Vietnam Tax & Payroll Challenges: A Guide for Foreign Businesses

26/08/2025

For foreign companies setting up shop or expanding in Vietnam, the country's dynamic economic landscape offers immense opportunity. However, beneath the surface lies a complex regulatory environment that can be a major source of stress and risk. When it comes to human resources and payroll, a single oversight in tax compliance can lead to significant penalties, legal complications, and damage to your brand reputation. The complexity isn't just about taxes; it's about a multilayered system of interconnected laws that require meticulous attention to detail.

Decoding Mandatory Insurance Contributions: SI, HI & UI

One of the most significant challenges for foreign businesses is navigating Vietnam's mandatory insurance system. The legal framework requires both employers and employees to contribute to three main funds: Social Insurance (SI), Health Insurance (HI), and Unemployment Insurance (UI).

Understanding the precise contribution rates is critical for accurate payroll. Here is a detailed breakdown of the mandatory insurance contribution rates as of 2025:

Insurance Type	Employer Contribution	Employee Contribution	Total Contribution
Vietnamese Employees
Social Insurance (SI)	17.5%	8%	25.5%
Health Insurance (HI)	3%	1.5%	4.5%
Unemployment Insurance (UI)	1%	1%	2%
Total	21.5%	10.5%	32%
Foreign Employees
Social Insurance (SI)	17.5%	8%	25.5%
Health Insurance (HI)	3%	1.5%	4.5%
Unemployment Insurance (UI)	0%	0%	0%
Total	20.5%	9.5%	30%

Note on Salary Caps:

Social & Health Insurance: The salary used for calculating contributions is capped at 20 times the government’s basic salary (reference level). As of 2025, the basic salary is VND 2,340,000, setting the maximum contribution salary at VND 46,800,000.
Unemployment Insurance: The salary cap for UI is set at 20 times the regional minimum wage, which varies by region.

Annual PIT Finalization for Foreigners: Avoiding Common Pitfalls

While monthly tax withholding is standard, the annual Personal Income Tax (PIT) finalization process is where many foreign companies face difficulties. It is a mandatory declaration that ensures a taxpayer's full compliance.

The table below clarifies the key conditions and deadlines for this critical process.

Type of Individual

When to Finalize

Finalization Deadline

Important Notes

For All Tax Residents

(Locals & Foreigners)

Has more than one source of employment income.
Has overpaid tax and wishes to get a refund.
Has additional tax to pay.

For employers (on behalf of authorized employees): No later than the last day of the 3rd month after the end of the calendar year (e.g., March 31, 2025).
For individuals (self-finalizing): No later than the last day of the 4th month after the end of the calendar year (e.g., April 30, 2025).

The tax year is the calendar year.
Individuals with a tax payable of VND 50,000 or less are not required to finalize unless they want a refund.

For Foreigners Leaving Vietnam

All foreigners who are tax residents (present in Vietnam for ≥183 days) and are terminating their work contract.

Must finalize PIT within 45 days of their departure date.

This is a mandatory requirement to ensure all tax obligations are settled before exiting the country. A specific finalization return must be filed.

Navigating the Nuances of Local Labor Codes

Beyond financial contributions, the labor code itself presents a minefield of potential errors for foreign companies. Here is a breakdown of the most common mistakes and the legal grounds you must understand to remain compliant.

Area of Concern	Legal Requirement & Key Nuances	Common Pitfalls & Consequences
Work Permits & Contracts	Foreign employees must have a valid work permit or exemption certificate to work legally in Vietnam. The labor contract must align with the permit's details.	Mistake: Hiring foreign staff without a valid permit or letting a permit expire. Consequences: Heavy fines for the employer (from VND 30 million to 75 million), payments may be non-tax-deductible, and the employee can face deportation.
Gross vs. Net Salaries	Vietnamese law is structured around a gross salary basis. All mandatory taxes and insurance contributions are calculated from this gross amount.	Mistake: Paying a net salary without accurately "grossing-up" the salary to cover all legal deductions. Consequences: Complex payroll calculations, discrepancies in financial records, and the employer may lose money as tax refunds are returned directly to the employee.
Probation & Termination	Probation periods are legally capped (e.g., max 60 days for a professional role), and the salary must be at least 85% of the official pay. Termination must be based on valid legal grounds and follow strict notice periods (e.g., 45 days for indefinite contracts).	Mistake: Firing an employee without legal cause or proper notice. Consequences: The employer may be forced to rehire the employee, pay lost wages, and face legal fees. Illegal dismissals can also lead to significant reputational damage.

Your Solution: Invest Talent JSC

For a foreign company, attempting to manage these complexities in-house can divert valuable resources and expose the business to unnecessary risk. Staying up-to-date on constant regulatory changes, from new laws to updates on the Labor Code, is a full-time job.

This is where Invest Talent JSC becomes your strategic partner. Our dedicated Payroll Service & PIT Consulting team provides an efficient, compliant, and cost-effective solution tailored for foreign businesses. We handle all facets of payroll management, from accurate salary processing to timely PIT declarations, ensuring you remain fully compliant and risk-free.

Ready to navigate Vietnam's tax and payroll landscape with confidence? Contact Invest Talent JSC today for a free consultation and let our experts handle the complexities, so you can focus on your core business goals.