14 May, 2019
Ever since the Law on Social Insurance[1] was issued in late 2014, employees and employers have been on notice that “expat employees working in Vietnam” will be required to participate in the State’s compulsory social insurance (SI) regime “from 2018”. 2018 came however with no further clarity around the details.
In October 2018, the Government issued Decree no. 143/2018/ND-CP[2] guiding the Law on SI and providing that “Employees who are expats working in Vietnam shall be required to participate in the SI program if they obtain work permits, practicing certificates, practicing licenses issued in Vietnam, indefinite-term employment contracts or employment contracts valid for at least one year with employers in Vietnam.” (Article 2.1). Also in the same decree, several exceptions from SI participation are listed, including intra-company transferees and expats reaching retirement age.
According to the statistics of the Ministry of Labor, War Invalids and Social Affairs (“MOLISA”), 64% of applicable expats working in Vietnam joined the SI scheme under Decree 143[3]. Having said that, there remains confusion amongst both employers and expats employees as to the subjects of application of the law.
Finally, on 18 March 2019, MOLISA issued Official Letter no. 1064/LDTBXH-BHXH[4] clarifying the issue of exactly which expats will be required and not required to participate into the Vietnam-law SI scheme.
Specifically, expat employees working in Vietnam must satisfy all of the following criteria in order to be applicable for the SI scheme:
|
SI ELIGIBILITY CONDITIONS FOR EXPATS
|
NOTES | |
| Nationality | Non-Vietnamese nationals working in Vietnam |
An overseas Vietnamese national entering Vietnam to work via his/her passport of a foreign country would be deemed as a non-Vietnamese national working in Vietnam.
|
| Licenses |
Work permits, practicing certificates, practicing licenses issued by the competent authority in Vietnam
|
As a side note, a work permit issued for an expat entering Vietnam to supply services to a Vietnam-based entity would not fall under this category. |
| Employment | Indefinite-term or at least one-year definite-term labor contract with a Vietnam-based employer. |
We are of the view that a definite-term labor contract (from 12 to 24 months) would suffice in this regard.
It is worth noting that term of expat’s labor contract must be in line with term of his/her valid work permit, which is maximum 24 months from a theoretical perspective.
|
| Age |
Men: Under 60 years old
Women: Under 55 years old |
Please kindly be advised that these retirement ages are being proposed to increase to 62 for male and 60 for female according to the draft of new labor code.
|
| Others | NOT falling under the scope of statutory intra-company transferees, i.e. any expat managers, chief executive officers, experts and technicians, who have been employed by the offshore enterprise for at least 12 months and are temporarily re-assigned/ seconded to its Vietnam-based commercial presence (e.g. subsidiary, representative office, or branch). | Frankly speaking, an expat deemed an intra-company transferee with his/her work permit exemption certificate would be NOT eligible to attend the SI scheme. |
For ease of reference, timeline and ratio for SI contributions applicable to both employer and expat employees under Decree 143 please see the table below.
In short, employers who hire expat employees would have to bear an extra liability to ‘part’ pay SI from 1 December 2018 and to ‘fully’ pay SI from 1 January 2022 while the relevant expat employees will NOT commence contributing to the scheme until 1 January 2022.
| Sickness and Maternity | Labor Accident and Occupation Disease |
Pension
and Death Allowance |
Total | ||
|
Since
1 December 2018 |
Employer | 3% | 0.5% | 0% | 3.5% |
| Expat Employee | 0% | 0% | 0% | 0% | |
|
Since
1 January 2022 |
Employer | 3% | 0.5% | 14% | 17.5% |
| Expat Employee | 0% | 0% | 8% | 8% | |
Importantly, please also note that there is a statutory maximum cap for all SI contribution, as with caps applicable to Vietnamese employees, if the expat employee’s actual gross salary is higher than the maximum cap, the cap becomes the basis of the % calculation. Specifically, in light of SI, the basis for % calculation would be (i) the actual gross salary OR (ii) 20 times of ‘Base Salary’[5], whichever is lower. Accordingly, such cap shall apply equally to both the employer % contribution and the employee % contribution.
[1] Law on Social Insurance no. 58/2014/QH13 dated 20 November 2014 (“Law on Social Insurance”)
[2] Decree no. 143/2018/ND-CP dated 15 October 2018, elaborating on Law on Social Insurance and Law on Occupational Safety and Hygiene regarding compulsory social insurance for employees who are foreign nationals working in Vietnam (“Decree 143”)
[3] http://thoibaotaichinhvietnam.vn/pages/tien-te-bao-hiem/2019-03-20/hon-64-lao-dong-nuoc-ngoai-da-tham-gia-bhxh-bat-buoc-69060.aspx
[4] Official Letter no. 1064/LDTBXH-BHXH issued by the MOLISA dated 18 March 2019
[5] ‘Base Salary’ is a measure set by the Vietnamese government from time to time. The current Base Salary applicable since 1 Jan 2019 is VND 1,390,000 / month, corresponding to a monthly cap of VND 27,800,000. However, it is worth noting that the Base Salary will change effective 1 July 2019 to VND 1,490,000, corresponding to a monthly cap of VND 29,800,000.
For further information, please contact:
Giles T. Cooper, Partner, Duane Morris
gtcooper@duanemorris.com
