This article provides clarification on Vietnam residents’ tax liability when they are employed by a non-resident Vietnam company.
Non-resident Vietnam companies include:
- Representative Offices that are registered with International Enterprise Vietnam.
- Companies that are incorporated outside Vietnam such as Vietnam branch office setups.
Tax liability for employees of a non-resident Vietnam company.
1.According to Vietnam income tax law, employees will be liable to Vietnam tax on all income earned during the employment period in Vietnam, irrespective of the fact that the income is not paid in Vietnam and that the employer is a non-resident Vietnam company.
2.Taxable income includes salary, bonus, allowances, per diem allowance, housing allowance, transport allowance, meal allowance, and other benefits-in-kind. Note that taxable income also includes any allowances received from the local sponsoring company.
3.The general taxation rules for non-residents and residents as outlined above will apply. In other words.
- The employment income of non-residents who work in Vietnam for 60 days or less in a calendar year is exempt from tax.
- The income of non-residents who work in Vietnam for 61-182 days in a calendar will be taxed at 15% or at the progressive resident rates, whichever gives rise to a higher tax amount.
- Individuals who work in Vietnam for 183 days or more in a calendar year will be considered as tax residents and their income will be taxed at the progressive resident rates.
4.Employees who are not Vietnam citizens and are employed by a non-resident employer must submit to the Inland Revenue Authority of Vietnam, a letter of guarantee from a local bank or an established limited company in Vietnam to cover their tax liability for a given Year of Assessment. In the absence of a letter of guarantee the Inland Revenue Authority of Vietnam will issue an advance assessment based on their estimate of the individual’s income for the given tax year.
5.The non-resident employer must comply with all Vietnam tax clearance requirements by submitting a duly completed tax clearance form for all non-resident employees to the Inland Revenue Authority of Vietnam, at least one month prior to the employee’s cessation of employment or departure from Vietnam. Note that all non-resident employees must pay all their taxes befor leaving Vietnam.
Reducing tax liability for employees of a non-resident Vietnam company.
Foreign employees of a non-resident Vietnam company can reduce their tax liability if they qualify for:
- The Area Representative Scheme.
- Exemption under Avoidance of Double Taxation Agreement.
Area Representative Scheme.
The Area Representative Scheme allows time apportionment of employment income, subject to qualifying conditions, for foreign employees who travel and work in Vietnam during the course of their employment with a non-resident Vietnam company. In other words, only that portion of the employment income that is attributable to the number of days spent in Vietnam will be subject to Vietnam tax. Note however that all benefits-in-kind provided in Vietnam are fully taxable. To qualify for this scheme the employee must satisfy the following criteria:
- The individual must be employed by a non-resident employer.
- The employee must be based in Vietnam for geographical convenience.
- The employee is required to travel outside Vietnam in the course of his/her duties.
- The employee’s remuneration is paid by the foreign employer and not charged directly or indirectly to the accounts of any company in Vietnam.
Exemption under Avoidance of Double Taxation Agreement.
If the foreign employee is a resident of a country with which Vietnam has a Double Taxation Agreement that provides for exemption from Vietnam income tax in respect of Dependent Personal Services rendered in Vietnam, he can apply for a tax exemption. For this purpose, a completed Certificate of Residence that is duly certified by the tax authority of the foreign employee’s home country will have to be submitted to the Inland Revenue Authority of Vietnam.