THE MINISTRY OF FINANCE-THE MINISTRY OF LABOR, WAR INVALIDS AND SOCIAL AFFAIRS
SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom -
Ha Noi , January 16, 1996
INTER-MINISTERIAL CIRCULAR No. 5/TTLB/TC-LDTBXH OF JANUARY 16, 1996, OF THE MINISTRY OF FINANCE - THE MINISTRY OF LABOR, WAR INVALIDS AND SOCIAL AFFAIRS PROVIDING GUIDANCE ON FINANCIAL REGIME FOR THE SENDING OF LABORERS OVERSEAS FOR TENURED WORK UNDER DECREE No.7-CP OF JANUARY 20, 1995, OF THE GOVERNMENTPursuant to Decree No.7-CP of January 20, 1995, of the Government stipulating detailed provisions on a number of articles of the Labor Code on the sending of Vietnamese laborers overseas for tenured work, the Ministry of Finance and the Ministry of Labor, War Invalids and Social Affairs jointly provide the following guidance on the financial regime:
A. PROVISIONS ON THE RESPONSIBILITIES AND INTERESTS OF THE LABORERS AND ECONOMIC ORGANIZATIONS
I. The deposit:
1. The laborer:
The laborer shall pay to the economic organization which sends him/her overseas for a tenured job a deposit which is meant to ensure his/her execution of the contract.
2. The economic organization:
The economic organization shall receive and manage the laborers deposit which can be paid in one installment or in monthly installments taken from the laborers monthly salary and which shall be placed in a "pay-out" account to ensure a timely refund.
The amount of the deposit and its payment procedure shall be agreed upon between the economic organization and the laborer, but it shall not exceed the price of a one-way air ticket for the laborer to travel from Vietnam to his/her overseas place of work, and shall be clearly defined in the contract for overseas work that the laborer signs with the economic organization which sends him/her overseas.
Within one month from the date the laborer returns home after his/her accomplishment of the contract or after the premature termination of the contract without incurring any economic losses for the economic organization, the economic organization shall refund the laborer the deposits principal and its interest for untimed deposits set by the State Bank of Vietnam.
In case the laborer infringes upon the labor contract and causes economic losses to the economic organization, the latter is entitled to deduct into the deposit and its untimed interest (if any) of the laborer in line with the regime set for material compensation, on condition that it openly informs the laborer of the reason for, and the amount of, the deduction.
After the termination of the labor contract, if the laborer has not yet returned to the country, he/she shall not get the refund of the deposit; and the economic organization has the responsibility to continue managing the deposit as provided for in Section A, Item 1, Point 2, pending a settlement in line with the existing laws of the State.
II. The social insurance:
1. During his/her work overseas, the laborer shall enjoy the social insurance regime of the country where he/she works as agreed upon and clearly indicated in the contract, which is one of the conditions, the agreement upon which must have been solicited by the economic organization from the foreign employer so as to ensure the interests of the laborer from the time of his/her departure from Vietnam to the time of his/her accomplishment of the contract and repatriation.
2. During his/her work overseas, the laborer shall pay his/her social insurance premium to the Vietnamese social insurance fund to cover his/her pension and death allowance.
The monthly social insurance premium is temporarily set at 15% of twice the minimum salary set by the Vietnamese Government for each period.
3. The economic organization has the responsibility to deduct from the monthly salary of the laborer his/her social insurance premium and record it separately as the laborers social insurance payment as provided for by the Vietnamese social insurance agency.
In case the laborer does not receive a monthly salary or is not paid his/her salary through the economic organization, the payment of the social insurance shall be arranged in an appropriate manner as agreed upon between the laborer and the economic organization for the whole period of the contract.
III. The service fee:
1. The economic organization:
The service fee is the taxable income from public utility work of the economic organization and is used to cover the operating cost of the labor supply apparatus; recruitment; health examination; training and test and foreign-language training; pre-departure training; labor management at home and abroad; processing of papers from the district level and higher related to immigration and migration procedures; and the repatriation of the laborer to the unit where he/she was working prior to departure.
The economic organization which sends the laborer overseas for tenured work has the right to receive from him/her a fee which shall not exceed 12% of his/her contract income to be paid by the employer which does not cover the expenses on meals, accommodation and on-the-spot insurance during his/her work abroad. In case the contract also covers meals, accommodation and insurance during the laborers work abroad, the economic organization can charge a fee which shall not exceed 8% of the prescribed income.
The service fee which is charged by the economic organization is a percentage of the laborers monthly income after the following deductions:
- The single or return air ticket from Vietnam to the country of work which must be clearly indicated as the laborers charge. The fare is determined on the basis of the purchase price and the appropriate itinerary (not including the baggage charges).
- The compulsory payments to the country of work as required by that countrys law (if any).
The above-prescribed deductions from the laborers monthly income to pay the service fee shall be determined by dividing the total amount of the deductions by the number of months of the whole period of work described in the contract.
Apart from the said fee, the economic organization shall not levy any other charge on the laborer.
With a view to heightening the sense of responsibility of the laborer, when he/she registers his/her application for work overseas, the economic organization is authorized to collect a temporary sum to cover the following expenses (but shall not exceed 1 million VND):
- Health examination as required by the Ministry of Health.
- Test of foreign language and vocational skills (including the expenses on fostering and retraining as required by the contract) as required by the Ministry of Education and Training.
- The processing of dossiers and papers for the laborers exit visa by the district level upward.
- The expenses related to the pre-departure training.
The economic organization has the responsibility to refund this temporary charge to the laborer at the time of the signing of the official contract with him/her prior to his/her departure (as required by the provisions in Item II, Point 2, Sub-point (c) of Guiding Circular No.20-LDTBXH of August 3, 1995, of the Ministry of Labor, War Invalids and Social Affairs). In case of a failure to execute the contract due to the laborer (no longer having the need to work overseas or lacking one of the conditions prescribed in the contract), the laborer has to bear the expenses on the work already undertaken by the economic organization; if the failure to execute the contract is due to the economic organization, it shall bear all the expenses and shall immediately refund the temporarily collected sum to the laborer.
2. The laborer:
- Has the obligation to pay the monthly service fee at the same time as he/she receives the monthly salary to the economic organization at the rate set in Item 1.
In case the economic organization has no condition to collect the monthly service fee because the laborer receives the salary directly from the overseas employer, the laborer has the responsibility to pay the service fee in the form already agreed upon between himself/herself and the economic organization.
IV. The taxes on high incomes:
The laborer has the responsibility to pay the personal income tax as stipulated in the Ordinance on Taxes on High-Income Earners of May 19, 1994, Decree No.05-CP of January 20, 1995, of the Government, and Guiding Circular No.27/TC-TCT of March 30, 1995, of the Ministry of Finance.
As regards the individuals working in the countries with which Vietnam has signed agreements on avoidance of double taxation, the implementation of the content of the agreement with each country shall prevail in line with Document No.1664-TCT/HTQT of October 11, 1994, of the General Department of Taxation of the Ministry of Finance which provides guidance for the implementation of agreements on avoidance of double taxation.
1. The taxable incomes:
Due to the specific character that the payer of the tax on high-income earners is a laborer working on tenure overseas under a concrete contract, the tax he/she shall have to pay for his/her high income shall be determined as follows:
a/ The taxable income is the income which is clearly indicated in the contract as the monthly salary that the overseas employer shall pay to the laborer to cover the meals, accommodation, commuting, insurance and other expenses during the whole period of work under contract. In case the employer provides only part of the expenses on meals, accommodation, commuting and social insurance, the rest of the expenses shall be deducted from the income prescribed in the contract so as to calculate the net income in accordance with the provision stipulated in the following Point (b).
b/ If the contract stipulates that the employer shall pay the laborer part of the salary (net income) excluding the expenses on meals, accommodation and insurance during the laborers period of work overseas, the uncovered expenses shall be equivalent to the net income (in other words, equivalent to about 50% of the total income), so as to have a ground to calculate the taxable income.
c/ The tax-exempt expenses used to determine the taxable income are the expenses which are substracted from the monthly income when calculations are made of the service fee in accordance with the provisions stipulated in Section III, Point 1, of this Circular (not excluding the tax on high income already paid in the country of work, if any).
d/ In the contract for work overseas, the monthly income of the laborer being considered unchanged for the whole period, the monthly income is the mean taxable income for all the months of the year.
2. Tax rates for high incomes:
In accordance with Article 10, Section 2, of the Ordinance on Taxes on High-Income Earners of May 19, 1994, the Vietnamese laborer who works on tenure overseas shall pay his/her income tax as prescribed in the following table of partially progressional tax rates:
Unit: 1,000 VND
Mean monthly income/person
Up to 5,000
Over 5,000 to 12,000
TI x 10% - 500
Over 12,000 to 30,000
TI x 20% - 1,700
Over 30,000 to 50,000
TI x 30% - 4,700
Over 50,000 to 70,000
TI x 40% - 9,700
TI x 50% - 16,700
In which: TI = Taxable income
(x) = multiply; (-) = minus
3. Examples for calculation of income and high-income taxes:
a/ Example 1:
Health expert Nguyen Van A works in Angola on a three-year contract which clearly indicates that Mr. As total income is 1,000 USD/month. Like other Vietnamese experts in that country, he has to pay his own return air ticket of 1,600 USD and bears his own expenses on meals, accommodation, commuting, insurance, etc., during his stay to work under the contract.
Mr. Nguyen Van As income which is taxable and subject to high-income tax is calculated as follows:
- The air fare is divided evenly by the number of months specified by the contract:
1,600 USD : 36 months = 44.44 USD/month
- The taxable income is:
1,000 USD - 44.44 USD/month = 955.56 USD/month
In Vietnam Dong at the rate of 11,000 VND to one USD:
The income subject to high-income tax for a month is:
10,511,160 VND x 10% - 500,000 VND = 551,116 VND
Equivalent to 50.1 USD (551,116 : 11,000).
Although Angola and Vietnam have not signed an agreement on avoidance of double taxation, if the laborer produces papers certifying that he/she has paid his/her income tax in that country, 30 USD (or 330,000 VND at the rate of 11,000 VND to one USD) for instance, he/she will have to pay the remainder (551,116 VND - 330,000 VND) of 221,116 VND in Vietnam. In case the tax already paid abroad is higher than the amount to be paid in Vietnam (50.10 USD), the labor is exempt from high-income tax in Vietnam.
b/ Example 2:
Mr. Tran Van B signs a contract to work in country X for a period of one year. The contract clearly indicates that Mr. B will be paid a net monthly income of 350 USD and his employer will provide for his expenses on meals, accommodation and insurance during his whole stay to work under the contract.
Mr. Bs income which is taxable and subject to high-income tax is calculated as follows:
- The taxable income mentioned in Point 1, Sub-point (b), of this Item is:
350 USD + 350 USD = 700 USD/month
- Mr. B has to buy his own air fare on a reasonable route from Vietnam to country X at a cost of 360 USD which will be divided evenly by 12 months on the contract. Therefore, the air fare is 30 USD/month.
- As specified in the contract, all the expenses on the management of overseas labor will be substracted from the monthly income of the laborer before it is paid to him/her, the substraction is therefore 20 USD/month.
- The taxable remaining income is:
700 USD - (30 USD + 20 USD) = 650 USD/month.
In Vietnam Dong, at the exchange rate of 11,000 VND to one USD, it is 7,150,000 VND/month.
- The income tax that Mr. B has to pay each month is:
7,150,000 VND x 10% - 500,000 VND = 215,000 VND, or 19.5 USD (215,000 : 11,000)
As country X has already signed with Vietnam an agreement on avoidance of double taxation, then in accordance with the provisions of Articles 15 and 23 of the Agreement and Document No.1664-TCT/HTQT of October 11, 1994, of the General Department of Taxation of the Ministry of Finance, providing guidance for the implementation of the Agreement, the laborer has to pay income tax in both countries. In case the laborer has already paid a high-income tax in country X at the rate of 10 USD (110,000 VND at the exchange rate of 11,000 VND to one USD) and has all valid papers to prove that payment, the then remaining tax he has to pay in Vietnam is 105,000 VND. In case the tax he pays in country X is higher than the tax he is due to pay in Vietnam (19.5 USD), he will be exempted from Vietnams high-income tax.
If Mr. Tran Van B is paid a salary as specified in the said contract, but he himself has to buy his own breakfasts and dinners and buy his health insurance and cover these expenses in country X, at a total cost of 110 USD/month, then his taxable income will be as follows:
- Mr. Bs net income is:
240 USD (350 USD - 110 USD)
- The taxable income is:
(240 USD + 240 USD) - (30 USD + 20 USD) = 430 USD
At the exchange rate of 11,000 VND to one USD, it is 4,730, 000 VND. Then, as specified in the above tax rates, Mr. B is not subject to high-income tax.
V. The permit fees:
1. The fees:
The Ministry of Labor, War Invalids and Social Affairs is authorized to collect and manage two fees: the fee on operating permit and the fee on contract execution permit.
The economic organization, on receiving the operating permit, has to pay a fee in Vietnam Dong equivalent to 2,000 USD, and on receiving the permit for contract execution, has to pay a fee in Vietnam Dong equivalent to 5 USD/person in accordance with the number of persons specified in the contract submitted to the Ministry of Labor, War Invalids and Social Affairs (the Department for Management of Guest Workers).
The economic organization is authorized to account for these two fees in the operating cost of providing labor supply.
2. The management regime:
The collection and management of the permit fees shall be undertaken in accordance with the existing regime for fee management of the State. The Ministry of Labor, War Invalids and Social Affairs (the Department for Management of Guest Workers) shall work out an itemized spending plan and submit it to the Ministry of Finance for consideration and approval as part of the annual revenue and expenditure plan of the Ministry in the form of percentages to be held back from the total collection. These percentages shall remain unchanged for from 1 to 2 years. The detailed items of the spending from this source are:
- Expense on the verification of the legal status as well as the other necessary conditions of an enterprise in sending laborers overseas for tenured work so as to provide the basis for the issuance of the operating permit.
- Expense on the evaluation of the contracts and the feasibilities of the contract to send laborers overseas for work so as to provide the basis for the issue of the permit for contract execution.
- Expenses on opening new markets, marketing work and the networking of collaborators in areas where there is the need for Vietnamese laborers.
- Other expenses incurred by the necessity arising in the field of State management in some of the specific external economic areas which are not adequately covered by the current financial regulations of the State.
VI. Organizing the payment of social insurance, high-income tax and service fees:
1. The economic organization which is empowered to make the collection shall register with the local tax agency where it pays its registration tax (or registers its office address) so as to receive guidance on the procedure and method in order to collect and pay taxes as required by law. Every month, as it makes salary payment to the laborer, the economic organization is responsible to collect the payments for social insurance, high-income tax and service fees. In case the overseas employer directly pays the monthly salary to the laborer, the collection shall be made in one of the following forms:
- Requesting the overseas employer to retain from the monthly salary the payments for social insurance, high-income tax and service fees before paying the salary to the laborer (in accordance with the sums calculated by the Vietnamese economic organization) and to transfer them into an account designated by the economic organization for subsequent repatriation.
- Through the representative office (or a mandated representative) to collect the monthly payments in a way conformable to the situation and circumstances of each country and each individual case.
2. Due to the specific conditions of the Vietnamese guest workers in which all revenues are generated overseas, the mandated collector shall therefore be the economic organization directly in charge of the laborer which shall have to make the collection in an accurate, full and timely manner as required by law and shall be entitled to a commission equal to 0.5% of the collected sum of social insurance, high-income tax.
Every month, on a date prior to the 10th day of the next month, the economic organization shall remit the sum it has collected from payments of social insurance and high-income tax in a manner as guided by the social insurance and tax agencies of the same level; the 0.5% entitlement shall be deducted at the same time as each remittance.
VII. The reporting regime:
1. The recording regime for accountancy:
Apart from the general provisions of the State regime on accountancy as guided by the financial agency, the local social insurance and tax agencies, the economic organization shall, in its capacity as the State-mandated collector and as the organization directly in charge of the laborer, perform the following procedures:
- Recording in logs (or register) the revenue and payment situation of each laborer so as to have the basis of reference as the contract expires and provide entitlement interests for the laborer.
- The logging shall be done into 02 copies, one of which is to be kept by the economic organization in the file of the laborer which will serve as a basis for financial statements, and the other to be kept by the laborer (or his/her mandated representative) who shall produce and sign it on each contact with the economic organization.
2. The regime for periodical reporting:
- Every quarter, the economic organization shall make a report on the implementation of the collecting and paying work to the Ministry of Finance (Department of External Finance), the Ministry of Labor, War Invalids and Social Affairs (Department for Management of Guest Workers), the local Tax Agency and the Agency for Social Insurance of Vietnam.
- Every year, the economic organization shall make the following reports:
+ A report on the plan for the next year to be compiled on the basis of the implementation of the first nine months of the current year, with breakdowns in the number of laborers (male and female), professions, countries of work, tenures of work, projected salary levels, projected time for departure specified in each contract, etc.. The planning reports shall also make recommendations to the competent authorities in the field of cooperative labor.
+ A report on the implementation of the yearly plan in terms of labor and payment collection.
The said annual reports shall be addressed to the Ministry of Labor, War Invalids and Social Affairs (Department for Management of Guest Workers), the Ministry of Finance (Department of External Finance), the Agency for Social Insurance of Vietnam and the local Tax Agency. The timing of the hand-over of the reports shall comply with the current provisions of the State.
3. The observance of the above-prescribed reporting regime is an obligation and responsibility of the economic organization in implementation of Point 10, Item 9, of Decree No.07-CP of January 20, 1995, of the Government, and is one of the conditions to grant a new the license to the economic organization to send laborers for tenured work overseas.
B. OTHER PROVISIONS
1. In order to ensure the rights and interests of the State, the economic organization and the laborers and to ensure the uniformity of the implementation of the financial regime, the salary of the laborer as specified in the labor contract shall be in terms of US dollar (USD) or other freely convertible currencies. For each case, the payment may be done in one of the following manners:
- For the monthly salary, the currency shall be agreed upon by the two parties to the contract, but it must be in USD term by the exchange rate publicized by the State Bank of the country of work at the point of the payment.
- If the salary is paid in a local currency, the contract should contain a provision whereby the laborer shall have the right to request the State Bank of the country of work or the employer to exchange it into USD in full amount or to cover his/her expenses in the country of work.
2. The currencies to be used in payment and collection:
- The deposit placed by the laborer may be in Vietnam Dong or US dollar (USD), depending on the mutual agreement between the economic organization and the laborer.
- All payments of social insurance (as specified in Item II) and of permit fees (as specified in Item V) shall be in Vietnam Dong.
- All service fees (as specified in Item III) and high-income tax (as specified in Item IV) shall be in US dollar, namely:
Converting the amount of tax in Vietnam Dong that the laborer shall pay for his/her high income into USD (by the same exchange rate between the USD and the Vietnam Dong applied in calculating the tax) and the laborer shall make the payment in USD.
In collecting the high income tax as well as service fees in foreign currencies, the economic organization shall proceed from the practical situation of how the salary is paid: if the salary is paid 100% in USD, the payment shall then be made in USD; if it is paid partly in the local currency, the payment shall then be made in two currencies (USD and local currency proportional to the amount of local currency in the monthly salary). The economic organization shall remit the payment in USD for high income tax to the collecting agency in the country and remit the amount in local currency to the resident Vietnamese Embassy for temporary keeping in the State budget fund. The commission that the economic organization is entitled to in collecting high-income tax shall be in the actually collected currency.
3. The economic organizations which send Vietnamese laborers overseas for work in the form of bidding, project contract and production sharing, etc., shall apply the following financial regime:
- If the laborer is paid in a foreign currency during his/her work stay overseas in the same manner as the contract signed with an economic organization (exported labor), the provisions of this Circular shall apply.
- If during his/her stay for work abroad the laborer is paid with only allowances (for food, accommodation, etc., adequately only for him/her to work) while his/her partial salary and other financial regimes are administered in accordance with the Vietnamese Law on Domestic Enterprises, the laborer and the economic organization shall apply the Law on State Enterprises of Vietnam.
1. This Circular takes effect as from January 1st, 1996; the provisions on high-income tax apply as from June 1st, 1994. The Inter-ministerial Circular No.05-LB/TC/LDTBXH of March 7, 1992 providing guidance for the implementation of Decree No.370-HDBT, the Note No.2599-LDTBXH of July 25, 1995 of the Ministry of Labor, War Invalids and Social Affairs providing guidance for sending laborers to the Republic of Korea, and the other documents which are contrary to this Circular are now annulled.
As regards the financial regimes for laborers who are on tenured work overseas, which took effect prior to January 1st, 1996, if in inplementing this Circular the economic organization fails to handle their cases in a timely manner, it has to report to the concerned ministries for guidance in settling each particular case.
2. Monitoring and inspecting the implementation of the financial regimes in sending laborers for work overseas as stipulated in this Circular is one of the important tasks of the concerned Ministries and branches in the sphere of State management. In the course of implementation, if a violation is detected, it shall be handled in accordance with the current financial and accounting regulations of the Vietnamese State, or shall be subject to administrative sanctions, depending on the degree and character of the violation to request an early termination of the contract, or a suspension or revocation of the license.
3. In the course of implementation should any problem arise, the ministries, branches and economic organizations and localities should report to the Ministry of Finance and the Ministry of Labor, War Invalids and Social Affairs for joint consideration and solution.-
For the Minister of Labor, War Invalids and Social Affairs
NGUYEN LUONG TRAO
For the Minister of Finance
PHAM VAN TRONG
Pham Van Trong
Nguyen Luong Trao