Vietnam ready to slap compulsory social insurance tax on expats

Vietnam's labor ministry has announced that it is going ahead with a controversial provision requiring expat workers in Vietnam to make social insurance payments, raising concerns among foreign workers and businesses regarding aggravated costs.

Tran Thanh Nam, deputy head of the ministry’s Department for Social Insurance, said a draft decree for the new provision of the 2014 Law on Social Insurance has been sent to the government, and is expected to be ratified in about a month.

The decree states that only foreign workers with labor contracts of at least a year in Vietnam are subject to the compulsory social insurance plan, said Nam, as reported by Vietnam News.

“This group, however, excludes foreign workers who are temporarily transferred to work in Vietnam from overseas parent companies, regardless of whether they have labor contracts or not,” he said.

The social insurance package covers sickness, maternity leave, occupational accidents, retirement and death, with employers required to pay 17.5 percent of an employee’s monthly salary and employees to pay eight percent of their own, he said.

News about the upcoming draft decree has raised considerable concerns among foreign enterprises due to potentially higher employment costs.

Keisuke Taniguchi, a representative from the Japan Business Association in Vietnam, said the new regulation could discourage prospective businesses, considering how labor costs in Vietnam are on the rise.

“Small- and medium-sized enterprises which contribute to the development of supporting industry are sensitive to labor costs. They may hold down investment in Vietnam or reduce the number of foreign experts who transfer technical skill to Vietnamese employees,” he said, as cited by Vietnam News.

Nam from the labor ministry yet said such concerns are irrelevant.

“Under the current labor law, even for the employees who are not subject to compulsory social insurance, employers are still required to pay them an amount equivalent to the social insurance premium in their monthly salary so that they can join social insurance scheme by themselves,” he said.

The law’s provision can be traced back to last year, when Vietnam's labor ministry announced a new rule that would require foreign workers to pay social insurance. The move was not received well by expat workers in Vietnam, who said it was "irrational" since some already contribute to social insurance in their home countries, effectively making them pay the same fee twice.

German Bkay M Adam, who works for a multinational firm based in Hanoi, questioned the relevance of the perks, saying: “Like many other expatriates, I already have adequate medical coverage from my company. Thus, for me, it makes no sense to pay the insurance. I would rather keep the money than pay it to the local government.”

Some experts are also worried that the new regulation will force companies to spend more on foreign laborers, making Vietnam’s business environment less competitive.

The new provision for the social insurance law was originally scheduled to go into effect on January 1, 2018, the same date when tariffs for cars imported from ASEAN countries into Vietnam got eliminated under the ASEAN Trade In Goods Agreement.

The number of expats living and working in Vietnam has increased to nearly 84,000 in 2017 from over 12,600 in 2004. Their average income for dropped by 14.5 percent from the previous year to $88,096 in 2017, according to a HSBC survey in September last year.