Vietnam, known for its vibrant culture, skilled workforce, and robust business activities, has become an appealing destination for foreign entities looking to outsource work. Whether you're a Singapore-based tech firm or an India-centric retail chain, hiring Vietnamese contractors can offer an innovative solution for business expansion.
However, comprehending the Corporate Income Tax (CIT) laws, VAT regulations, and social security aspects can seem overwhelming if you're unfamiliar with the Vietnamese business landscape. This step-by-step guide will assist you with onboarding your Vietnamese contractors and ensure compliant payment according to Vietnam's legal framework.
Step #1: Classify your workers in Vietnam
As an employer, the correct classification of your Vietnamese contractor is crucial. Misclassification of workers as employees or subcontractors can:
- Result in harsh penalties
- Jeopardize your business reputation
- Trigger legal consequences
Ensuring that you’re classifying contractors in accordance with Vietnam's labor laws can protect your company from such complications. Here are some distinctions to consider:
High level of worker control.
Vietnamese contractors are generally given more autonomy to determine how and when to complete their work.
More direction from the employer. Vietnamese employees are usually subject to more control and direction from their employer, who provides guidance on when and how to perform their work.
Equipment and tools are owned by the worker.
Equipment and tools are typically provided by the company.
Less integrated. Vietnamese contractors tend to be independent, they’re more likely to work remotely, and they use their own tools and equipment.
Highly integrated. Vietnamese employees are typically more integrated into the company. For example, they may work at the employer's premises.
No entitlement to benefits. Vietnamese contractors don’t receive the same benefits and protections as employees. They’re also responsible for paying their own taxes.
Entitled to benefits. Vietnamese employees are entitled to certain employment benefits and protections, such as overtime pay, minimum wage, and paid vacation. They may also be entitled to other benefits like health insurance, paid sick leave, and retirement plans.
Time-bound engagement. Contractors are typically engaged for a specific project or time.
Indefinite engagement. Employees are generally hired for an indefinite time.
Risk of loss. Contractors likely assume more risk and liability for their work.
No risk of loss. Employees are typically protected from liability for work-related problems.
Subcontracting. Contractors can delegate tasks to be completed by another person or business.
No subcontracting. Employees are expected to do their work themselves. They can only delegate responsibilities with approval from their employer.
Step #2: Determine the best way to pay your contractors in Vietnam
Paying contractors in Vietnam involves a hybrid method that accounts for the tax rate, exchange rates, and transfer of securities, if applicable. Here are the common payment methods you can consider:
- Direct bank transfers: Paying your contractors directly into their bank accounts in Vietnamese Dong (VND) is a straightforward method, but may carry hefty charges. This might involve foreign exchange and transfer fees.
- International wire transfers: Sending payments through wire transfer services, while usually reliable, may incur high fees and longer processing times.
- Third-party payroll services: Using third-party services like Rippling can simplify the payment process, especially for large teams or frequent payments.
- E-wallet or online payment platforms: With the rise of digital transactions, many contractors prefer receiving payments via platforms like PayPal, Payoneer, or local services.
Always align your chosen payment method with your contractor's preferences and ensure it complies with Vietnamese tax regulations.
Step #3: Use global payroll software to process payments for Vietnamese contractors
Utilizing global payroll software like Rippling can alleviate the administrative burden associated with processing payments for your Vietnamese contractors. Rippling can help manage payroll, taxes, employee benefits, and other work-related apps, all within a single, unified platform.
It can also help you process payments in Vietnamese Dong (VND) and handle compliance with Vietnamese tax regulations, Vietnamese CIT, personal income tax, and social security regulations. With Rippling, you can pay employees and contractors, across the world, in a single pay run. Here’s a preview of how Rippling’s global payroll system works:
Step #4: Ensure your Vietnamese contractors have the right tax information
In Vietnam, each contractor is required to provide specific tax-related information, including their tax code and the nature of their taxable income, to avoid complications with the tax authorities. This information aids in the accurate calculation and declaration of personal income tax and CIT. They must provide:
- Personal Income Tax (PIT) code: A unique identifier assigned by the tax authorities for income tax purposes.
- Foreign Contractor Withholding Tax (FCT): Contractors are required to declare FCT. As an employer, you may need to withhold this tax, depending on the nature of the services provided.
- Permanent establishment information: Non-resident contractors should provide details about their business operations and presence in Vietnam to establish their tax obligations correctly.
Staying up-to-date with these requirements can help ensure compliance with Vietnam's tax laws and avoid unnecessary fines or legal issues.
Frequently asked questions about running payroll for contractors in Vietnam
Do you need to withhold taxes when paying contractors in Vietnam?
Yes, businesses are generally required to withhold Foreign Contractor Withholding Tax (FCT) when paying foreign contractors in Vietnam. The FCT rate depends on the nature of income and can range from 0.1% to 10%.
Does the Vietnamese minimum wage apply to independent contractors in Vietnam?
No, the minimum wage in Vietnam applies primarily to employees, not independent contractors. Contractors typically negotiate their pay rates directly with the employer.
Do Vietnamese contractors get benefits?
No, independent contractors typically do not receive employee benefits such as social insurance, health insurance, and paid leave. However, they may negotiate for other benefits as part of their contract.
Can you pay contractors in Vietnam in your home currency?
While it's possible to pay contractors in your home currency, it's generally more practical and convenient to pay them in Vietnamese Dong (VND) to avoid exchange rate fluctuations and additional conversion fees.
Can you manually pay contractors in Vietnam?
Yes, you can manually pay contractors in Vietnam, but this can be time-consuming, prone to errors, and may complicate record-keeping. Using global payroll software like Rippling can simplify and automate the payment process.
How do you turn a contractor into an employee in Vietnam?
Converting a contractor to an employee involves providing a formal labor contract and complying with various regulations—like making social and health insurance contributions. The employee would also need to register for a work permit and be subject to Vietnam's labor laws, including limitations on working hours and entitlement to public holidays.
Is an Employer of Record (EOR) necessary when hiring contractors in Vietnam?
While not necessary, an EOR is particularly useful for foreign companies hiring Vietnamese contractors. An EOR can offload everyday administrative tasks and help manage tax registration, legal compliance, and payroll on behalf of the hiring company.
Can hiring contractors be considered a form of outsourcing in Vietnam?
Yes, hiring contractors, particularly for specific projects or tasks, is a form of outsourcing. It enables companies to leverage Vietnam's skilled workforce while maintaining a flexible staffing arrangement.
Do contractors in Vietnam need an employment contract?
Yes. It's best practice to have a formal contract with your Vietnamese contractors. This helps define the scope of work, payment terms, and other conditions of the professional relationship.
Are contractors in Vietnam subject to the same tax rates as full-time employees?
No, contractors are subject to different tax rates based on their taxable income. The tax rate typically varies from 0.1% to 10%, depending on the nature of their income.
Is the Vietnamese contractor responsible for tax payments or is it the hiring company's responsibility?
In most cases, the hiring company must withhold the relevant tax from the contractor's earnings and pay it directly to the tax authorities. However, responsibility can be transferred to the contractor through specific arrangements in the contract.
Can a foreign contractor in Vietnam have their salary paid into a Malaysian or Indonesian bank account?
Yes, however, it may involve additional costs due to foreign exchange rates and international transaction fees. It's typically more convenient and cost-effective to pay contractors in Vietnamese Dong (VND) into a local bank account.
Can a contractor in Vietnam be converted into an employee of a company based in China, Singapore, or the Philippines?
Yes, but the process will involve adherence to the labor laws of the respective country. This may include issuing a formal employment contract, registering for a work permit, and contributing to social security and health insurance.
With Rippling, you can effortlessly manage contractors—as well as quickly transition contractors to full-time employees—with legally compliant paperwork, benefits administration, payroll, and more. Rippling handles it all, so you stay compliant from onboarding to offboarding.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.