Important Changes to Vietnam Payroll in 2018

Substantial changes come into effect from 1 January 2018 affecting the calculation of payrolls in Vietnam. The results of the changes are that, essentially, remuneration payments received by employees will be subject to compulsory Insurances and Personal Income Tax (“PIT”) unless specifically excluded.

Changes

These changes effect both employee and employer, and will have the largest impact on those employers who have traditionally followed a low “insurance salary” approach. For many, the changes will mean higher Social, Health and Unemployment Insurance (“SHUI”) payments being withheld from employee payments, higher SHUI payments by the employer, and adjustments to the amount of PIT withheld from employee salaries. With impacted employees receiving less take-home pay, serious consideration needs to be undertaken by employers regarding their employees total income.

Base/insurance salary

A common historical practice in Vietnam has been to declare a low basic salary (commonly called the “insurance salary”), and structure the employee package so that considerable additional payments were made to employees on top of the low base salary. In this way, employees and employers would only calculate SHUI obligations on the “insurance salary”, maximising the take-home salary of the employees and lowering their employment cost. From 1 January 2018, this approach becomes generally ineffective; monthly remuneration received by employees from their employer is effectively subject to SHUI and PIT unless specifically excluded.

Amounts included/excluded from SHUI & PIT

Despite the changes, certain amounts remain excluded from SHUI & PIT calculations. A summary of these are tabled in the PDF download document.

Opportunities to package

There still remain opportunities to structure employment packages to take advantage of the specific exclusions from SHUI and PIT for employees. Employees on higher salaries will benefit from the PIT exempt payments, whilst lower income earners will benefit more from the SHUI exempt categories as they may be subject to low or no PIT.