Vietnam’s social insurance scheme is undergoing a series of changes influencing both the statutory contribution rates required of enterprises and the types of contracts triggering liability. With rate reductions applied from June 2017 and introduction of a wider liability for social insurance contributions scheduled for early 2018, foreign and domestic companies alike will be required to adjust compliance procedures in the near future.
Understanding Social Security in Vietnam
As a quick review, employers and employees are required to contribute to three elements in the Vietnamese social security system (see Table 2):
1. Social insurance (SI)—employers are obligated to contribute a sum calculated at the rate of 17% of an employee’s salary plus an additional 1% that goes to the occupational accident and disease insurance fund
2. Health insurance (HI)—Calculated on the same basis and applied at the rate of 3%
3. Unemployment insurance (UI)—Calculated on the same basis and applied at the rate of 1%
Table 1—Vietnam Social Insurance Rates Before July 1, 2017
Social and unemployment insurance contributions are currently required to be made on behalf of Vietnamese nationals only. Health insurance, on the other hand, is applicable to all labor contracts that are issued by entities incorporated in Vietnam. This precludes companies from social or unemployment insurance obligations for their expatriate staff. Furthermore, foreign companies employing expatriate workers can often minimize their tax exposure in Vietnam by contracting their expatriate staff with their parent office rather than their Vietnamese subsidiary.
Reduced Social Insurance Rates
A new rate of contribution to the occupational accident and disease insurance fund was required from employers under Decree No. 44/2017/ND-CP, passed on April 14, 2017. As of June 1, 2017, employers pay only 0.5% of an employee’s salary instead of 1% for contributions to the occupational accident and disease insurance fund. Through the application of revised guidelines, the rate that employers must pay for social insurance was reduced from 18% to 17.5%. From June 1, 2016, employers and employees are required to pay 21.5% and 10.5%, respectively, for insurance in Vietnam (see Table 2).
Table 2—New Vietnam Social Insurance Rates
Starting 2018, Foreign Employees Require Social Insurance
In addition to changes in the rates of social insurance required, the Ministry of Labor, Invalids and Social Affairs (MOLISA) is also working on a draft of a new decree detailing and guiding the implementation of the Law on Social Insurance. Under the current draft, from January 1, 2018, social insurance will be compulsory for foreign employees signing a labor contract with any company or agency in Vietnam.
The draft suggests that all foreign employees in Vietnam with work permits, practice certificates, or practice licenses issued by local authorized agencies are to be covered for all five compulsory social insurance regimes (illness, maternity, labor accidents and occupational diseases, retirement, and survivorship allowance). The rate will be the same as for Vietnamese employees (8% from employees and 17.5% from employers).
This raises some major concerns related to the cost of doing business in Vietnam, especially for companies that have to hire foreign staffs to manage their businesses based in Vietnam. The draft decree is now pending for opinions and will enter into force on January 1, 2018, if adopted.
This article was first published on Vietnam Briefing. 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 ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at [email protected]. Further information about our firm can be found at: www.dezshira.com.
Original article posted by Vietnam Briefing. Since its establishment in 1992, Dezan Shira & Associates has been guiding American investors 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, including liaison offices in Boston and Waltham specifically established to support our American clients, we are your reliable partner for business expansion in Asia and beyond. For inquiries, email us at [email protected]. For further information about our firm and how we can support American investors in Asia, visit our North American Desk.