tax authorities should consider the nature of the transaction and the documents evidencing the secondment agreement and cost reimbursement between the Vietnamese company and the foreign company, such as assignment letter or dispatch order, to assess the expense deductibility, rather than disallowing expenses simply due to the absence of a labour contract in cases of internal transfers. Additionally, CIT law should be amended to recognise documents proving deductible expenses related to seconded employees to align with labour law and practical realities.
3. Foreign Contractor Tax (FCT): Typically, experts seconded from abroad to work in Vietnam receive two parts of their income: one part paid directly by the company in Vietnam into the individual's account in Vietnam to cover personal expenses in Vietnam, and the other part paid by the foreign company into the individual's account abroad to cover family expenses. This second part of the income is paid by the foreign company on behalf of the Vietnamese company and is reimbursed by the Vietnamese company.
Regarding the reimbursement of salary and wage costs for seconded employees from the Vietnamese company to the foreign company, several official letters from the General Department of Taxation have clarified that if the amount received by the foreign company is a reimbursement and the foreign company does not generate income in Vietnam, the foreign company is not subject to FCT in Vietnam.
( Vietnam Investment Review)
