The Covid-19 epidemic in general has been changing working trends around the world. Instead of working at the head office of the employer (“Employer”), the employee (“Employee”) is free to choose a suitable remote workplace, as long as the tasks assigned under a labour contract are completed. Therefore, it is very common for Employee, residing in one country, to work remotely for Employer in another country; Vietnam is not an exception, especially in industries and occupations such as IT, accounting, human resources or working for Non-Governmental Organisations.
In Vietnam, apart from the form of sending Vietnamese Employee to work abroad under the provisions of the Law on Vietnamese Guest Workers, several Employers are enterprises established under foreign laws and have headquartered abroad, have no commercial presence in Vietnam but employ Vietnamese Employees to perform abroad tasks from Vietnam. In this situation, the Vietnamese Employee will not be working at the abroad head office of that Employer, causing it to become more difficult to check their compliance with the labour laws in Vietnam. Moreover, foreign Employer and Vietnamese Employee, do not have the proper legal sense of compliance with labour laws in Vietnam, hence, they may unintentionally not comply with the provisions of the labour law to ensure legitimate rights and interests for Vietnamese Employee then reduce potential legal risks for them. Therefore, this article shares some legal perspectives related to the above issue so that both foreign Employer and Vietnamese Employee have more information and a correct perspective as well as more compliance.
Is a foreign Employer considered an Employer governed by Vietnamese labour law?
To assess whether a foreign Employer is considered an Employer as defined by Vietnamese labour law, contemplate Article 3.2 of the Labour Code 2019 (“LC 2019”), an Employer is defined as any enterprise, agency, organisation, cooperative, household and individual that hires or employs Employee to work for them as mutually agreed; if the Employer is an individual, he/she must have full civil act capacity. As can be seen, no provision mentions that such enterprise, agency, organisation or cooperative is established and operated under the laws of Vietnam or any enterprise, agency, organisation, cooperative established and operates under foreign laws. In the writer’s opinion, since the current legal basis is still ambiguous on the definition of the term “Employer”, any Employer that is an enterprise, even if it is an enterprise established under the provisions of foreign or of Vietnam laws but employing Vietnamese Employee to work for them under labour contracts are considered as Employer. Therefore, the conclusion, performance and termination of labour contracts must comply with the provisions of the LC 2019. In fact, there are many foreign enterprises and even Vietnamese Employees share the same opinion that foreign enterprises are not considered Employers, thus they do not need to perform their obligations as Employer according to the labour law of Vietnam. Consequently, the rights that Vietnamese Employee should be entitled to under Vietnam’s labour law may not be ensured and foreign enterprise may be violating Vietnamese law inadvertently or may acknowledge it but “ignore” them.
Does Vietnamese Employee have to declare and pay personal income tax themself or is this foreign Employer’ obligation?
The firstly discussed issue is the obligation to declare, pay and finalise personal income tax (“PIT”) for Vietnamese Employee. Considering the obligation to declare PIT, according to Article 19.3. (A). (a2) Circular 80/2021/TT-BTC stipulates that individuals residing in Vietnam who earn income from salaries paid abroad may declare tax directly with competent tax authorities.
Considering the obligation to withhold, pay and finalise PIT, according to Article 19.3.(A).(a1) Circular 80/2021/TT-BTC, Article 25.1.(b1) Circular 111/2013/TT-BTC and Article 26.1.(c) Circular 111/2013/TT-BTC of the Ministry of Finance, Employer must withhold, pay and finalise PIT of Employee that they are employing with competent tax authorities.
In practice, because the Employer is a foreign enterprise without a commercial presence in Vietnam, they will not be granted a tax identification number, and will not open a bank account in Vietnam Dong to deduct and pay PIT in Vietnam Dong to the competent tax authorities. In that situation, many Employers who are foreign enterprise has agreed with Vietnamese Employee that the Vietnamese Employee will be responsible for registration, declaration and payment of PIT on any income generated by the foreign enterprise and will take full responsibility if any. However, despite the above agreement, potential legal risks for Employer being foreign enterprises still exist. In fact, Vietnam has signed quite a few Tax Agreements with countries such as Singapore, Japan, Korea, the United Kingdom, etc., including contents on avoiding double taxation. In these Tax Agreements, the ordinary payment of taxes will be based on consideration of the length of stay of the Employee in a particular country rather than from where the income is paid. In this situation, Vietnamese Employee mostly resides for more than 183 days in a calendar year in Vietnam, so the obligations to declare, pay and finalise taxes in Vietnam are incurred. If the Vietnamese Employee refuses to register, declare and pay PIT or pay but declares insufficiently or incorrectly the taxable income, leading to a lack of payable tax amount, the competent tax authorities may assert that because Vietnam’s tax law stipulates that Employer must withhold, pay and finalise taxes for their Employee, thus Employer who are foreign enterprises must do the same.
In the worst scenario, if there is any dispute arising from the above tax obligation, the opinion of who will be responsible for withholding, paying and finalising PIT for Vietnamese Employee will be decided by a competent Court of Vietnam. The fact of the trial shows that the competent Courts often have the view that the Employer who is a foreign enterprise bears the obligation to withhold, pay and finalise tax for Vietnamese Employee.[i]
Does Employer who is a foreign enterprise need to contribute compulsory insurance for Vietnamese Employee?
According to the current labour law, a foreign Employer is responsible for contributing compulsory insurance for Employee working for them under labour contracts. Even without their commercial presence in Vietnam, a foreign Employer is still required to comply with this obligation. If the foreign Employer fails to comply with this obligation when employing Vietnamese Employee to work for them, they may be fined up to VND 150 million for administrative violations and obligated to pay interest on the underpaid portion of the insurance mentioned above.
Even said that, in fact, a foreign Employer is not granted a social insurance number to carry out the contribution of compulsory insurance for Vietnamese Employee as mentioned above. Not contributing compulsory insurance for Vietnamese Employee, a foreign Employer may be subject to administrative sanction, but even if they want to comply, no mechanism or solution to guide them in doing so up to now.
Both foreign Employer and Vietnamese Employee are not quite interested in participating in compulsory insurance, instead, a foreign Employer will buy private health insurance for Vietnamese Employee as part of compensation and risk reduction for not participating in the social insurance system in Vietnam. However, in the writer’s opinion, not participating in the social insurance system for Vietnamese Employee is a disadvantage because social insurance is considered a “cumulative” tool when Vietnamese Employee reaches retirement age. Therefore, foreign Employer may consider asking for written instructions from the competent State management authority on the above issue to figure out an appropriate mechanism for their Vietnamese Employee.
Competent authority to settle if any labour dispute arises
A foreign Employer has not yet had the right perspective on whether Vietnamese law will have the authority to resolve any disputes arising between them and a Vietnamese Employee, or there are cases where they agreed in the labour contract that the law of the country where their office locate will prevail. However, for labour disputes, the law of the country where the Employee regularly works shall have the authority to resolve the dispute. Specifically, according to Article 683 of the Civil Code, Vietnamese law will govern the labour relationship between the Employer being a foreign enterprise and the Vietnamese Employee, regardless of whether there is an agreement on governing law in the labour contract or not. In addition, according to the provisions of the Civil Procedure Code, Vietnamese Employee has the right to request the competent Court of the province where they reside in Vietnam to settle disputes with the Employer who is a foreign enterprise. When accepting and settling such disputes, the competent Courts of Vietnam will refer to the provisions of Vietnamese law. Moreover, the competent Courts of Vietnam often tend to interpret and resolve cases in favour of Vietnamese Employee rather than foreign enterprise Employer because they believe that Vietnamese Employee are a weaker party in the labour relationship and need to be protected by law. The fact that a foreign enterprise Employer is sued and subject to an adverse judgment will greatly affect its reputation in the market. However, how can the judgment of the Vietnamese Court be executed in a foreign country where the Employer’s head office is located, if the foreign enterprise Employer refuses to voluntarily perform the judgment? This is another problem that is also cumbersome and unproductive to the effort, time and money of Vietnamese Employee.
Recruiting and having Vietnamese Employee work for foreign Employer can be a short-term solution to solve the human resource problem as well as reduce personnel costs for foreign Employer because Employee Vietnam is considered to be relatively “cheaper” compared to other developing countries in the world. Nevertheless, if a foreign Employer does not consider their rights and obligations as an Employer in Vietnam under the provisions of Vietnamese law carefully on, they may face an undue legal impact on their business operations as well as their reputation in the market. To reduce such legal risks, foreign Employer may consider using the services of enterprise providing labour outsourcing services in Vietnam or further establishing a commercial presence in Vietnam such as branches, representative offices or subsidiaries to easily manage the work performance of Vietnamese Employee and ensure compliance with the provisions of law in Vietnam.
[i] Appellate Judgment No. 03/2021/LD-PT dated 24 March 2021 of the High People’s Court in Ho Chi Minh City