In recent years, foreign direct investment (FDI) flows into Vietnam have been on the rise as greater numbers of foreign companies decide to establish businesses in the country. To operate in Vietnam, a thorough knowledge of the country’s salary structure is vital to maintaining efficiency and to motivate quality staff to stay and contribute to your company’s growth for years to come.
Salary and wages
The salary of Vietnamese employees that work in foreign companies in Vietnam is determined through negotiations between the two parties, but it should be no lower than the minimum monthly salary rates as stipulated by the Vietnamese government.
The monthly minimum wage rates in Vietnam, updated as of January 1, 2017, are as follows:
- VND 3,750,000 (US$165.20) per month for enterprises operating in the inner city districts of Hanoi and Ho Chi Minh City;
- VND 3,300,000 (US$145.37) per month for enterprises operating in outer city districts of Hanoi and Ho Chi Minh City; inner city districts of Haiphong; districts of Danang; districts of Can Tho City; Halong City in Quang Ninh Province; Bien Hoa and some districts in Dong Nai Province; the township of Thu Dau Mot and the rural districts of Thuan An, Di An, Ben Cat and Tan Uyen in Binh Duong Province; Vung Tau City, the township of Ba Ria and Tan Thanh district in Ba Ria Vung Tau Province;
- VND 2,900,000 (US$127.75) per month for enterprises operating in cities under provincial governments and select districts; and
- VND 2,580,000 (US$113.66) per month for enterprises operating in the areas not covered by the rates previously mentioned.
The above minimum wage rates are only for Vietnamese employees that conduct the most basic of work in normal working conditions. Employees who have passed vocational training courses (i.e., company training courses) typically have wage rates that are at least seven percent higher than those mentioned above.
Employees who work extra hours are also to be paid for those extra hours based on their current hourly wages, as follows:
- At least 150 percent for extra hours worked on regular working days;
- At least 200 percent for extra hours worked during the weekend; or
- At least 300 percent for extra hours worked during holidays and paid leave days.
In cases where an employee works extra hours at night, they will be paid extra in accordance to the applicable regulations. Furthermore, employees who are given time off in compensation for working extra hours will need to be paid the difference between their wages during normal working hours and overtime work. Finally, employees who work night shifts should be paid at least 30 percent higher than normal.
Salaries paid to Vietnamese staff working for foreign companies must be denominated in Vietnamese dong. Foreign employers may base salary rates in either Vietnamese dong or U.S. dollars, but salaries that are based in U.S. dollars must be converted into Vietnamese dong.
In general, an employee’s typical monthly salary package includes their gross salary and mandatory insurance contributions. Personal income taxes will be levied on the balance after the mandatory insurance contributions have been taken.
Vietnam’s Accounting Standards (VAS)
Local and foreign invested companies that conduct business in Vietnam are required to comply with Vietnam’s accounting standards (VAS) when recording their financial transactions. Additionally, foreign companies can choose to manage two different sets of accounting records: one that is based on the VAS and another compiled specifically for its overseas head office.
Fulfilling the relevant VAS requirements may prove to be a challenging task for foreign small and medium-sized enterprises that work with limited resources and choose to enter the country to save on manufacturing costs. In a nutshell, the VAS requires that accounting records abide by the following:
- Everything must be recorded in the Vietnamese language;
- The Vietnamese dong must be used as the accounting currency;
- All records must comply with Vietnam’s chart of accounts; and
- Numerous accounting reports must be printed on a monthly basis (as specified by the relevant VAS regulations).
The above documents must be signed by the General Director of the company and affixed with the company seal prior to submission.
The relevant authorities have been working toward strengthening Vietnam’s corporate accounting system, yet enforcement has been relatively lax when it comes to implementing full VAS compliance. However, please note that provincial tax authorities may cite VAS non-compliance as a basis for collecting additional taxes and recovering paid value-added tax (VAT) refunds.
The tax authorities can also penalize companies for non-compliance in the following ways:
- Disallowing input VAT credits;
- Revoking any corporate income tax incentives; and/or
- Changing the methods and applicability of corporate income tax collection.
As such, companies are strongly advised to double-check their accounting systems, taking special care to spot possible VAS non-compliance issues.
Bonuses are given by employers to employees based on company earnings and performance and as a way of boosting company morale and productivity. There are various kinds of bonuses that a company may grant its employees throughout the year: for example, a 13th month’s salary is usually given as a kind of “annual bonus” by both local and foreign companies in Vietnam to employees that have worked with the company for at least one year. Employees that have worked at a company for less than one year typically are given a bonus that is prorated and based on their actual employment period.
In addition, there is also a special bonus called the “Lunar New Year” bonus (or, “Tet bonus”) that is often paid to employees prior to their leaving for the Lunar New Year holiday. Again, the amount of this bonus will be dependent on both company and employee performance, but the bonus typically ranges from smaller amounts of money (up to an entire month’s salary) to larger amounts of money (up to an entire year’s salary) pending company progress and goals.
Apart from the larger annual bonuses mentioned above, employees may also be given smaller bonuses for public holidays or other special days (e.g., International Labor Day and National Day). Senior management and other valued employees are typically given bonuses during these days in the form of share certificates with a vesting period, for which the corresponding stock can be sold only after the employee had worked for the company for a certain amount of time.
Please note that all salaries and bonuses are subject to personal income taxes in Vietnam.
Other allowances and benefits
Apart from salary and bonuses, an employee may be entitled to several kinds of allowances and monetary or non-monetary benefits designed to retain staff. Some allowances and benefits are subject to personal income taxes, but some are not.
Taxable benefits include:
- Housing rent;
- Payments for power, water, and associated services for employees that amount to more than 15 percent of their total taxable income;
- Transportation allowances;
- Premiums for life insurance;
- Health care services;
- Entertainment fees; and
- Sports/athletics fees or membership fees to golf clubs, tennis courts and other exclusive clubs.
Prefixed lump sum amounts, or “khoan chi” amounts, for telephone calls and services, stationery, uniforms and per diem allowances are not subject to taxes if the amounts are within the levels set out under the relevant regulations.
Foreigners that work in Vietnam are now also exempted from personal income taxes on various benefits such as relocation allowances for moving into the country, airfares to their home country and education fees for their children.
This article was first published April 2017.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.