At the present time, foreign individuals working in Vietnam are only subject to compulsory government Health Insurance and Personal Income Tax on their salary. However, changes from 1 January 2018 will result in Social Insurance becoming compulsory for most foreign employees in Vietnam. With a total impact to salaries of up to 25.5% (17.5% employer portion and 8% employee portion), this may result in a substantial impact on payroll costs and take-home salaries.
Overview
Vietnamese Laws have excluded foreign employees from the Social and Unemployment Insurance requirements that local employees have been subjected to for many years. From 1 January 2018 the Law on Social Insurance will include foreign employees for the first time.
This means that, subject to caps (which are discussed below, and which reduce the impact significantly for some), foreign employees that hold Work Permits, Practice Certificates or Licenses will be liable for 8% Social Insurance and 1.5% Health Insurance from their salaries, and their employers will pay 17.5% Social Insurance and 3% Health Insurance on top of the salaries. Prior to 1 January 2018, only the Health Insurance portion was payable.
There are still differences with compulsory insurances between local and foreign employees – Unemployment Insurance will still be only applicable to local employees and not foreign employees from 1 January 2018.
A further change that comes into effect from 1 January 2018 is that Social Insurance will apply to contracts of 1 month or more (currently this is 3 months or greater), which will generally effect local individuals with service agreements more than for foreign employees.
The saving grace for many individuals is that the Social and Health Insurance requirements are subject to a maximum salary cap, being 20 times the Minimum Basic Wage, or 26,000,000VND per month. Any portion the salary above this threshold will not be subject to Social or Health Insurance.
Impact on salaries
Let’s look at some of the impacts on salaries, using $2,000, $3,500 and $8,000 per month as example salaries.
Current (2017) Position (USD)
| Gross Salary | Personal Income Tax | Employee HI & SI | Total Government Portion from Employee | Employee “Take Home” Salary after Government Deductions | Employer HI & SI Contributions |
|---|---|---|---|---|---|
| $2,000 | $254 | $17 | $271 | $1,729 | $34 |
| $3,500 | $669 | $17 | $686 | $2,814 | $34 |
| $8,000 | $2,398 | $17 | $2,415 | $6,085 | $34 |
Calculations after 2018 changes to Insurances (USD)
| Gross Salary | Personal Income Tax | Employee HI & SI | Total Government Portion from Employee | Employee “Take Home” Salary after Government Deductions | Employer HI & SI Contributions |
|---|---|---|---|---|---|
| $2,000 | $231 | $109 | $340 | $1,660 | $234 |
| $3,500 | $642 | $109 | $750 | $2,750 | $234 |
| $8,000 | $2,366 | $109 | $2,474 | $6,026 | $234 |
As the tables show, the impact does increase the payments made to the Government, but due to the impact of the caps and the resulting effective tax rates of the Insurances, the effect is far less significant at higher income levels for both the employee and employer.
Impact on net salary contracts
Some foreign employees have “Net” salary contracts, to shelter them from the various government imposts whilst they are working in Vietnam. The result to these contracts is that all of the increases in the tables above will be borne by their employers.
What to do next?
Employees and employers should discuss the implications in their annual review process, or at least before 1 January 2018, to discuss what the impact will be on both parties and to work out an equitable solution – both in terms of any pay rise to compensate for the increased government payments, and for individual and departmental budget preparations.