Compulsory social insurance regime is to apply to foreign employees in Vietnam

By Linh Bui

In brief

Social insurance contributions from foreign employees working in Vietnam and their employers were required from 1 January 2018, but lack of guidance has meant a hold on the practice until now. The Government has finally issued a long-awaited decree that implements the compulsory social insurance scheme for foreign employees from 1 December 2018. Partner Linh Bui, Senior Associate Mai Loan Nguyen and Associate Hoa Phan report on the key changes.

Foreigners subject to social insurance scheme

Under Decree No. 143/2018/ND-CP (Decree 143), compulsory social insurance contribution applies to foreign employees who have labour contracts with Vietnamese employers governed by Vietnamese labour law. In particular, it applies to foreign employees who have a (i) work permit, practising certificate, or practising licence granted by Vietnamese authorities for working in Vietnam and (ii) an indefinite labour contract or a definite labour contract with the term of one year or more.

Expressly excluded from the compulsory social insurance scheme are (i) foreigners who are transferred internally from the offshore parent company to its subsidiary/business establishment in Vietnam (provided that such employee had been employed by the parent company for at least one year before being assigned to Vietnam), and (ii) those who have reached the retirement age (55 for a female and 60 for a male respectively).

Compulsory social insurance regimes and benefits

Under Decree 143, a foreign employee is subject to the following compulsory social insurance regimes: illness, maternity, occupational accident and work-related disease, retirement, and survivor benefits.

A foreign employee who contributes social insurance shall be entitled to receive the above insurance benefits in the same manner as Vietnamese counterparts.

Retirement and survivor benefits for foreign employees will become available from 1 January 2022. A foreign employee reaching statutory retirement age in Vietnam and having made social insurance contribution for 20 years or more is entitled to a monthly pension salary. If the foreign employee terminates his/her employment and relocates to another country, he/she can claim a lump-sum insurance payment from the retirement and survivor fund. If he/she relocates to another country after qualifying for a monthly pension salary, he/she can also claim a lump-sum payment.

Ratios of contribution

The Vietnamese employer and the foreign employee must contribute to the social insurance funds as follows.

  • Starting from 1 December 2018, the employer must contribute an amount equal to:
    • 3 per cent of the employee's monthly salary to the sickness and maternity funds; and
    • 0.5 per cent of the employee's monthly salary to the occupational accidents and hazards funds.
      No contribution by the foreign employee is required.
  • Starting from 1 January 2022, the employer and the foreign employee must contribute an amount equal to 14 per cent and 8 per cent, respectively, of the employee's monthly salary to the retirement and survivor benefits fund.

The monthly salary of the employee used to calculate the above compulsory insurance contributions is capped at 20 times the minimum monthly salary issued by the Vietnamese Government from time to time. With the current minimum monthly salary in Vietnam being VND1,390,000 (c.USD59.36), the monthly salary used for calculation of the compulsory insurance of foreign employees is VND27,800,000 (c.USD1,187.20).

Outstanding issues

Besides setting out detailed legal basis for implementation of the social insurance scheme for foreign employees, Decree 143 was expected to address concerns of duplication of social insurance payments in Vietnam and the foreign employee's home country. However, rather than providing a definitive answer, the Decree only authorises the Minister of Labour, War Invalids and Social Affairs to negotiate this point in treaties with other countries (and it is reported that discussion has just been started with a handful of them, including South Korea, Germany and Japan). Therefore, concerns remain that this issue will not be resolved quickly.