According to the foreign exchange ordinance, foreign exchange includes many types, including currencies of other countries or common European currencies and other common currencies used in international and regional payments, also known as foreign currencies. The Vietnamese law stipulates only a few cases in which foreign exchange can be used in the Vietnamese territory.
Before the restrictions of the use of foreign exchange, the employer will encounter difficulties in paying salary to foreign employees working in the Vietnamese territory when drafting employment agreement. Accordingly, there are questions related to the employer’s obligations to the tax and social insurance agencies.
With many years of experience in providing consultancy services to individuals and organizations inside and outside the Vietnamese territory, we will provide a basic legal to answer issues related to payment of salaries to foreign workers by foreign currency. Thereby, the employer has a clear basis to set forth the terms when entering into an employment agreement with the employee.
Therefore, is it possible to use foreign currency in the employment agreement? What should employers pay attention to when withholding personal income tax for foreign workers? What should the employers note when deducting social insurance contributions for foreign workers?
A. Whether it possible to pay the foreign employee salary by foreign currency?
Article 95 of the Labor Code 2019 provides:
“1. The employer shall pay the employee on the basis of the agreed salary, productivity and work quality.
- The salary written in the employment contract and the salary paid in reality shall be VND, unless the employee is a foreigner working in Vietnam.
- Every time salary is paid, the employer shall provide the employee with a note specifying the salary, overtime pay, nightshift pay and deductions (if any).”
Accordingly, the salary stated in the employment agreement and the salary paid to the Employee is specified in Vietnam Dong, in case foreign employees are in Vietnam, it can be in foreign currency.
Thus, the Employer has the right to negotiate the salary stated in the employment agreement and pay the foreign employee’s salary in foreign currency. However, the employees need to pay attention to a number of issues when deducting personal income tax, deduction and payment of compulsory social insurance according to regulations.
B. What should employers pay attention to when withholding personal income tax for foreign workers?
Article 2 of the 2007 Law on Personal Income Tax, amended and supplemented in 2012, stipulates:
“ 1. Personal income taxpayers include residents who earn taxable incomes specified in Article 3 of this Law inside and outside the Vietnamese territory and non-residents who earn taxable incomes specified in Article 3 of this Law inside the Vietnamese territory.
- Resident means a person who satisfies one of the following conditions:
a/ Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months counting from the first date of their presence in Vietnam;
b/ Having a place of habitual residence in Vietnam, which is a registered place of permanent residence or a rented house for dwelling in Vietnam under a term rent contract.
- Non-resident means a person who does not satisfy any of the conditions specified in Clause 2 of this Article.”
Accordingly, the employee who is a foreigner who signs an employment agreement and lives in Vietnam for 183 days or more in a year and earns income is subject to personal income tax.
Article 6.1 of the 2007 Personal Income Tax Law stipulates the conversion of taxable income into Vietnam Dong as follows: “A taxable income received in a foreign currency must be converted into Vietnam dong at the average exchange transaction rate on the inter-bank foreign exchange market announced by the State Bank at the time of income generation.”
According to the provisions of Article 13 of Circular 92/2015/TT-BTC amending and supplementing Circular 111/2013/TT-BTC, taxable income received in foreign currency must be converted into Vietnam Dong at the actual transaction rate purchased by the bank the employee opens a trading account at the time of income arising.
In case the employees do not open a transaction account in Vietnam, he/she must convert the foreign currency into Vietnam Dong at the buying exchange rate of the Joint Stock Commercial Bank for Foreign Trade of Vietnam at the time of income generation.
Thus, the employers must pay attention to converting taxable income into Vietnam Dong when deducting personal income tax for foreign employees.
C. Note the deduction for compulsory social insurance payment when paying salary in foreign currency
Article 26 of Decree No. 115/2015/ND-CP stipulating the conversion of wages in foreign currency into Vietnamese dong for social insurance payment as follows:
“Each employee having salary mentioned in the labor contract in foreign currency, the social insurance payment and social insurance recording shall be carried out as follows:
- The monthly salary as the basis for social insurance payment in VND by converting the salary in foreign currency into VND according to the average exchange rate on the inter-bank foreign exchange market announced by the State bank of Vietnam on every January 2 and July 1. If the announcement date falls on a legal holiday, the exchange rate of the following date announced by the State bank of Vietnam shall apply.
- Monthly salary as the basis for social insurance payment mentioned in the social insurance book is the salary in VND determined in Clause 1 of this Article.”
Accordingly, the employers should note that when the foreign employees have a salary stated in the agreement in a foreign currency, the monthly salary paid for social insurance premiums is calculated in Vietnam on the basis of the salary in foreign currency converted in Vietnamese dong.
Note: The content presented above is for reference only. Depending on different times and audiences, the above content may no longer be relevant. For detailed advice, please contact LMP Lawyers.