Hire in Vietnam with Confidence

Any business hiring in Vietnam should understand the important legal distinction between who classifies as an independent contractor and who can be hired as an employee. Fines or penalties may be issued to businesses hiring independent contractors under the guise of employment. 

Understanding the distinctions between employees (nhân viên) and independent contractors (nhà thầu độc lập) is critical to compliantly engaging workers in Vietnam. It is important to work with a partner like Worksuite to ensure you put in place an engagement framework that accurately classifies freelancers as independent contractors for you and lets you know when freelance talent must be engaged as an independent contractor or employed directly.

This is critical to compliantly engaging workers in Vietnam and thereby avoiding severe legal, financial, and other penalties.

Vietnamese law does not explicitly differentiate an employee from an independent contractor. However, the Vietnamese Labor Code defines an employee as someone who works directly for an employer under an employment contract, and is supervised and paid by that employer. Relations with independent contractors, who do not work under direct supervision, are instead covered by the Civil Code, with the contractor working under a service contract.

The determination of whether an individual is an employee is based on various factors. If the real substance of the relationship between the individual and the hiring company proves to effectively be an employment relationship, the hiring company may suffer legal and financial penalties (including payroll taxes) for having misclassified the individual. It is therefore important to leverage an employment service partner like Worksuite when hiring in Vietnam in order to ensure that independent contractors fall under the correct working relationship with your business.

Who is an Independent Contractor?

As in many countries, the primary factor in determining whether someone is an employee or an independent contractor in Vietnam is the degree of subordination. However, in reality, this can be difficult to determine, and therefore each case will be considered holistically based on a variety of relevant factors. Individuals are generally considered to be independent contractors if they:

• Are subject to relatively little control by the hiring company, which means they are free to decide when, where, and how they complete their tasks.
• Do not have fixed hours of work that are determined by the hiring company.
• Are able to choose the location from which to undertake their work.
• Provide their own equipment rather than receiving it from the hiring company.
• Are not integrated into the hiring company’s organizational structure.
• Are paid for a specific project or task rather than on a recurring basis.
• Can refuse to perform a task (unless that task is part of their contract).
• Work for multiple clients at the same time or in parallel.
• Are not entitled to a minimum amount of work or a minimum amount of pay.
• Are not listed on the hiring company’s normal payroll.

There are three main categories under which independent contractors operate in Vietnam: 

• Sole Proprietorship (Quyền Sở Hữu Duy Nhất): As in many countries, this is a popular option due to the low administrative setup costs. The owner of the proprietorship assumes complete legal and financial risks for all business activities. Individuals can establish a sole proprietorship by submitting the relevant documents (including business name, address, capital investment, and tax registration information) via the National Business Registration Portal or via post to a Business Registration Office. Tax codes can be obtained online.
• Limited Liability Company (Công Ty Trách Nhiệm Hữu Hạn) (LLC): An LLC requires at least one shareholder and at least one director, with the owner’s liability being limited to the amount of paid-up capital. The general process for establishing and registering an LLC is the same as for a Sole Proprietorship. The name for the LLC must include công ty trách nhiệm hữu hạn or the abbreviated format công ty TNHH.
• Joint Stock Company (Công Ty Cổ Phần) (JSC): This is a publicly-traded company with at least three shareholders and no maximum. The general process for establishing and registering a JSC is the same as for a Sole Proprietorship. The name for the LLC must include công ty cổ phần or the abbreviated format công ty CP.

There are two main types of contracting model for working with independent contractors in Vietnam.

A. Direct engagement of the contractor as self-employed or registered via their own company. Under this model, the hiring company engages directly with the independent contractor – either as an individual sole trader or as a limited company (see above) – and establishes a direct contract for the provision of services. The hiring company then pays the independent contractor directly in accordance with the terms of the contract.

B. Third party. These firms come in two forms, and both are specially designed to vet and engage freelancers compliantly as either contract employees or independent contractors on your behalf.

• Temp agency: Here, the hiring company engages with a staffing agency, which in turn supplies one of its own independent contractors to deliver the contracted services. The hiring company pays the staffing agency directly in accordance with the terms of the contract. The contract is, therefore, between the hiring company and the staffing agency, while the agency pays the independent contractor through a separate contractual arrangement.
• Umbrella company: Independent contractors can also work through an umbrella company. This turns a ‘self-employed’ individual into a legal ‘employee’ of the umbrella company itself. The contractual relationship is between the umbrella company and the client, with the umbrella company running payroll and administration for the independent contractor. The umbrella company invoices the client directly, while paying the contractor via PAYE as a standard employee. Umbrella companies levy a fee on the contractor to cover their costs.
• Hiring partner: The hiring company can also work with a hiring partner who helps them vet potential independent contractors, set up contracts, ensure the contractor is properly classified, onboard and manage contractors, and pay contractors. 

Companies hiring independent contractors in Vietnam should avoid making payments directly through their payroll system. Beyond these guidelines, there are no specific legal requirements related to paying contractors in Vietnam. The contract should stipulate the preferred payment method agreed upon by both parties.

Employees are subject to personal income tax which is withheld at source by an employer via the PAYE system. This means there is typically no requirement to file additional tax documents. 

The tax year aligns with the calendar year (1 January to 31 December). Employers deduct employees’ income tax, social security, and public health insurance at source via the PAYE (pay-as-you-earn) system. Vietnam has a progressive tax rate, ranging from 5% on incomes of up to VND 60 million per month (USD 2,435), to 35% on incomes above VND 960 million (USD 38,953).

Payers do not withhold taxes or other deductions from contractors’ payments, and there are no specific reporting requirements in relation to paying contractors. Independent contractors must also file and pay their own income taxes. Contractors are subject to the standard corporate income tax (CIT) rate of 20%. CIT is paid provisionally on a quarterly basis, with final annual taxes being filed and paid by the end of the third month after the financial year, which is typically 31 March. As a business, contractors are also subject to VAT which ranges from 0-10% depending on the type of business activities.

Employers and employees make mandatory contributions to the national social, health and unemployment insurance fund. For social security, employees contribute 8%, while employers contribute 17.5%. For health insurance, employees contribute 1.5%, while employees contribute 3%. For unemployment insurance, both parties contribute 1%. Contractors are also required to pay social security contributions (called “self-employment tax”) and must pay VAT, which is filed on a monthly basis and is paid within 20 days following the month’s end. Contractors file their income taxes (including VAT) by completing a Section C form, and file social security taxes using a Section SE form (both are available here). Income taxes and social security taxes for independent contractors can be paid via the Electronic Federal Tax Payment System (EFTPS).