The representative office of a foreign trader in Vietnam (hereinafter referred to as “Representative office”) Is a dependent unit of this foreign trader established under Vietnamese laws. Upon entering the Vietnamese market, foreign traders can choose many different forms to participate. However, the establishment of a representative office is an optimal test step to reduce costs, avoid risks associated with local procedures such as non-application of value added tax, income tax, corporate tax, no financial statement, no independent audit required…. in the early stages of accession. With the function of strengthening and helping foreign traders find customers, promote purchase and sale contracts with local partners, research and develop products, foreign traders usually appoint the employee who has worked for foreign traders for a long time and understood their products to go to Vietnam, take the post of head of representative office and operate representative office business or work as representative office employee in Vietnam. These foreign employees are considered foreigners in internal change within a company.
Social insurance obligations for Foreigner undergoing internal change within a company
Social insurance is a policy of the social security system primarily concerned with the government to provide benefits to employees based on contributions from employees and employers. The essence of social insurance is a guarantee to compensate or partially replace the income of employees when they experience a decrease or loss of income due to illness, maternity, work accident. , occupational disease, unemployment, when they reach the end of working age or die on the basis of contributions to the social insurance fund organized by the government. However, each employee will be subject to different social insurance policies. According to the provisions of clause 1, article 2 of government decree 143/2018 / ND-CP on subjects participating in compulsory social insurance: “Foreign employees working in Vietnam are required to participate in compulsory social insurance. ‘they have work permits, certificates of practice, permits to practice issued in Vietnam, employment contracts of indefinite duration or employment contracts valid for at least one year with employers in Vietnam. In the event of an intra-company move of the foreign employee, the foreign employees sign the employment contract with the foreign traders and are not required to apply for a work permit as provided for in clause 3, article 7 of decree 152/2020 / ND -CP: “Intra-company moving in 11 sectors of the Vietnam-WTO services commitments schedule, including business services, communication services, construction services, distribution services, services education, environmental services, financial services, health services, tourism services, recreational and cultural services, and transportation services.
Consequently, foreigners transferring internally within a company are not subject to compulsory social insurance.
The subjects affiliated to health insurance are employees working under a fixed-term employment contract for a total duration of 3 months or more, employment contracts of indefinite duration. The monthly health insurance payment is equal to 4.5% of the salary serving as the basis for the amount of compulsory social insurance (monthly salary) with the employer contribution of 3% and the employee contribution of 1.5%. Thus, subjects affiliated with health insurance do not discriminate against Vietnamese citizens or foreign employees. In addition, in accordance with Clause 2, Article 1 of the Social Insurance Law 2008 as amended and supplemented in 2014 (hereinafter referred to as “Health Insurance Law 2004”), foreign organizations and natural persons in Vietnam are also subject to the provisions of the Health Insurance Law 2004. Therefore, we believe that the foreigner transferred within a company if he works under an employment contract of indefinite duration or of an employment contract of a duration of 3 months or more is also subject to the Health Insurance Act 2004 and must participate in health insurance under the laws.
However, according to official letter No. 288 / BHXH-QLT dated February 18, 2020, from Ho Chi Minh City Social Insurance Agency, Ho Chi Minh City Social Insurance Agency instructs employers in Ho Chi Minh City than the foreigner transferred internally to a Companies are not subject to health insurance from February 1, 2020. Sharing the same opinion with the Social Insurance Agency of Ho Chi Minh- City, in the online policy explanation on the government portal, the Social Insurance Agency of Vietnam also said that the internal overseas transfer within a company is not eligible to participate in health insurance because foreign workers in Vietnam are not specifically regulated to participate in health insurance under Article 12 of the Health Insurance Law of 2004 and Decree 146/2018 of October 17, 2018 government on detailing and guiding the implementation of cert thus articles of the law on health insurance which do not specifically regulate the mechanism applicable to its group of subjects. However, the Official Dispatch is not a normative legal document and is only an internal administrative document or applicable to regions and localities. Therefore, in our opinion, to avoid risks in determining social insurance obligations for foreign employees making an intra-company move, the representative office should send a written consultation to the social insurance body where it is located. find the office to consult, exchange views in advance to comply with regulations.
Tax obligations of natural persons foreign employees moving within the company
Unlike other matters, foreigners living and working in Vietnam must declare and pay personal income tax. However, it is necessary to determine the residence status of the foreigner (resident or non-resident) to determine the rate of personal income tax payable for foreigners.
Foreigners who make an internal transfer within a company are identified as residing in Vietnam. The representative office must declare a personal income tax similar to that of Vietnamese employees.
For foreign workers who do not reside in Vietnam, it is true that the employee (usually the head of the representative office) is a foreigner making an intra-company move but has not been present in Vietnam for 183 days or more. and does not have a usual address in Vietnam, they are therefore considered a non-resident natural person in accordance with clauses 2 and 3, article 2 of decree 65/2013 / ND-CP. We can consider the tax obligations of natural persons from abroad in internal transfer within a company in the following two cases:
- Case 1: The foreigner who makes an internal transfer within a company does not reside in Vietnam but generates income in Vietnam. The representative office must declare personal income tax on wages / salaries incurred in Vietnam.
- Case 2: The foreigner who makes an internal transfer within a company does not reside in Vietnam, does not generate any income in Vietnam and is not entitled to a salary / wages for work performed in Vietnam. Consequently, foreigners are not subject to personal income tax. However, in accordance with the provisions of Clause 2, Clause 3, Article 7 of Decree 126/2020 / ND-CP, the Representative Office must always declare the income tax of foreign workers on a quarterly basis, whether or not they generate income. taxable income from October 1, 2020. On the other hand, Official Letter n ° 2393 / TCT-DNNCN dated July 1, 2021, from the Directorate General of Taxes relating to the personal income tax declaration, in the event that organizations and individuals pay taxable income, they will be subject to personal income tax. declaration. Therefore, if organizations and individuals do not generate and pay taxable income on personal income, they are not subject to the provisions of the Personal Income Tax Act. Therefore, organizations and individuals who do not pay personal income taxable income during a month / quarter are not required to report personal income tax for that month / quarter.
For this case, in our opinion, the official letter 2393 is only used as a reference. According to the official letter 2393, the representative office can explain to avoid administrative penalties for non-declaration of income tax of foreign employees from July 1, 2020 until now. Then, the representative office must declare the income tax of foreign employees, whether or not they have taxable income in accordance with Decree 126/2020 / ND-CP.
In addition, for the declaration of no income in Vietnam, we have come across many cases in our consulting practice where the Representative Office has declared no income. However, the tax authorities still applied personal tax rates for income paid by foreign traders. Therefore, in our opinion, you should consult the tax administration to declare and pay the income tax of foreign workers with no income in Vietnam before doing so to avoid the risk of tax penalties.
The issues of personal income tax and social insurance obligations for foreign employees in Vietnam are complicated in terms of laws and practices, especially in the case of foreign employees making an intra-company move. It becomes even more difficult to determine their obligations as they frequently change their residence address between their country and Vietnam. Therefore, representative offices of foreign traders in particular and employers in general should carefully review, understand legal regulations, and regularly consult with experts to determine income tax and social insurance obligations in order to to avoid violations during implementation.