VIETNAM GUIDE

Vietnam – The Economy

The economy of Vietnam is a mixed socialist-oriented market economy, which is the 37th-largest in the world as measured by nominal gross domestic product (GDP) and 23rd-largest in the world as measured by purchasing power parity (PPP) in 2020. Vietnam is a member of the Asia-Pacific Economic Cooperation, the Association of Southeast Asian Nations (ASEAN), and the World Trade Organization.

A developing country with a lower-middle-income economy, Vietnam is nevertheless one of the fastest growing economies of the 21st century, and its total GDP is predicted to rival those of several developed nations by 2050.

Almost all Vietnamese enterprises are small and medium enterprises (SMEs). Vietnam has become a leading agricultural exporter and served as an attractive destination for foreign investment in Southeast Asia. Vietnam’s economy also relies largely on foreign direct investment to attract the capital from overseas to support its continual economic rigor.

It is part of international and intergovernmental institutions including the United Nations, the CPTPP, the Non-Aligned Movement, and the OIF. It has assumed a seat on the United Nations Security Council twice. Contemporary issues in Vietnam include corruption and a poor human rights record.

Small and Medium-Sized Companies

In Vietnam, SMEs are defined as enterprises with capital investment of less than 100 million VND and total employees of less than 300. SMEs are often planned within industrial clusters.

SMEs continue to play a major role in Vietnam, accounting for 98 percent of all enterprises, 40 percent of GDP, and 50 percent of employment or 1.2 million jobs. As per the Ministry of Finance, Vietnam has more than 600,000 firms, with nearly 500,000 private and 96 percent being small and micro-enterprises.

SMEs also play a relevant role in exports, accounting for 88% of exporting enterprises and for about half of export volume. However, 70% of Viet Nam’s SME export volume comes from foreign-owned SMEs which have relocated to Viet Nam to be closer to multinational enterprises (MNEs) acting as their lead buyers.

Compliance Highlights

• General Department of Taxation – The General Department of Taxation forms part of the Ministry of Finance and is entitled to the regime of package funding prescribed by the Prime Minister. The organizational structure of the tax branch is reorganized according to the following principles:
  
  • determining fully tax administration tasks
  • appreciate responsibilities and obligations of taxpayers in self-calculation and self-declaration toward self-tax payment and take responsibility before law
  • strengthen tax authorities
  • strengthening the function of state management on taxes to well enforce the law
  • adding more powers to tax authorities
  •  strengthening information campaigns to support taxpayers
  • strengthen inspection and examination
  • streamline the apparatus in the direction of administrative reform and modernize tax administration
    
• The MOLISA (Ministry of Labor, Invalids and Social Affairs) Inspectorate – the central authority of the labor inspection system in the country. It has six functional divisions: Labor Policy Inspections, OSH Inspections, Child and Social Affairs Policy Inspection, Inspections of “Policy for Meritorious People”, General Services and Administrative Inspections, Citizen Reception and Complaint and Denunciation Handling.

Labor Contracts Law

The employer-employee relationship in Vietnam is governed by the Civil Code and Labor Code, which was amended in 2021 to bring in new worker guarantees. Additionally, proposals from the Ministry of Public Security will impose stricter obligations on employers regarding privacy and data protection.

Amendments to the Labor Code stipulated that a contract can either be open-ended (indefinite) or fixed term, with no other options allowed, apart from probationary contracts.

When hiring new staff and drawing up their contracts, specific requirements from the Labor Code apply and must be considered. These include:

• Contractual terms and conditions come under the Labor Code, supplemented by government decrees, articles and statutes.
• Employer and employee should each have a signed copy of the contract.
• The terms should be in Vietnamese for legal verification and to guard against inconsistencies in translation. The employee can request a copy in a language they understand.
• By law, contracts must cover basic information. This includes the full names and addresses of both parties, specifying the position of the individual signing on behalf of the employer; job location and details of role; salary and payment schedule covering any extra reimbursements; working hours, breaks and vacation allowance; details of provisions for employee’s social, health and unemployment insurance.
• The new Labor Code accepts the validity of e-contracts related by data messaging.
• Employees’ roles must be declared to the labor authority within 30 days along with any subsequent changes to their role, within six months of coming into effect.
• Local employees must be paid in Vietnamese Dong; foreigners, whether resident or non-resident, can be paid in another currency.
  

Generally, a labor contract in Vietnam is effective from the date it is signed, not from when it is lodged with the labor authorities. The Labor Code, as amended in 2019 and coming into force from January 2021, recognizes these types of contracts and employment agreements:

1. Open-ended, indefinite employment contracts: These are the most common type of contract and are terminated by agreement between the parties or resignation by the employee.
2. Fixed-term, definite employment contracts: These can be agreed for up to a 36-month period, but only two consecutive contracts are permitted. If employment continues after this the contract automatically becomes indefinite.
3. Probation or trial period employment contracts: Probationary or trial periods are agreed on a case-by-case basis depending on the type of job and the qualifications or experience of the new employee. The Labor Code allows for probation periods of six, 30, 60 or 180 days as agreed by the contract.
4. Foreigner employment contracts: These are generally for a maximum of 24 months, due to visa and work permit regulations.
5. Seasonal employment contracts: There is no specific contract type for seasonal workers as the amended Labor Code eliminated the categories of ‘seasonal or specific employment’ workers. Seasonal, temporary, or part-time workers are now treated as workers on a fixed-term contract, which has no minimum period but must not last longer than 36 months. Workers with these contracts now have the same benefits and entitlements as employees on indefinite contracts.
6. Collective and trade union agreements: The Vietnam General Confederation of Labor (VGCL) is the only employment group that can represent employee bodies in collective bargaining negotiations or agreements.

Payroll – Tax Contributions and Benefits

Income Tax:

Vietnam residents are taxed on their worldwide income, while non-residents are taxed only on locally earned income at a fixed rate of 20%.

Individuals become tax residents if they reside in-country for 183 days or more between January 1 and December 31 or for 12 months continuously after arriving in Vietnam.

Residences for foreigners include homes that are owned or leased for 183 days or more, hotel rooms, guest houses etc. that are covered by a Resident’s Card issued by the Ministry for Public Security.

Employment income is generally deducted at source by employers for remitting to the Vietnam Tax Agency. Generally, all types of income and remuneration – including benefits and payment in kind – are considered taxable. This would include royalties, commission, bonuses paid in stocks or shares for example.